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The key factors that drove digital shelf success in 2022 – and what to focus on in 2023
2022 proved a tough year for grocery retailers and suppliers, but smart CPGs still managed to achieve outstanding results on the digital shelf. This is what they got right, and how to drive ecommerce success over the coming 12 months.
The pandemic years may be behind us, but the challenges facing CPGs are not going away anytime soon.
2022 proved an extraordinarily demanding year for grocery retailers and suppliers, as war in Ukraine disrupted supply chains, sent global commodity and energy prices soaring, and sparked recessionary fears in many markets.
Success on the digital shelf, too, became harder to come by.
After the explosive growth of 2020 and 2021, ecommerce cooled this year as consumers returned to more normal shopping patterns. At the same time, CPG brands faced growing competition from private label and the discounters.
Despite these challenges, smart brands still managed to achieve outstanding results online.
Here’s what the most successful CPGs got right in 2022 – and what to focus on in 2023.
It all starts with supply chain
No review of the past 12 months can start without considering the supply chain.
Supply chain disruption loomed large for everybody this year. According to a recent report from the Food Industry Association (FMI), 70% of US food retailers say they have been negatively impacted by supply chain disruption in 2022, up from 42% in 2021.
As a result, robust inventory management became absolutely critical for CPGs.
Once you go out of stock online, you run into all sorts of challenges. For example, you may find yourself paying for sponsored search that directs shoppers to a product that’s unavailable. On some websites, you may even end up sending shoppers directly into the arms of your competitors.
The most successful CPGs on the digital shelf were therefore those that shored up their inventory and made sure they had ample supply online.
Where they didn’t have the inventory to support promotions, smart CPGs deliberately pulled back and chose not to promote. Instead, they tried winning in other ways – for example, by making sure they ranked well in organic search.
Successful CPGs also ensured their internal teams were aligned on the right priorities. Occasionally, there’s a disconnect between ambitious salespeople and the supply chain leaders who support the inventory, so it was more important than ever this year that different functions talk to each other and work toward the same outcomes.
Inflation was another key factor driving online success in 2022.
As recessionary fears increased, shoppers started to cut back on certain discretionary categories. Private label and the discounters grew in importance. At the same time, commodity prices continued to rise due to the Ukraine conflict, leading brands to face increasingly difficult negotiations with retailers over cost price increases.
To hold their own in this tough climate, smart CPGs used every tool in the toolbox to track price movements and cost price increases in their categories. They also added private label to their core competitive set, and leveraged ratings and reviews to monitor shopper reactions to price changes and ingredient downgrades.
Not freaking out about the ecommerce slowdown
Successful CPGs also took a calm and considered approach to wider ecommerce market trends. Specifically, they refused to freak out about a slow-down in online growth.
Although ecommerce growth cooled in 2022, online has remained incredibly important – and eGrocery is, in fact, already back in growth. Brick Meets Click/Mercatus figures show US online grocery sales were worth $24.1bn in Q3 of 2022 versus $23.3bn in 2021.
Smart CPGs not only kept their nerve, they also recognized the continued importance of the interplay between online and offline sales. They understood that consumers increasingly research products online and then buy in store, or vice versa, meaning the two channels are inextricably linked.
However, while the most successful CPGs remained committed to investing in online in 2022, they definitely asked tougher questions and looked for new and better ways to win on the digital shelf.
A key strategy in this regard was the consolidation of tech stacks. Driven by growing concern about a potential upcoming recession, many CPGs spent 2022 re-examining their tech solutions to ensure they really help them take action and drive results.
As part of this, we saw a general move away from point-solutions tools. Lots of CPGs told us their teams are overloaded with point-solutions tools and need fewer providers to help manage their ecommerce business more effectively and efficiently.
It’s one of the reasons I’m so excited that e.fundamentals joined forces with CommerceIQ this year. It’s the right move at the right time, and it means we can now help solve retail ecommerce management in a holistic manner for our clients, rather than only offering digital shelf analytics.
Winning with automation
Another key factor driving online category success in 2022 was automation.
ecommerce is an incredibly fast-moving market and it’s becoming increasingly algorithmic, so you need tools that talk to each other and can automatically react to changing dynamics.
