With the e-commerce channel growing in the US but still in its early stages, food manufacturers are weighing up various ways to build a presence in the channel. just-food’s US columnist Victor Martino argues suppliers should think carefully before putting too much emphasis on selling directly to consumers.
Looking at some of the headlines coming out of the US packaged foods industry, one can see early but growing interest in selling directly to consumers.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataDirect-to-consumer sales by food manufacturers via their own online platforms remain at an experimental stage but more attention is being given to the fledgling channel and more forecasts being made on the prospects for growth.
At the Barclays High Yield Bond and Syndicated Loan Conference in Colorado Springs earlier this month, Robert Cantwell, the president and CEO of US food manufacturer B&G Foods, told attendees “the world has changed”, citing direct-to-consumer e-commerce as one of the three most significant factors his company and others in the consumer packaged foods industry need to focus on in a real and significant way.
Moreover, one should also see recent investments in direct-to-consumer start-ups by consumer packaged goods giants Unilever and Campbell Soup Co. as further evidence of that interest.
Earlier this year, Campbell invested US$32m in direct-to-consumer personalised food and nutrition start-up Habit as the sole investor and, more recently, made a $10m investment in US meal-kit start-up Chef’d.
Unilever, which first jumped into the direct-to-consumer e-commerce game in a big way outside of food last year, with its $1bn acquisition of Dollar Shave Club, has now turned its attention to food, using its venture capital arm last month to lead a $9m investment in US meal-kit start-up Sun Basket. Not outright acquisitions in either case but indications the major CPG companies operating in the US want to find out more about businesses that are selling directly to shoppers.
And Nestle has this week announced the acquisition of a minority stake in US meal-kit business Freshly.
Executives at a number of packaged foods companies say they are on the look-out for direct-to-consumer food start-ups and emerging companies to invest in and acquire. I expect to see at least three or four significant investment deals before the year is over, and at least one major acquisition.
There is no question e-commerce in the broadest sense, including sales made through the online arms of bricks-and-mortar retailers, as well as through online pure-plays, is rising up the agenda of packaged food boardrooms in the US. As a proportion of total food retail sales, the US lags behind other international markets but that percentage is rising rapidly.
In a fledgling market, actors looking for advantage experiment. Moreover, the US is one of the countries in which there is a lot of debate within the industry about the rise of meal-kit businesses, their model of selling products recipe kits directly to consumers online and how far that market can grow.
However, selling direct-to-consumer should remain a secondary concern in a manufacturer’s broader e-commerce strategy. When devising their e-commerce strategies, food and beverage manufacturers in the US should put most of their focus on the aggregators, the e-commerce retailers, rather than on independent efforts via their own e-commerce platforms.
Despite arguments from others to the contrary, grocery retailers – both brick-and-mortar and e-commerce – are not going by the wayside any time soon. Amazon’s $13.7bn takeover of Whole Foods Market, announced on Friday, is the theory of the case for that assertion. E-commerce grocery also needs brick-and-mortar grocery in order to grow. Amazon proved that last week.
Direct-from-manufacturer is going to remain experimental for some time – and in fact may never become a significant channel. Packaged foods companies should go all-in and form partnerships with retailers in order to drive the channel.
Retailers, in turn, need to reach out to packaged foods companies, like Amazon did in May with a three-day gathering it held in Seattle. The confab was attended by executives of the leading food companies. The focus was on encouraging the packaged foods companies to put greater effort and resources into CPG e-commerce.
Grocery e-commerce is not a zero-sum, winner-takes-all game. Instead, it will take a village – or at least a partnership between packaged foods companies and retailers – to make it a winning channel.
Related Company Profiles
Nestle UK Ltd
Dollar Shave Club, Inc.
Amazon.com Inc
CPG Corporation Pte Ltd
Campbell Soup Co