Online FMCG / CPG Retailing – it’s challenges and opportunities

Vijay Singh CEO aaramshop.com

Online retailing of Fast Moving Consumer Goods (FMCG) / Consumer Packaged Goods (CPG) has not been caught up so far, not just in India, but also across the world. It is probably the last big segment / sector that is still largely out of the online commerce ambit and represents the next big challenge.

FMCG’s (grocery / household essentials) share of wallet is not only very high, but it is also very consistent and is rapidly growing over time and thus there is a lot of interest in wanting to address this market.

However, there are a number of challenges that traditional e-commerce models face when it comes to FMCG / CPG online retailing. The challenges are not just logistical, but also around the consumers’ buying behavior and service level expectations. Following are 4 reasons that I believe make the business of FMCG online retailing tough (I have restricted this to an Indian context);

  • Cost of Logistics – FMCG / CPG business scenario is very different from segments like books, durables etc, as the margins available are in single digits (and at times low single digits). This is complicated further by the average product price – which is also low. Therefore the additional costs of warehousing, processing and distribution (which can not be charged to the consumer), brings down the net realization.
  • The variable order value – Due to the above reason, most online web-stores find it unavailable to manage low value orders, however the consumers today are used to low order values and are unlikely to change that in a hurry.
  • Ubiquitous retail presence – FMCG brands & products are very well distributed across the country, with a retail store with 100 meters of most urban homes. This has also lead to the “just in time” mind set. And the sheer competition among the retailers has meant that the independent neighborhood retailers extend superb services to the consumer – these include free delivery at your doorstep within the shortest time for almost any order size.
  • Lack of deep discounts – The online stores cannot depend on deep-discounts to drive traffic to their website (unless they partner & create their own private labels). Deep discounting is not a FMCG / CPG industry phenomenon.

There are however, almost an equal number of great reasons why online retailing for FMCG / CPG brands should succeed;

  • Changing consumer lifestyle – the sheer number of “short-on-time & high-on-stress” consumers is growing across the country. These consumers would take up any DIFM “convenience” that further eases their lifestyle. Online shopping for groceries and its doorstep delivery represents freedom from long queues at the super market checkout counters.
  • The growth in the number & penetration of smart phones and connected devices (and the related bandwidth), means easy, all times and anywhere accessibility. I would think that all telecom operators would love to add grocery-shopping apps are part of their value-added services.
  • Also the fact is that consumers are searching & researching for CPG / FMCG brands related information prior to their final purchase within and out of their social networks.  Google’s recent & exhaustive Zero Moment of Truth (ZMOT) research establishes the fact that consumers rely on their online peers groups recommendations & research for CPG category of purchases as well – and with increased connectivity this trend is set to explode.
  • The online retailing offers the consumer / shopper the widest range of brands in any given category and probably the best comparison options, not only on prices, but also on reviews & recommendations from the other shoppers and consumers. The online shopping experience for FMCG / CPG brands is not only fun, easy and convenient but is also far more intelligent and informative.

With the evolving retail scenario in India (and a number of the geos), and increased competition at all levels, retailers would try and create their online store-fronts to give access and convenience to their shoppers and would try and an increasing number of consumers would choose to use that and not trudge down to a market or a store every time they need their daily essentials.

I believe the solution for effective CPG / FMCG online retailing lies in integrating the advantages and reach of the online with the strengths, dependability & ubiquity of the offline stores.

And it is with this insight that we have created AaramShop, which is a hybrid retailing platform for sales and marketing of FMCG / CPG brands, to a busy urban consumer, via their independent neighborhood retailers.

AaramShop is not a traditional e-commerce solution and it would be fair to say that it is not a retailer; rather it is a neutral technology driven platform that enables your neighborhood kirana (grocery) stores to have an online store-front which is commerce ready & helps him engage with shoppers from within his catchment area.  Also AaramShop does not disrupt the brands’ existing logistics, distribution & pricing mechanism, rather it seamlessly rides on the same.

I believe that this (AaramShop) could be a possible solution to the complex universe of the FMCG / CPG online retailing as it tends to discuss the challenges and the opportunities that currently exist.

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  • http://www.aaramshop.com Vijay Singh

    Hi Rony,
    You are right only advertising based revenues are a tough game and they take time to kick in. However, AaramShop’s business model is not based on Advertising alone. We pursue a number of other revenue streams which are opt-in premium services for brands including shopper analytics, offline & online vouchers, brand widgets & apps, etc.

    Do visit http://www.aaramshoppro.com/2011/07/free-services-available-for-brands-on.html to view free services.

    & http://www.aaramshoppro.com/2011/09/premium-services-for-fmcg-cpg-brands-on.html to view premium services.

  • Rony

    In the about us Section – “AaramShop is a free to use service for both the consumers and partner retailers; therefore there is no escalation of cost of essentials when you use AaramShop ”

    Link for the above lines – http://www.aaramshop.com/cms.php?cmsId=6

    So are we saying that Aaramshop derives revenue only from Advertisements…….

    Something which is too good to be true……..