E-Commerce Strategies for the Supply Chain Era

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E-Commerce Strategies for the Supply Chain Era

By Dan Ochwat - 03/20/2019

In November 2018, Profitero’s Keith Anderson ran an e-commerce workshop in Chicago (the first of a branded “eCommerce Academy” with the Path to Purchase Institute) during which he proclaimed: “2019 needs to be the beginning of the supply chain era.” To his delight, entering the new year, he saw action being taken.

In January, Procter & Gamble announced DS3, a lineup of eight liquid-free cleaning products for the body and home, including a shampoo, hand wash, toilet cleaner and surface cleaner. The water-less swatch products are 80% lighter and take up 70% less space, which greatly reduces its environmental footprint and is more efficient for e-commerce.

About a month later, a coalition of high-profile CPGs teamed with recycling company TerraCycle to create TerraCycle Loop, an e-commerce platform that ships products in a reusable tote (as opposed to boxes) and inside reusable containers. A consumer at home gets her shampoo and, when finished, puts the empty bottle into the tote, schedules a pickup, and has that bottle cleaned out, refilled and redelivered.

Not to say brands and e-retailers haven’t thought about reducing waste and being more economical before – Amazon and others offer a later delivery date of goods to save on fuel, for example, and there’s Brandless.com – but Loop and DS3 are examples of bold, new ideas coming from CPGs to address the issue of sustainability and the economics of e-commerce.

This is an issue that Anderson and five other e-commerce thought leaders all stressed as important to the future of e-commerce. Here, they discuss “the supply chain era” and other key strategies.

Describe the state of e-commerce today and where it’s headed?

Chris Perry: E-commerce is approximately 18% of total global retail chain sales, with a conservative forecast to reach 25% by 2022, and this doesn’t factor in all of the unknowns driven by accelerated store closures and major retailer investments into e-commerce as we’re seeing with Walmart and Kroger, for example.

Steve Kinsey: The space is as exciting as ever. Consumer adoption is increasing. National omnichannel retailers are seeing strong results from the technological, organizational and infrastructure investments they’ve made in years past.

Neil Ackerman: Convenience, vast selection and competitive pricing have made e-commerce the most important transactional channel on the globe. Further, the very social nature of e-commerce transactions allows end-to-end, personalized, real-time influence across the population.

Anderson: Today, e-commerce is in the awkward adolescence, or in the fourth or fifth inning. From 2012 to present, it’s been, ‘Let’s learn by doing, let’s hire people, introduce them to technology and process, put a focus on search, content, the digital shelf,’ but where the puck is headed, in my opinion, is toward more sustainable unit economics – economically and environmentally.

Specific to online grocery, how would you say it’s doing?

Omar Haque: In the U.S., we are really at the nascent stages, where most brands have their sales in the low, single digits, but I think this is the real opportunity and where I expect most growth to come from.

Jim Morgan: Online grocery is on an accelerated path to industry saturation. Within the next decade, 70% of consumers will be grocery shopping online.

Where does e-commerce need to improve?

Anderson: On a unit basis, it can be less profitable to sell online and it can also be significantly more wasteful. You’re adding secondary packaging to minimize leaks or spills or to preserve freshness – all of those packaging considerations. You’re using a lot more carbon, getting the goods to and from people’s doorsteps, not only for the delivery but for the returns.

Morgan: You’re seeing brands fully aware of the unique challenges that come with selling online, everything from developing unique assortments to prevent price matching and channel conflicts to exploring online-specific packaging innovation to reduce shipping inefficiencies and increase margins however possible.

Ackerman: Traditional brands must rethink and transform not just the marketing cycle but the entire supply chain to focus on what personalization and customization means to their consumers today and in the future at a cost that is affordable and scalable for the shareholders.

As far as internal structures or alignment around e-commerce, has a key framework emerged?

Anderson: To be honest, it’s still a moving target. In brick-and-mortar retailing, there are scale-based advantages – bigger is better – but online there are structural disadvantages to being big.

Perry: The framework that I’ve seen be most successful has been creating a separate business unit focused on e-commerce acceleration with its own dedicated multi-functional support, and it’s own P&L and operating model.

Morgan: I’ve most commonly seen e-commerce sit as an extension of marketing or sales – occasionally as its own strategic pillar or business unit – with dedicated or dotted-line support from operations, finance and IT.

Perry: Companies need to organize behind e-commerce cross-functionally. It’s about enabling e-commerce evolution in talent, resources, innovation behind the Walmart team, the Kroger team, the Target team, the supply chain team and the packaging engineers, the finance and sales forecasting teams. Also, organizations need to implement an e-commerce leadership and talent development strategy internally. Many current e-commerce leaders feel alone and often discouraged as change catalysts.

Where do you see BOPIS (buy online, pick up in-store) or other alternatives going?

Haque: This is where I see the most growth. With already thin margins in grocery and retail, the last mile is extremely expensive, and if you can pass that cost to the shopper, it starts making a lot more sense.

Kinsey: Personally, I believe click-and-collect will be more industry changing. America is car dominant.

Morgan: I agree with Rakuten Intelligence, which predicts a future where 70% of orders are click-and-carry, and 30% are delivered. Delivery will dominate in cities where cars are more scarce. However, where gas is cheap and space is plentiful, BOPIS seems best positioned to reign supreme.

Perry: While I do believe BOPIS will grow, I do consider this to be a bridge or gateway drug of sorts for shoppers who need to grow more comfortable with the convenience before ultimately realizing even greater convenience from home delivery options, which will continue to grow in availability.

How seriously should direct-to-consumer be considered as a strategy?

Kinsey: For me, DTC will be in the future of almost every single product category and brand. It’s a matter of when, not if. DTC not only enables the CPG to deliver to a time-starved, convenience-hungry, digitally savvy consumer, it also provides them with valuable first-person data.

Morgan: It would be much better utilized as part of a larger marketing or data initiative. For example, Bear Naked allows you to create your own granola mix from 50 different ingredients with help from IBM Watson to ensure a perfect blend.

Ackerman: Specific to supply chain, DTC is challenged by marketing costs associated to gain consumer traffic consistently vs. a one-visit engagement, and the supply chain costs associated with making this business profitable.

Haque: I saw a recent stat that only 6% of brands have a direct-to-consumer offering. I think it should be considered, but the strategy around the “why” should be clearly defined to set the right expectations.

Anderson: DTC has its place. I continue to believe it’s an interesting, if not an essential element of a new brand launch, but it’s not going to get you to a billion-dollar brand in under five or seven years.

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