Online is on fire - will it stick, post COVID-19?
These are interesting times. Just some random headlines: Adidas eCommerce revenue up 55% in March, GFK reports 61% increase in online revenue, Volvo launches Stay Home Store, supermarkets are generating 3x the online revenue of the 2019 Christmas peak and are recruiting new staff to be able to deliver everybody it’s toilet paper in time. It looks like everybody has discovered online shopping!
The 10 billion dollar question of course is “will it stick?” Will we, after this self-inflicted isolation has ended, still be buying online? Most certainly, and then some, according to our new Future Shopper 2020 report which found that 65% of consumers are set to use digital shopping channels more in the future. And in the words of analyst Ben Thompson: "the coronavirus crisis will not so much foment drastic changes as it will accelerate trends that were already happening. Changes that might have taken 10 or 15 years, simply because of the stickiness of the status quo, may now happen in far less time.” So it only took a gust of wind to flare up a slow burning fire into raging wildfire.
Because now, under the pressure of coronavirus, everything becomes fluid all the sudden. It was only last year that Netflix had to buy its own cinema to show its own productions in order to be nominated for the Oscars. Now the Academy Awards has announced that the “in-theatre” requirement has been dropped and the Studios are releasing big ticket productions like The Rise of Skywalker and The Invisible Man directly to paid streaming services rather than going through the traditional release schedule of cinema’s, airlines, hotels. And it is hard to imagine that this will be reversed post-Corona.
Even my 80 year old mother, who had a sleeping account with an online grocery services but never used it, now has first-hand experience - albeit forced by the circumstance - of ordering heavy groceries online from the comfort of her own home. And no-way she will be giving this up! Of course when possible, she will regain the social aspect of visiting stores. But the online grocery will be responsible for delivering heavy and bulky items to her doorstep.
That is why in April, Walmart, after trailing Amazon for years, all of the sudden became the most downloaded shopping app (App Annie, April 2020) with a stagering growth of 460%, surpassing Amazon by 20%. Not that the rest of the industry all of the sudden had a bad month. Au contraire! In the first week of April, globally 105 million shopping app have been downloaded, up 15% compared to the year-to-date average. And in Europe we see the same incredible growth figures. While the share for online groceries was at 4-6% (and steadily growing) before the coronavirus crisis, right after the announcement of the lockdown there was a huge spike in bookings of delivery slots, resulting in an increase in marketshare for online grocery to 15-20%. Of course, when the pandemic measures are eased, this marketshare will normalise somewhat: there will be always shoppers who prefer to pick their own fruit and vegetables. But if the US data provides any guidance for the European market, here’s an interesting fact: Before the pandemic, 6% of the consumers who had at least once ordered groceries online appreciated this experience. Now that percentage has doubled to 12%! If this is any indication of a lasting change in shopping behaviour, it suggests a breakthrough with not only a huge impact on the physical retail but also on logistics; it means 2x the number of delivery trucks going through your street every day. And that is just for groceries!
Never underestimate the value of a balanced online channel mix
This shift to online groceries also means that CPGs have to adapt. The JDEs and Procter & Gambles of this world, traditionally dominating the shelf space thanks to enormous marketing and merchandising budgets that allow them to draft the planograms for the retailers, are now confronted with a new reality…
There is no limitation in online shelf space.
So you have to find other ways to win the hearts and wallets of the consumer. And dumping your generic product data and product images in the data-pools doesn’t cut it. They need to learn how to stand out on the digital shelf and optimise product data on a per channel basis. Because in the digital world too, not all stores are created equal. One CPG that understands this very well, is the Death Wish Coffee Company - sellers of “the world’s strongest coffee”. Death Wish Coffee Company is a small outfit, founded in 2012 and taking on the Goliaths like Folgers, Maxwell House and Starbucks. And quite successfully, I might add. On Amazon some of their products are in the bestseller top 20 (their ground coffee is on sales rank #3!) - not bad for a 50 man operation!
How did they do it? By understanding very well how to use Amazon to build a brand, by understanding how to be discovered on Amazon and how to win the hearts of the consumer. It’s interesting to see how many reviews their products get on Amazon: #1 bestseller in the categories ground coffee (Dunkin’ Donuts) has 1500 reviews. Maxwell House (#9) only has 96 reviews but Death Wish Coffee a whopping 22,000 reviews (source: Amazon Best-Sellers-Grocery-Gourmet-Food-Ground-Coffee).
And it is not just the CPGs that have to adapt. Take for instance the large fashion brands. Thanks to Corona, high-street retail is (or has been) locked down almost completely, resulting in the summer collections of many fashion brands being stuck in the warehouse, reducing its value to zero. And suddenly eCommerce appears to be the lifeline for many fashion brands (unfortunately not for all as we’ve seen with several well known casualties).
However, going all-in on eCommerce has proven to be difficult for many brands. Many manufacturers (and not just the fashion brands) are used to delivering products in bulk to a limited number of customers. That is how they are organised in their finance, marketing and logistics departments. None of those departments are used to interacting directly with (large numbers of) consumers. For many brands ‘direct-to-consumer’ is just a digital transition project that only concerns the eCommerce department. Otherwise brands are sandbagging, trying to avoid channel conflict (a conflict that is about to be solved by Covid-19).
But this hesitation to go full force direct is somewhat surprising! Our recent Future Shopper research shows that many consumers prefer to buy direct (if the price is right). Yet the same research also tells us that brands keep disappointing consumers when it comes to the shopping experience, spoiled as they are by the likes of Amazon and Zalando. For example, if you buy a t-shirt directly from one of the big fashion brands, it takes typically 5 business days to deliver, and not "Free-with-Prime-Next-Day-Delivery". And in many cases that same t-shirt can be 10 euros more expensive when buying direct.
Channels like Amazon and Zalando are very useful channels to execute first steps in global online commerce fast because they will lure buyers to the platform, collect payment and can deal with the logistics for you. However, selling on Amazon is not a walk in the park. To survive, yet alone thrive, demands operational excellence and a perfect presence on the digital shelf. Also relying just on Amazon is not without risk; during the early stages of the Covid-19 crisis, Amazon had to prioritise “essentials” above nice-to-haves to prevent choking their logistics due to a huge spike in orders. And of course it’s never wise to put all your money on one or two players, so as to prevent dependency.
So, what should you do?
Therefore my advice would be to build up a well balanced online commerce channel, consisting of a mix of marketplaces like Amazon, retailer.com, and social commerce but, above all, your own direct-to-consumer channel (provided that your products are suitable for it). And start acting now. You cannot afford a 3-5 year digital transition process because the world is changing rapidly.
Make sure you know what it takes to service your customers directly, know how to reach them, know how they would like to buy, know ow to ship your products, know how you can win on the digital shelf. Be future-ready today.
Covid-19 has caused too much damage to apply the flippant phrase “never let a good crisis go to waste” here. But this is the moment to adapt to the new reality. Consumers have shown they are ready. Are you?