Consumer packaged goods companies need to plan for a so-called "1-5-10" market in the United States during the next five years, in which digital's current 1 percent penetration will likely expand to 5 percent and could accelerate to as much as 10 percent in short order, according to the report, The Digital Future: A Game Plan for Consumer Packaged Goods. The report was prepared for the Grocery Manufacturers Association by The Boston Consulting Group, Google and Information Resources Inc.

Digital penetration of 5 percent represents nearly one-half of total CPG growth during the next five years, meaning that companies without an effective digital capability risk stagnation, loss of share and even shrinking sales. Early movers, on the other hand, have the opportunity to establish leading positions that will be difficult for others to infiltrate. Digital penetration rates will vary in different locations and categories. Some categories could see digital penetration of 30 percent or more by 2018.

"Like most other industries, the CPG industry is experiencing the signs of digital disruption," said Elise Fennig, vice president of industry affairs at the Grocery Manufacturers Association (GMA). "That's why it was vitally important for GMA to examine how CPG companies can holistically adapt their digital and e-commerce agendas to plan for the future effectively. We intend for the work completed by the BCG, IRI, and Google team to be a go-to resource for GMA members – regardless of where they fall on the digital maturity continuum today."

"The CPG industry is fast approaching a tipping point, driven by a confluence of trends," said Patrick Hadlock, a partner at The Boston Consulting Group and a coauthor of the report. "Consumers are embracing technologies, devices, and services that make everyday tasks such as shopping, cooking, and even commuting quicker, easier, more fun, and more efficient. This is fragmenting the purchasing pathway as consumers regularly switch back and forth between digital and physical channels, and they interact digitally both in and outside of stores."

The report shows that the impact of digital is felt most acutely at the early stages of the purchasing pathway. Almost 40 percent of offline shoppers and more than 30 percent of online shoppers reported that technology's impact is greatest during the discovery phase. More than a quarter of both offline and online shoppers said that its biggest impact is in the search phase. In addition, almost a quarter of in-store shoppers reported online activity as one of the three most influential factors on their purchasing pathway.

Digital channels currently have the greatest influence on purchases of home care and general food products but are likely to expand in importance during the next five years as the market moves to a 1-5-10 world.

Traditional retailers face a massive wave of new competitors and competitive models. Large technology companies with deep pockets are building disruptive digital grocery businesses to serve this category and support broader strategic goals. Start-ups are using value-added services to take share and build defensible niche positions, often by combining new product offerings with digital channels.

CPG manufacturers will need to participate in multiple retail models; the winning models have yet to be established, and it is likely that numerous models will prevail.

"The cost of inaction for incumbent manufacturers is ceding control of their brands, share position and margins in the fast-growing digital channel," said Jamil Satchu, a partner at IRI Global Analytics and Consulting and a coauthor of the report. "Companies that do not play in the digital game are likely looking at flat or shrinking sales. Brand equity is at risk as the purchasing pathway shifts online and consumers more often search for and discover brands digitally. But the experience of other sectors demonstrates that early movers often establish tough-to-trump positions and advantages."

The report argues that while many companies have established a digital presence – a website, some digital advertising, a presence in social media –  most have yet to fully integrate digital into their operating model, build a big-data analytical capability, pursue a multichannel (or omnichannel) strategy, or tailor their product offerings to the digital or e-commerce marketplace.

All companies can make a series of low-risk, “no regret” moves that will better prepare them for a 1-5-10 world. These steps include developing an integrated strategy for how far the company needs to go and how to get there, shifting investments to establish a digital brand presence, building the necessary capabilities and organization for a fast-moving digital world, and shaping the evolution to digital with channel partners. Manufacturers also need to recast their existing capabilities, including product placement, marketing content development, and supply chain management, for the digital world.

A copy of the report can be downloaded at Grocery Manufacturers of America or BCG Perspectives or IRi.

Source: The Boston Consulting Group