Consumer goods shifting towards a winner take all world

30 March 2016

The effects of digital channels are felt across a variety of different industries, as more and more consumers opt for the convenience of buying online. For traditional CPG players, the impacts of online and digital are mounting so much pressure that the playing field is turning into a ‘winner-take-all-game’. To come out on top, brands have to be present and earn screen position.

The proliferation of digital channels is quickly transforming the traditional retail growth model. In 2013, the total US retail market had annual sales of $666 billion, $8 billion of which was through digital channels. The retail sector is projected to see growth of approximately 2% annually until 2018. The growth of the online channel is expected to be considerably more significant over the same period, however, as penetration increases from a 1.2% total share of sales in 2013 to around 5%, according to a study by Boston Consulting Group (BCG) and the Association for Food, Beverage, and Consumer Products Companies.

The researchers note that it is likely that looking further ahead the sector will move towards online sales market penetration of around 10%, signifying that a considerable amount of trade will likely move into the new environment. In the UK for instance, February 2016 booked 20.4% of total non-food sales through online channels – where non-food sales represents 55% of the total retail market.

The consequence of more and more consumers buying goods via online channels can have a stark effect on sales for large companies. The report finds that the difference between a $10 billion company that holds a 10% online market share compared with a peer that holds a 60% online market share can amount to $800 million in sales in a 5% online penetration environment. If the online market develops further, to hit 10% penetration of total sales, then the difference between a 10% and 60% share is even more significant, at almost $1.7 billion.

The authors argue that traditional retailers that do not quickly position themselves within the online environment, may find that they permanently miss out on significant market share within their respective product category online – potentially resulting in missing out on hundreds of millions, if not billions, in yearly revenues. There are four key factors driving what BCG describes as a ‘winner-takes-all’ environment within the online space.

One of the major factors influencing success within the online market is the acquisition of the kinds of skills that work in that environment. The digital ecosystem, and its dependence on social media and search engines, requires people skilled in reaching consumers and optimising content to rank in searches, among others. According to the researchers, pure play providers such as Amazon have so far been setting the benchmark in this category. A further area in which early success in the development of the online landscape proves advantageous is search engines: search results are difficult to manipulate in search engines, meaning that those that get in early and aggressively create online market share are likely to stay on top of search results – and thereby garner continued consumer attention. Traditional players’ means of catchup, by throwing large sums of money at the issue, have not resulted in the same success due to the way in which the online environment is structured to favour higher search engine results.

Another area in which a winner-takes-all condition is evident in consumer behaviour. Consumers, the report finds, tend to search around until they find a trustworthy brand – and then settle down. Mechanisms leveraged by online retailers, such as paid subscription memberships in exchange for benefits, have a further locking effect on consumers for one online retailer – creating high barriers to shifting service. The consultancy notes one further area in which traditional companies will need to adapt quickly, and correctly, to market changes: adapting new digital business models. One area that is seeing considerable growth in the phenomenon of click-and-collect, which provides customers with a means of accessing their goods at their convenience. In France, for instance, the last years have seen considerable growth in the practice as retailers come to see consumers’ preference for the option.

“The myth of endless digital shelf space is exactly that—a myth,” says Bob Black, a BCG senior advisor and a co-author 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.”


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