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CPG Companies Urged to Prepare for a “1-5-10” Digital Future

Consumer packaged goods (CPG) companies need to plan for a “1-5-10” market in the United States during the next five years, in which digital’s current 1 percent penetration will likely expand to 5 percent and could accelerate to as much as 10 percent in short order. The source is a new report, The Digital Future: A Game Plan for Consumer Packaged Goods, prepared for the Grocery Manufacturers Association (GMA) by The Boston Consulting Group (BCG), Google, and Information Resources, Inc. (IRI).

By Patrick Henry
Published: September 12, 2014

Consumer packaged goods (CPG) companies need to plan for a “1-5-10” market in the United States during the next five years, in which digital’s current 1 percent penetration will likely expand to 5 percent and could accelerate to as much as 10 percent in short order. The source is a new report, The Digital Future: A Game Plan for Consumer Packaged Goods, prepared for the Grocery Manufacturers Association (GMA) by The Boston Consulting Group (BCG), Google, and Information Resources, Inc. (IRI).

Because digital penetration of 5 percent will represent nearly one-half of total CPG growth during the next five years, says the report, companies without an effective digital capability risk stagnation, loss of share, and even shrinking sales. Digital penetration rates will vary in different locations and categories. Some categories could see digital penetration of 30 percent or more by 2018.

Sectors that have already experienced the kind of penetration the report describes include diapers, where digital has grabbed more than a 10 percent share. Led by 1-800-Flowers, the cut-flowers market has achieved an online penetration of 15 percent by providing digital options that offer a better shopping experience for customers.

The report speculates that shelf-stable categories such as health and beauty, in which consumers can “set and forget” their shopping lists by using online subscription services, could see digital penetration of 30 percent or more over the next five years, especially in dense urban markets.

According to the report, the most likely sector-wide scenario is for e-commerce in the U.S. to average 5 percent of the mix by 2018, or more than $35 billion in annual sales. At 5 percent, e-commerce will make up nearly one-half of the total growth in the sector for the next five years. The share also would be very close the “tipping point” at which growth in other categories has accelerated, often jumping from 5 percent to 20 percent or more in just a few years as digital models are perfected.

All is being driven by technologies that let consumers replace their old-fashioned, brick-and-mortar shopping excursions with “a continuous stream of purchases transacted in real time” on electronic devices. For example, Amazon Dash, a combination digital recorder and barcode scanner, connects to a home Wi-Fi network and works directly with the customer’s AmazonFresh account. The user speaks or scans items into the device, then uses his or her PC or mobile device to make the purchase and schedule delivery.

“It’s illogical to think that consumers will continue to shop for the same goods in the same ways as they always have, visiting the grocery store, drugstore, or mass-market retailer multiple times each week,” says the report, written by a team of eight experts from the sponsoring organizations. “They are embracing technologies, devices, and services that…marry disparate services such as menu planning, ordering, and delivery in ways that even the service providers had not anticipated.”

CPG companies unable or unwilling to accommodate the disruption will face flat or shrinking sales as well as risk to brand equity. And while most of its recommendations are aimed at CPG companies and their channel partners, the report also contains some insights for packagers.

It notes, for example, that digital commerce generates forward-looking demand signals before the sale, such as products added to wish lists on users' mobile phones. Fast-moving SKUs in this demand stream will require “e-friendly” packaging that is economical, logistically advantaged (lightweight, leak proof, damage proof, and shaped to fit a rectangular shipping box), as well as consumer friendly.

 

Patrick Henry, Executive Editor for WhatTheyThink.com is also the director of Liberty or Death Communications, a consultancy specializing in research, education, promotional, and editorial support services for the printing and publishing industries.

Patrick Henry is available for speaking engagements and consulting projects. To get more information contact us here.

Please offer your feedback to Patrick. He can be reached at patrick.henry@whattheythink.com.

 

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Label & Packaging Editor

Jennifer Matt

Patrick Henry, Section Editor
Pat has covered graphic communications for nearly 30 years as a reporter, an editor, and a commentator.

 

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