Why eCommerce Retail Analytics is Vital for CPG Innovation

For decades, CPG was dominated by big multinational companies, like Nestle, Unilever and P&G.  In large part, their strategy consisted of slow and conservative growth. About 20 years ago, things began to change. Smaller, niche brands started becoming more relevant and big CPG began to lose some of the stranglehold it had on retail.  There are different theories as to why this started to happen. Some think that the movement towards more natural and organic products was a factor.  Others think that big CPG was too slow to innovate. What matters most is that this trend has only accelerated since and CPG companies big and small are being forced to adapt.

I have tremendous respect for retail analytics companies like Nielsen, IRI and SPINS.  Not only were they pioneers in our space, they have also made brands smarter, and retail data more relevant.  By reporting on brick-and-mortar retail sales, these companies have filled a large blind spot with important data, giving brands some of the tools they need to make smarter decisions by helping them understand consumption on the physical store shelf.

That being said, there is one big problem with brick-and-mortar retail data: physical store shelves have finite space. Only so many products fit on a store shelf, making a category manager’s job a tough one. While category managers have started adding newer brands to their shelves, most of the time they only pick products that have a solid sales history and are proven winners.

As a result, brick-and-mortar retail data is light on trends.  Since most of the products on a retail shelf have been there for years, this data is filled with trailing indicators.  For example, a product trend can take about one year to grow large enough to become noticed by a category manager. It then takes another year to reset the store shelf/plan-o-gram.  This means that the entire cycle of getting a new product trend on a physical shelf can take two years or more. By the time most trending products make it to the store shelf of a national chain, they are no longer trends, they are mainstream products saturated competitors. 

The time has come to look forward.  To do this well, a company needs to know where to look and what to look for.  Trailing indicators are nice, but catching the wave of the right trend will make heroes out of individuals and companies. To find the right waves, companies need to look towards digital retail.

Unlike physical retail shelves, the digital shelf is infinite in size. According to Whole Foods Magazine, just in the Vitamin and Supplement Category, there are more than 17,000 different brands on Amazon.  Compare that to a few dozen at Walgreens or Target.  The barriers to entry to get on the Amazon shelf are minuscule compared to the big retail chains.  A company with a new product concept can find a manufacturer and have it available for purchase on Amazon within weeks or months.  Compare this to the two years it takes a hot product to get on the shelf at brick-and-mortar.

Digital retail data provides CPG companies (big and small) a much larger set of data to identify trends.  By seeing leading indicators two years before they hit brick-and-mortar, brands can innovate much more quickly and develop products that are heavily data-driven.  This gives brands the ability to penetrate a trending category when the competition and cost to become relevant is still low.

It is fine to let competitors be the first movers, but if brands know where to look, they can become quick second movers, or early entrants. The brands that are only looking at brick-and-mortar retail data will miss trends. They are going to continue to fall behind on innovation. That being said, I am a strong believer that brands should continue to subscribe to Nielsen, IRI or SPINS. These data sources are important and valuable. But these data sources need to be supplemented with comprehensive digital retail analytics data. Understanding the total retail universe is critical.

The age of slow and steady conservative strategies are behind us. Smaller, trend-forward brands will continue to enter the market and catch the big guys flat-footed.   As we move further into the information age, brands must realize that data is the most valuable raw material they can use for successful innovation. The market share of the legacy brands our parents grew up with will continue to shrink, while the brands that innovate will steal share and grow to become relevant. As Peter Drucker once said, “innovate or die.”

Are you looking at the most forward-looking data to guide your product development and innovation strategy?