Online Purchases and Sales of Packaged Food

This is the first of a two-part post discussing the business and economic opportunities presented by online purchases and sales of packaged foods. The second part will discuss the legal challenges that should be addressed to make online purchases and sales of packaged foods a practical and profitable reality.

Consumers largely purchase packaged food products at grocery stores and convenience stores although for years many of those same consumers have been making online purchases of products as diverse as apparel and footwear, computer hardware and software, autos and auto parts, consumer electronics, appliances, televisions, and movie tickets, to name just a few. Selling packaged foods online represents a substantial growth opportunity for packaged food manufacturers and food retailers that some have already begun to exploit. One study reported in the digital version ofAdvertising Age on September 14, 2014, predicted that online purchases of food and beverages would account for 2.3% of the $304 billion that would be spent in e-commerce retail in 2014, suggesting significant untapped potential. Other studies have led certain researchers to conclude that digital sales and distribution methodology will continue to grow but there are challenges that must be met. Nevertheless, packaged and processed food marketers and retailers would do well to explore the steps necessary to enter into the online market and to consider the legal issues they will of necessity confront.

Explanatory Note

There are many studies and more detailed descriptions of online packaged food marketing and distribution and the strategies to implement these types of sales and distribution channels than are set forth in this blog. This post draws heavily on an extensive study of online purchases of consumer packaged goods (which would include packaged foods) and in certain instances, our conclusions are extrapolated on data provided for online sales and marketing of consumer packaged goods. The source of much of the information came from “Digital Commerce in the Supermarket Aisle: Strategies for CPG Brands”, Deloitte University Press, which is affiliated with the well-known global auditing, business consulting and advisory firms (“Deloitte”). The same is true with respect to information drawn from an article by E.G. Schultz “Packaged-Goods Marketers Wade Warily into E-Commerce – Big Brands Stymied by Executional Strategies in a World Where Online Retailers Control the Consumer Relationship”, Digital Advertising Age, September 16, 2014. Accordingly, this is a broad overview of the potential growth opportunities and challenges and the legal issues presented by e-commerce and online shopping for packaged food products which have been gleaned from experts we have studied coupled with the knowledge of our attorneys who practice in the Food and Agribusiness industry unit of our firm.

Online Marketing of Packaged Food

Various studies undertaken during the past few years confirm that most consumers purchase packaged and processed foods at brick and mortar stores, although many are either indifferent to the grocery shopping experience at a physical location or they dislike it altogether. Reasons cited for disliking in-store shopping in the Deloitte study include:

  • it is time-consuming and inconvenient;
  • traveling to and from the physical grocery store and presumably from or from store-to-store;
  • difficulty in locating specific products or presumably brands in a shopping aisle; and
  • stores not offering the brand and products consumers prefer.

That study also found that those who do make online purchases of consumer packaged goods do so because of certain features including the following:

  • Free at-home delivery or in-store pickup;
  • Pricing is the same or less than at traditional stores and the availability of emailed coupons; and
  • Display of product pricing and availability across retailers at brand websites.

Finally, the Deloitte study also showed that interest in or acceptance of online or digital commerce is not limited by age.

The Deloitte study also enumerated other advantages, including:

  • the convenience of being able to shop at any time and from any location with a mobile device or access to a computer;
  • the ability to reach customers via “near ubiquitous mobile technology”;
  • the ability to target customers with personalized offers based on online shopping data;
  • the ability to assess the competitive landscape by analyzing competitors’ online product offerings;
  • the ability to cost-effectively test new products;
  • the ability to offer a wider selection of products; and
  • the ability to lock in repeat purchases (potentially with subscription-based discounts).

Disadvantages were fewer but included:

  • the consumers’ inability to touch, view and smell products;
  • the consumers’ lack of the instant gratification of getting a product immediately;
  • the consumers’ dislike of having to pay for shipping or to make in-store pickups;
  • difficulty in routing consumers through certain online “aisles” while searching for a particular product (to enable browsing and encourage impulse purchases, analogous to placing milk at the back of the store);
  • difficulty/cost of product returns; and
  • limited ability to replicate the social aspects of shopping (e.g., interacting with friends and neighbors at the store.

Not all consumer packaged goods manufacturers and retailers have embraced online sales and presumably not all agree that the advantages of online sales outweigh the disadvantages. The Deloitte study found that although 92% of consumer packaged goods professionals understood that e-commerce represented a strategic sales channel for packaged goods, less than half thought their respective companies had an effective e-commerce strategy. One commentator suggests that the reason might lie in the fact that consumer packaged goods marketers are unsure how to deal with the “executional challenges” of online grocery selling which are different than marketing in brick and mortar stores. Long used to relying on in-store marketing techniques, online packaged food marketers will have to design appropriate online searches so their products are on the first page of search results rather than fighting for shelf space and appropriate shelf location – skills and experience they already have. Further, consumer packaged goods professionals are also concerned that home delivery, which is a convenience factor that induces people to shop online, has a far higher price point than purchasing the product at a brick and mortar store.

Many consumer packaged goods executives consulted as part of the Deloitte study expressed the concern that online sales will merely cannibalize sales from other distribution channels rather than add to incremental revenues. In response to the concern, the Deloitte study reported that consumers surveyed stated that 10% of their online food, household consumables and personal care purchases were products they would not have purchased had they not been available online.

Despite the challenges online shopping for packaged foods may initially present, one commentator recently noted, “Finally, after decades of transformational impact on other sectors of our economy, the new frontier of e-commerce has come to food. Ready or not, our industry sector must do a much better job of leveraging this channel.”