Consumer Goods Still Struggling with Online Opportunities Staff

Updated · May 31, 2001

Online sellers of consumer packaged goods (CPG) continue to face marketplace challenges, according to a study from Information Resources, Inc. (IRI), but consumers are still quite bullish on the sector.

According to the study, 23 percent of online consumers have made an online CPG purchase and 99 percent of online CPG buyers plan to maintain or increase their spending levels over the next year. While only 12 percent of online CPG shoppers currently spend more than 25 percent of their budget online, that number is expected to increase to 35 percent by the end of 2001.

IRI's study consisted of an online survey of more than 7,900 primary shoppers, conducted by Harris Interactive, and interviews with more than 75 CPG manufacturer and e-retail/retail executives, conducted by PERT Survey Research. The surveys were conducted from November 2000 through February 2001. The study defines consumer packaged goods as products in the following categories: healthcare, vitamin, beauty care, food and beverages, perishables, frozen foods, household supplies, baby care and pet food.

The study also found that CPG e-tailers have critical misunderstandings about why consumers do or do not shop online. For example, while the top reasons consumers gave for not shopping for CPG products online are delivery costs (68 percent) and the inability to review products in person (57 percent), only 22 percent and 18 percent of CPG e-tailers considered these factors to be significant consumer concerns. At the same time, the top reason e-tailers perceived to cause consumer reluctance to shop online was a lack of trust of e-retailers (36 percent), while in reality only 11 percent of consumers considered this a problem. Furthermore, 64 percent of consumers said they do shop for CPG products online because they can “shop any time of day” and 47 percent do so because it “saves time,” while only 55 percent and 36 percent of CPG etailers, respectively, thought these factors were important.

“Our study shows that the online market for consumer packaged goods has strong growth potential,” said Brian Murphy, IRI's e.Ventures partner. “We found broad consumer trial, high customer satisfaction, optimism for increased spending and positive word-of-mouth advertising. That's a great foundation. Now e-retailers must find a financially viable business model and gain a better understanding of what motivates consumers to change
their shopping behavior from offline to online.”

IRI's study also revealed a lack of partnership and communication between CPG manufacturers and e-tailers, which could potentially hinder growth of the online CPG category. For example, the study found that fewer than 25 percent of e-tailers provide manufacturers with consumer purchase data, promotional tracking data or consumer research — information considered essential to manufacturers' understanding of how to most effectively
leverage the online channel. Less than one-third of CPG manufacturers are providing e-tailers with tools and support considered typical in an offline relationship: consumer research (31 percent), a direct sales force (31 percent) and promotional offers (28 percent).

Speaking of cooperation, research by Jupiter Media Metrix found that the healthy and profitable evolution of the online grocery market will depend largely on its ability to convince the CPG industry to embrace the online channel.

“Although weak economic readings and a struggling online retail sector overall might dissuade CPGs from supporting the online grocery channel, they must not forget that it still represents a five-year combined annual growth rate in the double digits,” said Ken Cassar, Jupiter senior analyst. “The average growth rate of 64 percent that Jupiter has forecast for the market over the next five years is substantially higher than the growth that the brick-and-mortar grocery industry will see over the same period.”

According to Jupiter, the online grocery channel will command close to 2 percent of total U.S. grocery sales by 2006. Online grocery sales will rise from $1 billion in 2001 to $11.3 billion in 2006. The online grocery channel also provides CPGs a valuable test bed for new product concepts, improvements, packaging and pricing because the Internet enables small-scale product tests in a national market through grocery retailers that are geared for national or multimarket distribution.

Reprinted from CyberAtlas

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