The "Winner-Take-All Digital World for CPG" report identifies four factors that are shaping the market for CPG companies. First, while multiple business models are emerging, only a few will be disproportionately influential. These include several models advanced by Amazon (such as home delivery and Prime) and click and collect, which has demonstrated success in Europe and is well suited to the lifestyle of busy and mobile U.S. consumers. Second, the game is increasingly played by new rules requiring very new skills. Third, early-adopter consumers are already settling into patterns of digital buying behavior. Fourth, and most important, success breeds exponential success: once brands establish leadership positions online, they are tough to dislodge.

The most likely sector-wide scenario is for e-commerce in the U.S. to average 5 percent of the CPG sales mix by 2018, or some $36bn annually, which would represent about half of expected CPG sector growth overall. As a result, companies that lack effective digital capabilities risk stagnation, share loss, or, in some categories, shrinking sales. At 10 percent penetration it is an entirely new paradigm.

"CPG companies that assume their 20 percent off-line share will translate to a 20 percent online share are playing to lose," said Gabrielle Novacek, a BCG partner and a coauthor of the report. "Winners get in early, with strategies and campaigns designed for digital, and they make the often-significant investments necessary to grab share and build an early lead. They stay out front and frequently increase their leads because sales rankings and e-commerce algorithms are self-reinforcing. Slower competitors are relegated to also-rans, a position from which it is hard to catch up."

The report makes the case that major CPG players essentially need to start from scratch in digital commerce against a host of competitors, many of which have never even shown up on the brick-and-mortar radar screen. It is a fundamentally different competitive set, and even small companies can be massive disruptors. In category after category, many such new competitors have already discovered how to win and have created substantial leads.

"This research shows that CPG companies must rethink everything from business models to marketing to supply chain in order to respond and stay competitive," said GMA's Jim Flannery, Senior Executive Vice President, Operations and Industry Affairs.

The report lays out the basic digital building blocks for CPG companies. These include developing an integrated strategy, revisiting category management by channel, rethinking supply chain configuration, and building an adaptive organization.

Companies that want to finish first need to take action in six ways: fight for digital "shelf-space" prominence; establish a strategy for Amazon; develop the capabilities for click and collect; keep pace with new business models; retool marketing and media; and develop digital leadership.

Understanding the dynamics of the digital store is the first big step. "The myth of endless digital shelf space is exactly that – a myth," said Bob Black, a BCG senior advisor and a coauthor of the report. "Consumers search for what they want online, they get offered a handful of top-ranking choices -- which are determined by a sales or popularity algorithm -- on a small screen, and, more often than not, that's what they choose from. Brands have to be present to win, and screen position has to be earned rather than bought."

A copy of the report can be downloaded, click here.

Source: BCG and GMA