Consumer packaged goods (CPG) companies looking to gain a position for future growth and the control of e-commerce need to embrace a digital approach and plan for what some are calling a “1-5-10” market.
According to a new report, companies should plan for a US market in 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,” hence the 1-5-10 approach.
The Boston Consulting Group (BCG), Google and Information Resources, Inc. (IRI) prepared the report, The Digital Future: A game plan for consumer packaged goods, for the Grocery Manufacturers Association (GMA).
The report highlights how CPG companies can position themselves for growth and unlock digital and e-commerce opportunities.
According to the researchers, companies that do not incorporate a digital-first strategy run the risk of stagnation, loss of share and shrinking sales.
But by embracing a digital approach early, companies can leverage an opportunity to establish leading positions that later will prove difficult for others to overtake.
Digital penetration of 5 percent will represent nearly one-half of total CPG growth during the next five years, meaning companies without an effective digital capability run the risk of stagnation, loss of share and even shrinking sales.
Researchers say digital penetration rates will vary by location and category, with some categories seeing as much as 30 percent penetration by 2018.
“Like most other industries, the CPG industry is experiencing the signs of digital disruption,” says Elise Fennig, vice president of industry affairs for GMA. “That’s why it was vitally important for GMA to examine how CPG companies can holistically adapt their digital and e-commerce agendas to plan for the future effectively. We intend for the work by the BCG, IRI and Google team to be a go-to resource for GMA members—regardless of where they fall on the digital maturity continuum today.”
Patrick Hadlock, a partner at BCG and coauthor of the report, says there will be a digital tipping point as trends continue to converge.
“Consumers are embracing technologies, devices and services that make everyday tasks such as shopping, cooking and even commuting quicker, easier, more fun and more efficient,” Hadlock says. “This is fragmenting the purchasing pathway as consumers regularly switch back and forth between digital and physical channels, and they interact digitally both inside and outside of stores.”
Researchers say digital channels carry the most influence on purchases of home care and general food products, but their importance is primed to expand during the next five years as the market moves to a 1-5-10 world.
Consequently, traditional retailers should prepare for an influx of new competitors as technology companies build digital grocery businesses to support their strategic goals.
In the future, the mere existence of a website, digital advertising and social media will not be enough to fully embrace a digital approach.
Analysts say CPG manufacturers will need to participate in multiple retail models, though the right models are yet to emerge.
“The cost of inaction for incumbent manufacturers is ceding control of their brands, share position and margins in the fast-growing digital channel,” says Jamil Satchu, a partner at IRI Global Analytics and Consulting and a coauthor of the report. “Companies that do not play in the digital game are likely looking at flat or shrinking sales. Brand equity is at risk as the purchasing pathway shifts online, and consumers more often search for and discover brands digitally. But the experience of other sectors demonstrates that early movers often establish tough-to-trump positions and advantages.”
The entire report can be downloaded here.