Industry Partners

CPGs Lagging Pace of E-Commerce Growth

'Seismic change' challenges brands and supply chain, GMA-commissioned study shows

Over the next two years, half of the growth in North American grocery sales will come from e-commerce. But only 6% of CPG companies have a dedicated e-commerce supply chain team, and only 3% are able to fully track sales by channel—a lack of readiness that could cause companies to fall behind in securing their share of the marketplace, according to a new study.

“In the digital world, critical mass is won quickly,” said Elfrun von Koeller, a partner at Boston Consulting Group who co-authored the study, which was commissioned by the Grocery Manufacturers of America. “And once won, it’s hard to dislodge. So CPG companies can’t afford to sit this out—their existing supply chains are often not well placed to deliver to these new channels.”

The report looked at how online shopping, new digital technologies and increasing channel fragmentation are intensifying the pressures on U.S. consumer packaged goods and supply chains, and outlined steps CPG companies must take in order to prepare. The report is based on the 2017 Supply Chain Benchmarking Study, a study of the U.S. units of more than 30 leading CPG companies conducted jointly by BCG and GMA. 

“It’s been a turbulent couple of years for the grocery industry, with major disruption and dislocation in the retail landscape,” Daniel Triot, senior director of the Trading Partner Alliance of GMA, said in a news release. “Despite the important performance gains in the supply chain in the past two years, CPG companies cannot be complacent. This report aims to provide guidance for CPG companies looking to harness new digital technologies and trends to support continued growth.”

According to the report, channel proliferation is the greatest impediment to on-time delivery performance. For example, median on-time delivery rates (requested arrival date, or RAD) to online retailers was just 64%.  

“E-commerce introduces additional fragmentation to an already fragmented network, thus compounding the significant distribution challenges CPG companies already face," von Koeller said. 

The report also offers five essential actions CPG companies can take to continue meeting customer needs and their own business requirements. Two of these actions include capitalizing on big data, and ramping up hiring to attract the right IT and analytical talent.  

Other key findings include:

  • CPGs companies carry the weight. CPG companies bear 60% of logistics costs and hold roughly 50% of the inventory. That burden may well increase.
  • An ambient/cold-chain performance gap has emerged. Performance diverged significantly between ambient product makers and cold-chain manufacturers. Eighty percent of ambient companies enjoyed performance gains, while 60% of cold-chain companies experienced cost increases.
  •  Service generally improved. For the first time since 2010, CPG supply chains have improved their service levels—but not without incurring greater cost. 
  • The higher cost of delay. Retailers’ on-time requirements are becoming more stringent. Over the past two years, 76% of respondents noted that their companies’ on-time requirements have grown. 
  • Network design is an overwhelming priority. Service-level pressures are prompting more frequent network redesign. Eighty percent of respondents ranked network redesign a top priority, up from 72% in the previous GMA/BCG study.

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