In 2015, e-commerce consumer packaged goods (CPG) sales grew 42 percent ahead of overall growth in e-commerce, with the industry’s boom driven largely by online retail, including Amazon subscription sales, which more than tripled.
But despite the overall success of the CPG market, which is predicted to reach $36 billion by 2018, the sales figures tell a bigger story. Between 2011 and 2015, $18 billion in market share shifted away from large CPG companies to smaller players. And in 2015, 90 percent of the top 100 CPG brands lost market share, with 62 of them experiencing declining sales.
As big CPG brands are growing slower than the industry at large, the market is instead being led by smaller brands, with whom the giants are struggling to compete. While the industry has always been very competitive due to high market saturation and low consumer switching costs, the competition is even more intensified online. This is because online retailers have created an even playing field, where brands of all sizes can compete equally for the same customers. On Amazon, advertising space is virtually unlimited, meaning that more advertisers are competing for attention. This offers brands endless “shelf-space,” allowing smaller brands to compete with their larger competitors right at the point of sale.
Let’s look at the US diaper market as an example, where P&G (44 percent market share) has long been locked in a battle with Kimberly-Clark (37 percent market share). Now, their Pampers and Huggies brands are facing competition from smaller players like Bemax, a distributor of private label disposable diapers, which has plans to launch on Amazon this month. While Bemax is a relatively small company (having brought in $538,738 in 2015), it represents the larger threat e-commerce poses: opening the doors for challenger brands to outdo the likes of Huggies and Pampers by undercutting them on price.
Moreover, online retailers serve to disintermediate brands, owning customer data and relationships. (And that’s not even mentioning the fact that Amazon is starting to steal market share with its own private label CPG brands such as Mama Bear baby products.)
If big CPG brands want to avoid fighting a price war on Amazon and retain market share, they must seek our direct access to their customers via owned direct-to-consumer (DTC) channels. Some brands have found that by selling directly to consumers, they’re able to control the customer experience, build stronger relationships and collect valuable customer data that leads to powerful insights for product innovation, as well as for the personalized shopping experiences more and more consumers are beginning to demand from brands.
As part of this DTC strategy, CPG brands have an opportunity to digitize their physical products, turning them into new sales channels and creating a smarter product-as-a-service model. Considering that one of the major differences between big CPG players and their smaller counterparts is the sheer volume of products they put out into the market every day, this product digitization presents a huge competitive advantage.
Moreover, by taking control of each physical product pack as smart, digital media, CPG brands can unlock new value throughout the entire product lifecycle, using real-time data to build an IoT ecosystem around their products and power applications that transform everything from their supply chains to their sales, marketing and customer relationships.
As CPG brands look to regain market share and win out online, they need to create a direct link to customers to gather consumer behavior data, open up cross and upsell opportunities, and build long-term, higher value relationships. If big brands want to worry less about disruption from the smaller, digitally native players, it’s time to get smart about DTC.
Adam Gold is VP, Enterprise Solutions, CPG at EVRYTHNG.
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