NEW YORK – The proposed acquisition of Whole Foods Market by Amazon has spurred intense interest in how food and beverage companies will adapt to emerging digital retail models. During General Mills, Inc.’s annual investor day, held July 12, company executives outlined a number of strategic priorities. E-commerce represents approximately 1.5% of the company’s total sales in the United States today, and management expects the number to grow to 5% by 2020.
|Shawn O'Grady, senior vice-president of global revenue management and group president of convenience stores and food service for General Mills|
“Last fiscal year, our e-commerce sales grew 60% in the U.S, which is 20 points faster than the growth in on-line food today,” said Shawn P. O'Grady, senior vice-president of global revenue management and group president of convenience stores and food service. “And we have achieved this off a significant base. We continue to see strong double-digit growth ahead for our global e-commerce business largely led by the U.S.”
From a global perspective, Mr. O’Grady said e-commerce business models are in varying stages of development, with many European retailers offering a full basket model, Tesco adopting a home delivery model in the United Kingdom, and such on-line retailers in China as Alibaba and JD aggressively expanding their grocery footprints.
General Mills divides on-line shopping patterns into two broad categories: spearfishing and full baskets. Spearfishing involves the purchase of a few select items while full basket shopping may involve the replenishment of pantry staples. Mr. O’Grady said spearfishing currently dominates all e-commerce category shopping in the United States, including food.
“But while spearfishing will continue to make up the lion's share of dollar sales in categories such as electronics and books in the U.S., in food, we believe the majority of the growth will come from full basket models. Why? Because the trip missions are different,” he said. “Spearfishing shoppers are generally looking for a small number of items, perhaps things that are hard for them to find in the store, usually with the 1- to 2-day delivery model. General Mills products like Annie's Mac and Cheese, Lärabar and gluten-free Bisquick all play well here.
“In full basket, consumers stock up on family favorites, such as Cheerios, Pillsbury refrigerated dough or Yoplait yogurt, and are shopping full categories similarly to how they would shop aisles in a grocery store. Big brands are advantaged because the assortment looks similar to what a shopper sees in the store and fewer bigger players capture more eyeballs on the first screen. We expect full basket to drive the majority of the growth moving forward.”
He added that traditional retailers are eager to enter e-commerce for three reasons. First, the best grocery shoppers, large families with children, are moving on-line to shop. Adding to the pressure on retailers is consumers are shifting on-line for stock-up trips, which tend to have much higher basket rings.
“In fact, the average on-line full basket grocery purchase is $150 versus just $40 in-store,” he said. “And finally, e-commerce is a great way to lock in loyalty with great service.”
For food manufacturers, Mr. O’Grady said there is a huge opportunity to win shoppers' first basket.
“On-line sales are more sticky because each time a shopper goes back to the same site to buy more groceries, they start by looking at past purchases,” he said. “Imagine walking into a grocery store and seeing everything you bought in the past several months already in your cart. That's not too far off from what happens when someone shops full basket on-line. This stickiness and high chance for repeat purchases is why we're so focused on winning the first basket.”
Noting that the shopping experience at the “digital shelf” is different from the traditional grocery aisle, Mr. O’Grady offered some examples of how General Mills is approaching e-commerce and digital merchandising.
In one example, he said consumers spend an average of 92 seconds in the typical supermarket cereal aisle, which on average may be 70 feet in length and feature approximately 200 stock-keeping units. On-line, a consumer will see a small fraction of the assortment on screen at any one time. Winning will require manufacturers to be featured on the category landing page.
“We're using our industry-leading, in-store category management knowledge across all 26 of our categories to improve and optimize how consumers shop on-line for all groceries,” Mr. O’Grady said. “The way in which we merchandise our brands also has opportunities on-line.”
Using a solutions approach, the company also is connecting its products and brands with its proprietary digital library of recipes.
“We have more flexibility to present solutions to shoppers along their path to purchase,” Mr. O’Grady said. “This allows us to better meet the consumer's needs and build stronger consumer relationships with our brands.”
In the United States, four retailers are driving growth in grocery e-commerce and include Amazon, Wal-Mart Stores, Inc., Instacart and Kroger Co. A challenge for food manufacturers will be to work with the leading retailers, but also have the flexibility to create partnerships and solutions with emerging e-commerce retail models.
“Our market share on-line is 20% higher than it is in a physical store,” Mr. O’Grady said. “This means that as more shoppers transition on-line, we're in an advantaged position. We're also aggressively partnering with retailers to imagine how groceries will be sold on-line in the future.
“One leading trend is experimenting with how consumers will shop by voice using devices such as Amazon's Alexa. We partnered with Amazon to leverage our Betty Crocker cooking knowledge for new Alexa skill called ASK Betty.
“Whether it's engaging our retail partners and curating their search and assortment, creating customized meal solution merchandising or collaborating for efficiency and delivery and logistics, it is General Mills' comprehensive approach that makes us an indispensable partner as grocery purchasing moves on-line.“Because this space is evolving so rapidly, we’ve learned our share of lessons quickly. We’re working rapidly to develop full basket capabilities. We’re building real-time analytics using algorithms and machine learning so that we can move quickly and improve the consumer experience. Importantly, we’re working closely with our supply chain teams to increase our agility and respond to the fulfillment demands of on-line grocery. And we know that it’ll be critically important to balance central global capabilities with local tools deployed to regional teams in order to drive overall success across all of our geographies.”