A recent survey from the Datamonitor market research company
delivers a provocative warning to the big retail groups.
The report, entitled ’fmcg on the Internet: from branding to sales’,
shows that 50 per cent of the world’s leading consumer goods
manufacturers now have a presence on the Web - and an increasing number
are using their sites to sell directly to the consumer.
Much of that activity is being driven by US-based companies, but the
impact is being felt in Europe too. Datamonitor predicts that
direct-to-home sales via the Internet in Europe could grow by more than
150 per cent per annum over the next five years. That growth is going to
be at the expense of traditional retailers, few of which have a
significant presence on the Net.
The conclusion? Retailers are being left behind.
Is it true? And how worried should the big superstores be? On the face
of it, the Datamonitor evidence is patchy. It points to Procter and
Gamble’s eight product Websites, plus a corporate site and an online
parenting magazine, all launched within the past six months. Most of its
other evidence derives from the beer, wines, spirits and soft drinks
sectors; and it concedes that, although 37 per cent of beer and cider
manufacturers across the world have Websites, much of the activity is
promotional rather than geared to direct-to-home sales.
But the report makes interesting points about attitude. Even if direct
sales fail to materialise in the near future, at least the fmcg
manufacturers are out there learning about the medium and the benefits
that it can bring in evolving closer links with potential consumers.
Retailers seem oblivious to this potential.
Isn’t it inevitable that, increasingly squeezed by own brands and
limited shelf space, fmcg manufacturers will try to bypass their
conventional routes to market? Adam Leigh, the account director for
Safeway at Bates Dorland, is sceptical. And he rejects the suggestion
that retailers have an attitude problem.
’Retailers are always looking to the next innovation,’ he says. ’Safeway
has had a short-term presence on the Internet and will continue to look
at it. I don’t believe that even the most advanced fmcg companies are
doing more than half a per cent of their business on the Net. When
alternative delivery systems come to the fore, retailers will always be
in a better position to take advantage.’
The most advanced UK retailer currently is Tesco, with its Osterley home
shopping trial. Customers in the Osterley catchment area can order a
CD-Rom listing 20,000 different products stocked by the store. They
choose items from the CD, then go online to put their order through,
indicating when they want the goods delivered. Customers with fast modem
links can do the whole thing on-line. Tesco admits there have been some
teething problems, but indicates that the reaction has been overwhelming
- so much so that the scheme is about to be extended to other stores
across the country.
Charlie Dobres, the head of Lowe Digital, the new-media arm of Tesco’s
agency, Lowe Howard-Spink, says that Tesco has really taken on board the
implications of the medium. ’It really does have an impact on all
marketing disciplines, right down to distribution and pricing policy.
And I think we’ll increasingly see the company integrating its
capabilities in this area into its overall brand proposition as a
retailer,’ he says.
However, as the electronic retail consultant, Budd Margolis, points out,
the threat to retailers isn’t about to go away. ’If retailers begin to
lose share, no matter how small, it has massive implications for their
margins,’ he says. ’It costs a lot to build and run superstores.’
Margolis thinks that big retailers will need to begin adapting rapidly
but doesn’t believe that they will ever be sidelined. Many analysts
Retailers are in too dominant a position. And they provide a one-stop
shop. Individual manufacturers don’t.
David Symonds, the development director of Andersen Consulting’s retail
arm, Smart Store Europe, argues that it’s not quite so straightforward:
’A small loss of share would have massive implications for the economics
of retail. Retailers know it’s coming and manufacturers have begun
working on the one-stop shop problem. A group of fmcg companies is
looking at how they could team up to create a joint proposition. They
are already researching consumer reaction to this.’
Perhaps retailers have become dangerously complacent. ’It’s all a long
way off - and whoever is offering the service, they have to recognise
that for most people, the prospect of having the weekly groceries
delivered to their door is an unusual proposition,’ Symonds says.
’But if retailers want to lead rather than follow, they have to wade in
there and start learning.’