HERSHEY, PA. — “What’s the best place to hide a dead body?” asked Doug Straton, chief digital officer of The Hershey Co. “The second page of search results.”
While Mr. Straton’s joke may be old, his point was timely — consumer packaged goods companies must have an effective digital strategy to compete in today’s omnichannel marketplace. He made his comments Aug. 28 during Hershey’s analyst day. The bulk of the presentations focused on the company’s plans for winning in digital commerce, underscoring how important digital platforms are becoming in the food and beverage category.
“We are literally changing the way Hershey does business,” he said. “So, from process change at the R.&D. and innovation level all the way down through sales and marketing, we’re making the fine-tuned tweaks … to basically make everything that we do digital.”
Mr. Straton forecast digital sales penetration in the United States will be in the “mid-single digits” during the next five years. Much of that growth will show up in average basket size when physical retail is compared to different types of digital sales models. Data he presented showed that with ship-to-home digital platforms, such as Amazon or Staples, the average basket size is 3.5 times greater than physical retail. With delivery and pick-up models, the average basket size is 1.2 times greater; on-demand 1 times greater; and direct-to-consumer the average basket size is 5.5 times greater than the average basket filled in store.
Despite the future promise of digital business models, he emphasized executives should not differentiate between the physical and digital from an operational perspective.
“There is no online and there is no off-line,” he said. “If you think about these businesses as binary choices, then you completely miss the point in regards to digital. So, the fact of the matter is that it’s a continuum across online and off-line. It’s happening 24 hours a day, 7 days a week …”
The Hershey Co.’s digital strategy revolves around four components — search, content, conversion and community. The components are not unique to Hershey, but the company has invested significant resources to connect the physical and digital retail ecosystems.
“This is a new capability,” Mr. Straton said. “There’s not many people talking about it. We’ve actually set up a team that’s going to be driving this for us over the next couple of years.”
With search, Mr. Straton emphasized “search is shelf.”
“…The thing that I want to land here is that these digital shelves and the visits to these digital shelves proceed the physical shelves,” he said. “If you talk to Walmart, if you talk to Target, if you talk to any of the big retailers, any of the retailer’s peers that are getting deep in digital, what they will say to you is that digital is the front door to their store. And what they mean by that is that the digital visits are preceding the physical visits.”
And the key to having successful search results and getting consumers through the “digital door” is content, which Mr. Straton said is the digital equivalent of packaging.
“This is like you’re in front of the shelf, okay?” he said. “And you pick up the product and you put it in your hand and you’re interacting with it. So, what we talk about in digital is we talk about from foot stopping to thumb stopping.
“…We think about thumb stopping visuals. Visuals that demonstrate what exactly this pack is and … what the pack contains...”
While the initial goal of a digital strategy may be to convert a purchase, Mr. Straton said the long-term goal is repeat purchases and getting on the consumer’s digital shopping list.
“…whether you’ve bought through your credit card or through your loyalty card, all of those purchases at the major retailers or any retailer, really, is stored somewhere, and they can use that to prepopulate a list for you online… So, when you make your first online shop, if the retailers are doing their job correctly, you basically can make that a very, very quick trip. You just take a look at what you purchased before and you basically click ‘yes’ and it goes into your basket.”
Hershey defines community as its direct relationship with its consumer. The goal, Mr. Straton said, is not to supersede a retailer’s relationship with a customer, but to add to it.
“… (It’s) making sure that we can communicate to them and then listen to them and give them what they want in the way they want,” he said. “This is all grounded in the middle, of course, by the consumer, which is the most important piece. If you understand the consumer, you understand the journey across online and off-line.”
A particular challenge for Hershey is how the consumer’s shift to digital shopping models is affecting impulse buys at checkout. The fewer consumers moving through physical retail checkout lines the fewer opportunities there are to capture impulse sales.
Mr. Straton said while that may be true, the company is experimenting with digital impulse sales.
“..we’re not ignoring impulse, but the key thing is, you can’t think of impulse in an online way the way you think about it in the store,” he said.
Using the example of a consumer ordering groceries through a click-and-collect model, the retailer may message the consumer on the way to the store and ask if they would like to add a Hershey product to the basket.
“The other thing that you need to know about click-and-collect is a lot of people after they pick up their groceries, they actually run inside, it’s between 40% and 70%, depending on the retailer, to pick up additional items that are unplanned,” Mr. Straton said. “So, you have another opportunity to interact with them from an impulse perspective.”
At the beginning of the presentation, Michele G. Buck, president and chief executive officer, said Hershey has a “huge opportunity” to take its data technology to the next level.
“… we’re really engaged in a company-wide digital transformation, and the best way that I would explain that to you is, I would say that in the past I.T. (information technology) was a little bit more of a staff function, a little bit less of a commercial function,” she said. “I think that data and analytics and technology were available to us, but our vision going forward is that they’re really the backbone of how we run this business in a bigger way than they’ve ever been before because the capabilities exist for that to be true.”