Industry view: CPG futures online - beware the drones
By John Lawrence, business development director, SGK Europe | 2 June 2014
Innovative delivery methods to open doors for CPG direct delivery
With CPG sales migrating online, innovative delivery methods being developed by the likes of Amazon will have profound implications for food manufacturers, SGK Europe's John Lawrence suggests.
It wasn't very long ago at all that ordering food or general household items online was considered out of the ordinary. It is clear that both newcomers and mass production CPG organisations across categories are developing distinctive e-commerce propositions led by ever more innovative delivery solutions to drive up brand profitability.
Amazon's Prime Air Zone Technology has certainly caught the attention of the superpowers of the CPG world, while Google and Facebook are not far behind with their proposals to bring drones to the sky. Any suggestion that ignoring the potential of Amazon's vision as something that would not impact CPGs would be misguided.
Amazon describes its drone technology Prime Air as "a new delivery system that will get packages into customers hands in 30 minutes or less using unmanned aerial vehicles".
Amazon provides a sophisticated direct route to new market entrants and it is this threat that must be countered for the most well-established brands to continue to thrive.
Transformative and competitive advantages exist for food companies in all categories, led by consumer understanding and confidence in the world of e-commerce.
The latest statistics suggest that there is a potential e-commerce user population of over 518m in Europe alone, with 60% of those individuals currently shopping online. If you are a global food manufacturer you may want to consider the 2.5bn audience possibility - Asia of course leading the way.
Digitally-led brand awareness that currently drives both initial purchase and repeat business through retail intermediaries is simply a stepping stone to direct click and delivery.
Online enabled marketplaces have seen significant growth that has been much publicised over the decade. And yet, direct commerce in the food sector has only now begun to gain traction as delivery mechanisms develop to offer a speedy response following an order.
Just as shopping online through retailers was previously seen as niche, it seems probable that in just two to three years, direct commerce for food items can be in place with delivery times of under one hour.
To successfully capitalise on the opportunity there are a number of critical steps that CPG's should take, which include a clear and understood digital strategy, designing packaging that is effective online and can withstand the rigors of delivery, innovation and collaboration with specialists over delivery mechanisms, as well as embracing change in the packaging world by utilising new technologies such as digital print.
While food multinationals have spent - and continue to spend - millions creating digital marketing campaigns all with a focus on engagement, there remains little opportunity to facilitate direct and immediate purchase based on impulse in the same way brands thrive in physical environments. Many food products are convenience or impulse based, so the greatest risk lies in not fulfilling a need to communicate in a different way through product packaging.
In addition to this, it's important to consider how the latest delivery mechanism will impact how those products are protected and shipped. The cost of shipping, premium prices and especially the wait go some way to disincentivising the shopper.
Innovative food sector and delivery collaborations remain critical to success. Immediate purchase will drive greater loyalty and brand desirability with far fewer distractions on the way to purchase than are currently experienced in-store. Immediate does need to mean immediate to create a compelling reason for direct purchase away from a typical physical retail shopping experience.
Without wanting to go all 'Orwellian' on everyone it would be a fair assumption that some CPG categories and brands will fare better in this new online environment than others. Some organisations will have far greater ability to create their own fulfilment and delivery solutions. These leaders will, however, make it easier for all in the future.
So what about when it comes to the fresh food market? The potential of this market is described as the "last blue ocean", but it will be a difficult one to crack. This is due to a lack of standardisation, high logistics costs, the perishable nature of the products and the high levels of spoilage during transportation.
Earlier last year, we saw Amazon extend its Amazon Fresh service, which offers fresh food overnight home deliveries, to Los Angeles and San Francisco. Since 2007, the service has also been available in Seattle. And we're seeing signs of Amazon's entry into the fresh food market in Europe, where only a couple of months ago it announced a partnership with a UK-based Mexican grocer to offer its British customers a taste of Mexico.
The gap between shoppers utilising digital and social media as a form of research and actually buying perishables remains wide. Nonetheless, the more innovative of the CPG world recognise this gap to be closing rapidly. If companies are prepared to overcome their fears of fulfilment and shipping the ‘buy button' is an easy fix - a defined and clickable path to purchase with natural evolution. There is a huge audience already in place to benefit from these initiatives and an even larger indifferent group that can be persuaded by a compelling proposition that the likes of Amazon, eBay and Taobao (Alibaba Group) are likely to find too appealing to resist.
The future of e-commerce and the food sector are very much interlinked and will become a new driver for brand profitability in retail. Their evolution will be driven by the forward-looking companies.
Direct e-commerce has the potential to become invaluable to CPG's across Europe and the world - both well-established and new entrants. I believe we must look to the Asian market - the new leader in the digital market place - as they are most likely to drive this new world forward and I for one look forward to my first drone delivery.
Sectors: Baby food, Bakery, Canned food, Cereal, Chilled foods, Commodities & ingredients, Condiments, dressings & sauces, Confectionery, Dairy, Dried foods, Emerging markets, Fresh produce, Frozen, Ice cream, Meat & poultry, Multichannel, Natural & organic, NPD & innovation, Retail, Seafood, Snacks, World foods
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