Food and beverage executives are calling e-commerce a "revolution," that will be a critical growth driver for the industry. And it's an industry that needs growth as it grapples with dramatic declines in categories like cereal and soda.
Analysts and industry insiders agree the revolution will be measured in billions of dollars — significant and challenging to the mostly traditional food and beverage industry, which is not the quickest adapter to technology. The initial investments, while daunting, will ultimately position food and beverage for sustained growth in the e-commerce arena.
The food and beverage industry holds a weak position compared to the rest of the e-commerce market. According to eMarketer, food and beverage is only projected to hit 2.4% of the overall e-commerce market this year, inching up to 2.5% by 2016 and through 2018. Food and beverage e-commerce sales are expected to reach $12 billion by 2018.
"I think it’s not necessarily mission critical for them today," Matt Pierre, General Mills' director of e-commerce, told Food Dive. "I think in the near future it'll be mission critical."
General Mills competitor Mondelez is in mission critical mode already and wants its e-commerce business to snag a booming $1 billion by 2020, 10 times the $100 million it is currently doing. General Mills declined to give a comparable dollar amount. E-commerce, then, is vital to both — considering over the last five years, the top 25 U.S. food and beverage companies have lost $18 billion in market share, reports Fortune.
What the industry can do right now to prep for the future
Mondelez's e-commerce strategy comes down to three pillars:
Sell more by optimizing [its] existing platforms (e.g. adding "buy now" buttons)
Sell differently by building an advantaged next-generation portfolio
Sell differently by looking at alternative business models and translate the consumer impulse driving snack purchases to the online realm.
Manufacturers have options when it comes to e-commerce approaches. According to Pierre, typical CPG moves are:
Spending time and energy directly targeting consumers and selling products online
Work and partner with retailers to sell more products through their models and consumer relationships
General Mills is focused on the latter and it is also a goal for Mondelez.
"For example, we're building relationships with several key retailers to develop customized programs that fit their formats and our portfolio," Cindy Chen, Mondelez's global head of e-commerce, said in an email.
But is e-commerce the be-all-end-all?
"While e-commerce will be an increasingly critical part of the food and beverage industry and their growth, realistically, it’s a small piece of the overall pie," said Josh Goldman, the global leader of digital shopping measurement at Nielsen. "To be successful, businesses should be focusing on their connected commerce strategy – how do all of the pieces fit together?"
Still, retailers and manufacturers that have yet to jump into e-commerce are missing a lucrative opportunity.
Why adoption is slow
It's a category with obvious barriers; freshness and shelf stability. As Diana Smith, a senior research analyst of retail and apparel at Mintel, pointed out, this isn't apparel. Shirts and pants do not have an expiration date.
Coffee and energy bars have been popular e-commerce items, according to Goldman. This makes sense, because of the shelf life. Hershey is testing its Ice Breakers, another longer shelf life product and traditionally an impulse buy, with Amazon Dash.
"It's a trend that's growing slowly," Goldman said.
Slow growth or not, retailers and manufacturers attest that it is an important avenue to explore.
"I think we're starting to see the food side of the equation really pick up now," said Pierre. "And I think It's a combination of consumers are ready ... retailers and a lot of the brick-and-mortar retailers in this industry have been, I would say, relatively cautious about dramatically entering this game because of the margin implications and the higher costs served."
The early adopters
Smith mentioned General Mills as a good example for food manufacturers delving into e-commerce, particularly making products like LaraBar available on Amazon Dash.
General Mills' online sales make up about 1% to 2% of its total sales, Shawn O’Grady, General Mills' president of sales and channel development, said on a recent earnings call. Projections in the next few years have that number ticking up to 5% to 6%.
"So it's pretty clear that we're going to move in that direction very rapidly in the U.S.," said CEO Ken Powell. "And this is an area that we're investing in at General Mills to develop our capability, and make sure that we can be leaders and great partners for all of our customers who have a lot of interest in this."
The American consumer of 2020, according to Packaged Facts, will be doing more e-commerce shopping.
"It’s estimated that by 2020, between 3 and 10% of total CPG sales will come from e-commerce," Chen said. "And as a leading CGP, we want to play an important role into e-commerce. Our goal is to develop and build an industry-leading e-commerce snacks business."
PepsiCo is still in the early stages of its e-commerce business, though the company recently hired a new head for it — Gibu Thomas, Wal-Mart's former head of mobile and digital.
"E-commerce is shaping up to be the next great revolution in the food and beverage industry," PepsiCo CEO Indra Nooyi said in May.
The key to success in e-commerce for food and beverage manufacturers is being one step ahead, and early adopters will stand out to consumers.
"I think anytime you have an inflection point in an industry in a pretty established industry like grocery, I think it gives brands and it gives companies opportunities to drive an advantage if they can get out early and think about it differently," Pierre said. "I think our hope is can we get to a better position online than what we have in store."
Mondelez, for example, has made efforts like creating buy buttons for shoppable ads. It also has a new campaign that lets consumers customize Oreo packaging, Oreo Colorfilled, timed well with the holidays. Chen said it's the company’s first direct to consumer initiative. Anheuser-Busch InBev's Bud Light brand is venturing into e-commerce with a new smart refrigerator.
"There is no denying that it is one of the big trends to keep an eye on," said Goldman.
According to Smith, the pressure is on, going so far as to call e-commerce not a trend, but an expectation — especially when talking about millennials.
"[Younger consumers] definitely are going to be the first to shop online and through other forms of technology. If that's not available, then it’s very likely that they'll shun the brand and go to a different brand."
According to a Mintel report, only 42% of internet users and primary grocery shoppers older than 18 have any interest in shopping online for groceries
The decline of CPG companies' market share remains an area of industry concern, particularly as smaller companies threaten.
"The investment bank Jefferies reports that the [major] brands lost market share in 42 of 54 categories, from baby food to yogurt, over the last five years as new products gained," reports The New York Times.
E-commerce efforts signal the industry's push to gain back that market share, even though the payoff will take longer. If brands like Mondelez, General Mills, and now PepsiCo are generating e-commerce buzz, others will follow suit well into 2016 and beyond.