Food and drink brands aim to win big in e-commerce

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General Mills, Kellogg, Unilever and Coca Cola Co. outline their plans to win in e-commerce, a channel tipped for growth in Europe where brands over-index.

E-commerce is the fastest growing retail market in Europe. Online sales in Western Europe and Poland grew from €201.33 billion in 2015 to €232.60bn in 2016, a jump of +15.6%, according to figures from UK-based Centre for Retail Research.

And growth is expected to continue apace: “In 2017, we expect total e-commerce online sales to increase to €265.68bn, a rise of 14.2%. Further growth of 13.8% in 2018 should mean that online sales reach €302.37bn.”

The biggest categories for online shopping are clothing and electronics and – with the exception of the UK where e-commerce accounts for 7% of all food sales – many European online grocery markets remain in their infancy.

But researchers at Mintel believe that this picture is changing, with an ever rising number of European millennial consumers buying their weekly shop online. Mintel revealed 45% of Germans aged 16 to 24 have shopped online for groceries in the past six months, compared to only 31% of Germans overall. The pattern is similar in other European markets. In Spain, 46% of millennials have purchased groceries online, while in Poland the figure stands at 44%.

“[Online grocery in Europe] is growing fast as young consumers increasingly opt for the stress-free and time-saving convenience of online shopping. More and more retailers and speciality players are pushing into the channel to stay connected with the younger generation, promising a bright future for the online market at a time when connectivity and on-demand are playing an ever more important role in youth culture,” explained Mintel’s Regina Haydon.

Brands over-index online

At a time when branded food and drinks companies are seeing their sales squeezed by smaller, disruptive players in the grocery store, e-commerce has a particular appeal for big branded manufacturers. 

Unlike in the supermarket, where consumers feel more confident assessing the quality of a product based on the look and feel of its on-shelf presence, many consumers are sceptical about the quality of online grocery purchases.

Familiarity pushes them towards brands that they already know and trust when using search functions to find products.

“When consumers use the search function we tend to see brands with higher unaided awareness do best. This points to big brands as the winners,” General Mills CFO Doug Mulligan revealed at the Barclays Consumer Staples Conference yesterday (2 September).

Mulligan revealed that General Mill’s brands also perform well when consumers shop online using the navigation function because large brands usually appear on the first pages of a search. “While many people think of the digital shelf as infinite consumers rarely look through pages of results, which counter-intuitively might mean the number of cereal brands they look at online could be far fewer than they would see in the average grocery store,” he explained.

As a result, General Mills’ brands perform better online than offline in the UK – and competition from private label does worse. “Private label penetration in food [in the UK] is twice as high as in the US and retailers have every opportunity to push their brands online. Private label shares online are only 65% of the level they are in traditional channels. Conversely, our brands do quite well. Our market share in the UK is almost 30% higher online than in the physical store.”

Kellogg also views e-commerce as a significant opportunity to grow sales of its cereal and snack brands in Europe. Already, CEO John Bryant revealed, online and click-and-collect accounts for “over 10%” of the group’s sales in the region.

Bryant said that Kellogg, too, is able to boast a higher market share online than in traditional channels. “It's worth pointing out that where we go through click and collect programs in Europe, our market share is generally higher and our margin is also very good as well.”

“We've recognised that e-commerce is going to transform the retail environment over the next decade… Preparing ourselves for that change, being in a position to win in the e-commerce environment is a big part of our strategy.”

Unilever, which makes brands including Knorr and Lipton, saw its e-commerce sales jump by a “competitive” 40% in the first half of 2017, Amanda Sourry, Unilever president of foods, told the investor event.

Growth in this channel far outpacing Unilever’s total sales growth and online sales now account for almost 3% of the company’s total revenue. In food, online accounts for about 1% of sales – but this level varies market-by-market, Sourry said. “In some of the more developed grocery.com markets, such as the UK or France, it's already at a much higher percentage at about 5%.”

Unilever is leveraging the potential of e-commerce by recognising the different models and responding appropriately. "We don't believe there is a single model that in the end is going to prevail. We believe there will be a multiple of models and we are playing against them. It is about grocery.com, it is about marketplaces… it is about pure play - most notably Amazon - and, obviously, it's in direct-to-consumer as well," she said.

In direct to consumer, Unilever’s personal care brands boast Dollar Shave Club but the company is also making progress in this area in food. Last month, the company’s Hellmann’s mayonnaise brand started testing the direct to consumer waters when it launched a partnership with recipe delivery start-up Quiqup to deliver groceries directly to consumers in London

Impulse is often seen as a sector that is difficult to deliver online – hampering the potential of the channel for the likes of Coca Cola Co. But with sales revenue moving online, the drinks giant is determined that it too can succeed in this space.

“E-commerce is transformative,” Coke’s president of North America Sandy Douglas said. And the company has made the digitalisation of its business one of its “top priorities”.

“You are shopping at 10 o' clock at night and what you're hopefully doing is refilling some in-home out-of-stocks. So, in that sense, it's a tremendous opportunity for us to grow our business… The biggest problem we have within home consumption in our business is out-of-stocks. So, to the extent that we can get on a list and be part of a commerce routine that delivers regularly, hopefully, we can capture that opportunity.”

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