Throughout this year, I still saw far too many CPGs wasting time, money and opportunities by trying to manage their own retail sponsored search and retail media budgets. You simply cannot win as a human trying to manually react to whatever is happening in the market.
The most successful companies in 2022 were leveraging automated tools, such as the CommerceIQ Campaign Optimizer and Budget Optimizer, to ensure their budget was automatically split based on where the shopper traffic is, helping them stay one step ahead of the competition.
What to focus on in 2023
All of 2022’s success factors will remain important as we go into 2023, but there are also a few additional points CPGs should have on their radar. Chief among them is mobile shopping.
Mobile shopping or mCommerce was already important in 2022, and the shift to mobile will accelerate further in 2023.
Mobile devices were used for 9.8% of grocery purchases during Q3 of 2022, up from 6.7% in December 2021, according to research from PYMNTS. Across retail ecommerce, mobile sales are forecast to account for 44.2% of sales by 2025.
For CPGs, this means it’s high time to look beyond the desktop. There are big differences between mobile and desktop, particularly when it comes to how search results are displayed, so you’re not going to win on mobile if your strategy is based on a desktop view of the world.
It’s one of the reasons why we, at e.fundamentals, are gearing up to expand our mobile shopping capabilities even further. We’re already the only digital shelf analytics provider able to track the digital shelf from a native app on a smartphone. Now that more and more of our clients demand mobile tracking, we’re quickly increasing the number of mobile apps we track by Q1 2023.
I also expect social commerce to keep growing in importance.
Unlike in markets such as China, social commerce has been relatively slow to take off in the US. A Bizrate survey for eMarketer found just 17% of US adults have shopped via livestream or video commerce.
But this is changing fast. Over the past three years, the US social commerce market has nearly doubled in size and is forecast to be worth $79.64bn by 2025. Platforms as well as retailers are ramping up their social commerce efforts: TikTok is reportedly partnering with TalkShopLive to offer livestream shopping in the US, while Walmart has been adding TikTok-style livestream shopping functionality to its ecommerce site.
CPG brands, too, are waking up to the potential of social channels to actively drive sales, and shifting media budgets toward social commerce. Already, eMarketer data suggests 30% of US social media buyers decide to make a purchase on social media because they saw an ad. As a recent McKinsey report highlights, brands also see social commerce as a route to deeper, more meaningful relationships with consumers.
Of course, social commerce also has its challenges. Media reports suggesting Instagram is ‘u-turning’ on its social commerce strategy speak to this. Nevertheless, I expect retailers and CPGs to keep experimenting with social commerce, turning it into an increasingly important route to market in the years to come.
Don’t abandon quick commerce
Investment in tracking, and winning, in quick commerce will also be critical in 2023.
After lots of hype and VC investment, quick commerce had a bit of a rough ride in 2022, with sales slowing and several startups going bust. However, this doesn’t mean q-commerce is a lost cause. Far from it.
As I’ve written previously, the market was always going to consolidate, and the operators that have stuck around – think Gopuff, Doordash, and Uber Eats – continue to be really important.
Despite its well-documented challenges, I also remain convinced CPGs should stick with Instacart. I am encouraged to see that Instacart is working hard to evolve its business model, investing in robotics, smart carts, and fulfilment centers, among others, and I believe the consumer proposition remains strong.
Instead of buying into the general doom-and-gloom narrative around q-commerce, smart CPGs will take a differentiated view on last-mile delivery in 2023 – and won’t be afraid to invest where it makes sense for their categories and brands.
Finally, CPGs will want to keep a very close eye on retail media in 2023.
The retail media landscape is shifting fast, with more and more retailers getting into the mix. Even Uber now has Uber Ads, which allows brands to target consumers based on where they’re going.
As retail media diversifies and becomes more fragmented, CPGs will face tough decisions about how to adequately split their spend. They will need to be much more intentional with how they’re spending their retail media dollars. The days when you could focus just on Amazon, Walmart, Instacart, and Google are numbered.
This was already bubbling up as a priority in 2022, and I expect it will become more important in the next 12 months and beyond.
2023 won’t be easy. Many of this year’s big challenges, including inflation and supply chain disruption, will continue to play out over the coming year. But armed with the right ecommerce management tools and a clear set of strategic priorities, CPGs have every reason to look forward to great results on the digital shelf in 2023.