- By ending direct-store delivery for its snacks division, Kellogg executives said last week that the company intends to redirect resources and efforts to direct-to-consumer marketing to increase support of e-commerce, according to an article in Supermarket News. Kellogg has reported that its U.S. e-commerce sales grew by 70% in its most recent quarter and its global experience suggests it can capture more share through click-and-collect programs than in stores.
- In the presentation, Kellogg's U.S. Snacks President Deanie Elsner said it was time to end the supply-chain strategy, noting the durable center-store products didn't move quickly enough to require special handling. She also said sophisticated in-store warehousing and pricing methods made direct-store delivery more of a challenge. Most importantly, she said, direct-store distribution doesn't address customers who buy products online.
- “We're rapidly approaching the situation where over half our sales in China are direct to consumer. We have markets in Europe with over 10% of our sales going to click-and-collect-type programs or buy online, pick-up-in-store programs. And while e-commerce in the U.S. is only around 2% of the food industry, it is growing significantly,” CEO John Bryant stated during a company presentation last week.
What this change essentially means for Kellogg is a greater focus on digital and direct-to-consumer marketing to encourage consumers to buy snack products, whether in-store or via e-commerce channels — which includes a growing number of retailer click-and-collect programs and home delivery services like Instacart, and direct orders through sites like Amazon.
The transition away from a DSD model self-admittedly was a bit rocky. In the Supermarket News report, Elsner called August an “ugly period” for the transition, as many retailers had yet to make adjustments to the new shelf setup in stores. As part of the transition, Kellogg cut back on SKUs, maintaining only the most profitable and high-turning items in stores. It’s pulling back on some in-store merchandising efforts to focus mostly on primary displays. And it’s adjusted list prices, so many in-store prices will now be a bit higher.
More efforts and resources will now be devoted to brand-building and targeted marketing efforts — including a big emphasis on digital. The company intends 65% of its marketing spend to be directed to digital and social media, taking some steps to capture the share of grocery spending that is increasingly influenced by digital and quickly moving online. It’s expected that 20% of all grocery sales, representing around $100 billion, will come from online shoppers by 2025, according to data from the Food Marketing Institute and Nielsen. A recent Packaged Facts study projects Amazon’s grocery sales will experience double-digit growth for the foreseeable future and could top $30 billion by 2025.
Kellogg isn’t alone in transitioning away from traditional marketing and retail channels to focus more on digital and e-commerce. Campbell Soup has been bulking up its online business, which currently represents about 1.2% of total U.S. sales. It hired a former Amazon and eBay executive into a newly created role that oversees digital and e-commerce initiatives. It invested in e-commerce meal kit company Chef'd to not only give it another way to sell products, but also gain access to valuable insight on customer shopping patterns and purchasing decisions. The company has also created more than a dozen Amazon Dash buttons for its products — including its namesake soup, V8 juice, Plum Organics baby food, Milano cookies and Goldfish snacks.
As Kellogg moves forward with its transition, it could heed the advice of Campbell’s Mark Alexander, who oversees its U.S. retail operations. Alexander recently told Food Dive: "Is shopping and food procurement going to move away from traditional methods into new methods of acquiring food? No question. What's less certain is exactly which services, which types of ways of buying food that people are going to prefer. We want to have experiments happening. We want to be building capabilities so that we can get after those growth pockets as they arise."