Winner-Take-All Digital World for CPG (GMA)

CPG Companies Must Focus on Digital to Compete in Winner-Take-All World

With Half of All Sales Growth Online, CPG Companies That Replicate Brick-and-Mortar Success Without Digital-Specific Strategies Face Stagnation and Share Loss, According to a New Report by BCG and GMA

CHICAGO—Today’s consumer packaged goods (CPG) companies are facing a winner-take-all world in which about half the sales growth—more in certain categories and markets—is coming from digital channels. A report released today by The Boston Consulting Group (BCG) and the Grocery Manufacturers Association (GMA) finds that companies have to earn their online market positions with new approaches and skills tailored to digital sales.

The Winner-Take-All Digital World for CPG identifies four factors that are shaping the market for CPG companies. First, while multiple business models are emerging, only a few will be disproportionately influential. These include several models advanced by Amazon (such as home delivery and Prime) and click and collect, which has demonstrated success in Europe and is well suited to the lifestyle of busy and mobile US consumers. Second, the game is increasingly played by new rules requiring very new skills. Third, early-adopter consumers are already settling into patterns of digital buying behavior. Fourth, and most important, success breeds exponential success: once brands establish leadership positions online, they are tough to dislodge.

The most likely sector-wide scenario is for e-commerce in the US to average 5% of the CPG sales mix by 2018, or some $36 billion annually, which would represent about half of expected CPG sector growth overall. As a result, companies that lack effective digital capabilities risk stagnation, share loss, or, in some categories, shrinking sales. At 10% penetration it is an entirely new paradigm.

“CPG companies that assume their 20% off-line share will translate to a 20% online share are playing to lose,” said Gabrielle Novacek, a BCG partner and a coauthor of the report. “Winners get in early, with strategies and campaigns designed for digital, and they make the often-significant investments necessary to grab share and build an early lead. They stay out front and frequently increase their leads because sales rankings and e-commerce algorithms are self-reinforcing. Slower competitors are relegated to also-rans, a position from which it is hard to catch up.”

The report makes the case that major CPG players essentially need to start from scratch in digital commerce against a host of competitors, many of which have never even shown up on the brick-and-mortar radar screen. It is a fundamentally different competitive set, and even small companies can be massive disruptors. In category after category, many such new competitors have already discovered how to win and have created substantial leads.

“This research shows that CPG companies must rethink everything from business models to marketing to supply chain in order to respond and stay competitive,” said GMA’s Jim Flannery, Senior Executive Vice President, Operations and Industry Affairs.

The report lays out the basic digital building blocks for CPG companies. These include developing an integrated strategy, revisiting category management by channel, rethinking supply chain configuration, and building an adaptive organization. Companies that want to finish first need to take action in six ways: fight for digital “shelf-space” prominence; establish a strategy for Amazon; develop the capabilities for click and collect; keep pace with new business models; retool marketing and media; and develop digital leadership.

Understanding the dynamics of the digital store is the first big step. “The myth of endless digital shelf space is exactly that—a myth,” said Bob Black, a BCG senior advisor and a coauthor of the report. “Consumers search for what they want online, they get offered a handful of top-ranking choices—which are determined by a sales or popularity algorithm—on a small screen, and, more often than not, that’s what they choose from. Brands have to be present to win, and screen position has to be earned rather than bought.”

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Grocery Manufacturers Association

The Grocery Manufacturers Association (GMA) is the trade organization representing the world’s leading food, beverage and consumer products companies and associated partners. The U.S. food, beverage and consumer packaged goods industry has facilities in 30,000 communities, generates $1 trillion in sales annually, contributes $415 billion in added value to the economy every year and is the single largest U.S. manufacturing industry with 1.7 million manufacturing workers. Founded in 1908, GMA has a primary focus on product safety, science-based public policies and industry initiatives that seek to empower people with the tools and information they need to make informed choices and lead healthier lives. For more information, visit gmaonline.org.

About Boston Consulting Group

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
 
Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.

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