CPG Startup Ecommerce is Today’s As-Seen-On-TV
The recent deal flow in the world of ecommerce for retail and consumer packaged goods is more like a flood. Unilever bought Dollar Shave Club, Walmart bought Jet.com and Bonobos, Amazon bought Whole Foods, PetSmart bought Chewy.com, Nestle invested in Freshly, and Target invested in Casper Sleep. Google Ventures — best known backing startups in AI and robotics — is diving into CPG investments. I’ve had so many friends jump to startup CPG jobs recently that it’s giving me flashbacks to the dot-com years…
Much has been written about the idea that the legacy retail and CPG brands are buying ecommerce companies in order to help shift their business models to the digital age. They are transfusing “new blood” and new direct-to-consumer business models. But maybe the strategy is mostly about scaling new brands through old-fashioned, in-real-life retail.
My Lessons from OxiClean
Back in the winter of 2002 I was an assistant brand manager on Tide at Procter & Gamble. A memo from our CEO, A.G. Lafley, wound its way down many management layers to my desk. He had seen advertisements for OxiClean over the holiday break and was surprised at the demos and proclamations coming from its spokesman, Billy Mays.
Mays and OxiClean had brought the infomercial model to our laundry category with a product that made our brand look dingy in comparison. We also learned that the product had just gone from 1–800 ordering to endcaps at Walmart. The Walmart laundry buyer was bragging about how well it was doing — and how our team was caught off guard by its sudden success. I was assigned to analyze the product, its marketing, and recommend what to do about it.
My team and I spent several weeks doing background research on the company and its product. Our labs determined that OxiClean was a non-proprietary “dry bleach” — essentially an equivalent to Biz, a brand that P&G created in 1967 and divested in 2000 because of weak, declining sales. For our product innovation-led company, it was heresy.
The “aha” moment came when I spent time speaking with people who had purchased OxiClean. I used open-ended questions to try and understand their process of discovering, buying and using the product. It only took a few interviews to hear a common story emerge:
“I’m always looking for a better solution for laundry, and I had seen those crazy Billy Mays infomercials on TV for years. Then one day I saw it on display, and on sale, at Walmart, and I just grabbed it.”
It dawned on me that OxiClean was an overnight success that came through 15 years of remnant media buys. Although only a tiny fraction of people called up to order the product for $19.99, by the time it hit retail shelves its brand awareness was over 90%. Seeing the product available at Walmart made it seem legitimate, and when they saw a $9.99 price tag it looked like a big discount — even though it was a smaller size and lacked the free Super Shammy.
I spoke with industry experts from the direct-response-television world and they shared how they had been using this model for decades. Selling direct was a way to test consumer interest without relying on a massive retail distribution and a big, make-it-or-break-it advertising budget. Instead they try many ideas, and the ones that survive years of direct sales eventually get a chance at shelf space.
This, my friends, is what ecommerce offers today. While TV advertising is less effective due to dwindling audiences and rising costs, ecommerce has taken its place. Any startup CPG can make a product, throw up an ecommerce site, and play with direct-response digital ads starting with tiny budgets. Aggressive, hungry entrepreneur marketers are able to takes risks that help them steal share, and the Darwinian startup struggle inevitably produces winners that break out of the pack and break into legacy leaders’ share numbers.
It’s About the Brand More than the Business Model
Dollar Shave Club and Casper Sleep are both interesting direct-to-consumer models that offer a new level of convenience. But each company’s offering is pretty simple to replicate. Procter & Gamble’s Gillette has its own “club” of direct sales and shipment, and any other mattress company could similarly ship directly.
The real value of these companies lies in their brand. Dollar Shave Club’s wacky advertising speaks to guys in a way Gillette has not. Casper has built a brand around customer service innovation in a pretty stagnant category.
Perhaps the biggest story in their brand building is that today’s crop of CPG startups are “digital first” marketers. While large CPGs continue to work within legacy processes — from outsourcing work to agencies to upfront media negotiation to minimizing “non-working” spending — the startups are starting with fresh approaches and they are learning by getting their hands dirty.
The real power of these brands will be unlocked when they are available where most purchases take place. Target has announced plans to sell Casper bedding products in 35 stores near college campuses. Harry’s razors are already appearing on physical store shelves — and I believe the real reason Unilever bought Dollar Shave Club was for the chance to steal share with a trusted brand in the retail aisles.
In-Store Is Still King
Total CPG revenue in ecommerce hit $10.4 billion last year, up from $7.6 billion in 2015. That’s great growth but it’s still only 2% of total sales. Yes, we’ll see this accelerate thanks to general consumer habit change, powered by retailer and CPG investments in new models. Just as they dove into super-centers a few decades ago, we’ll see them blow out ecommerce. However the physical presence will still be a major factor and the place where the true leaders are found.
First, as any brand manager knows, you maximize your sales by maximizing your (ACV) distribution. Dollar Shave Club loves selling direct, but its team is salivating at the chance to be wherever you happen to reach for a razor. Physical stores will see a lot of reaching hands for decades to come. And although subscription business models are great — the truth is that most buyers won’t change their habits to embrace them.
In my P&G days, we bought Iams for a then-company-record of $2 billion. The main reason for, and benefit of, the acquisition was to take a product sold exclusively in vet offices and specialty stores and bring it to the Food/Drug/Mass business that was our sweet spot. Within a few months we created a higher-end pet food business in 10,000 locations. It was an almost instant investment payback.
Second, the physical store acts as an opportunity to have a meaningful engagement with the brand. In my P&G days we called the point-of-purchase the “first moment of truth” — i.e. when people pick up the package, read the label, and compare it to other products nearby. All that pretty packaging (that Amazon hates) is the best investment in convincing people to put your product in their carts.
And remember that getting physical shelf space is a bar that consumers will use to judge whether or not your brand is legit — just like OxiClean getting on those Walmart end-caps.
Retailers would be wise to ramp up their embracement of new “as seen on ecommerce” brands. Last year Target saw amazing results by stocking Harry’s razors. Within weeks Harry’s had 10% of the refill market and 50% of handles sold. These up and comers can help bring new excitement to consumers who demand something different. Maybe it can help make physical shopping a bit more interesting again.
Meanwhile, the big CPG companies must keep buying up the best startups and leverage their massive manufacturing and distribution processes to scale their success. For example, I’d like to see a Kraft-Heinz or General Mills buy Blue Apron and bring their ready-to-cook packages into Target and Kroger stores.
We’re entering one of the most interesting times in decades of Retail+CPG marketing. The winners will be those startups and legacy leaders that combine the best of what’s next with what has worked well for a long while.
Bob Gilbreath is co-founder and CEO of Ahalogy, the Passion to Purchase Platform, and author of The Next Evolution of Marketing: Connect with your Customers by Marketing with Meaning. Follow him on Twitter.
