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It’s all about the data: Big food brands sidestep retailers in pandemic,Financial Times,on May 30, 2020 at 10:00 am
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It’s all about the data: Big food brands sidestep retailers in pandemic,Financial Times,on May 30, 2020 at 10:00 am

Some of the world’s biggest food brands are realizing long-held ambitions to sell directly to consumers in the pandemic, using coronavirus disruption to sidestep retailers.

PepsiCo started selling boxes of snacks and drinks, including Tropicana fruit juice, Cap’n Crunch cereal and Quaker granola bars, this month on its PantryShop site, which ships to any zip code in the contiguous U.S..

A sister site, Snacks.com, allows online shoppers to pick from more than 100 Frito-Lay products, such as Doritos crisps and Tostitos tortilla chips. In the U.K., Kraft Heinz began delivering bundles of its eponymous canned food and sauces about six weeks ago.

The prospect of cutting out supermarkets might seem like a big prize for food manufacturers: the absence of a middleman should mean they can retain the profits themselves.

However, like most grocery delivery ventures, the sites are not expected to make money. Executives behind them say they have no ambition to replace retailers on a substantial scale any time soon.

Instead, they are using the initiatives to learn first-hand what works and what does not in e-commerce, and to gather valuable data about customers that are normally captured by retailers.

“It’s new for us, but I’m amazed by the kind of data you can get,” said Jean-Philippe Nier, U.K. head of ecommerce at Kraft Heinz.

Big food companies have made several efforts before to go direct, both online and in stores, although many of the initiatives have been marketing orientated.

Examples include Kellogg, which once had a cereal café in New York’s Times Square, and Nestlé, which tried delivering premium KitKat chocolate bars to households in the UK.

Direct-to-consumer has transformed some other consumer industries: Harry’s and Dollar Shave Club, for instance, upended the market for men’s razors. U.S. direct-to-consumer e-commerce sales leapt from US$6.9bn in 2017 to US$14.3 billion last year, according to eMarketer.

Specialist brands, such as Magic Spoon and Perky Jerky in the U.S. and the U.K.’s Graze, which was bought by Unilever last year, have promised to disrupt the food business.

It’s new for us, but I’m amazed by the kind of data you can get

Jean-Philippe Nier, U.K. head of ecommerce at Kraft Heinz

For most big food companies, however, direct sales “get lost in the rounding of their annual accounts,” said Chris Bones, a former dean of Henley Business School who chairs the UK consultancy Good Growth.

Delivery costs are a huge barrier to going direct. “If I’m selling individual items for just US$4 or US$5 each, the shipping on that is going to eat me alive,” said Greg Portell, partner at the consultancy Kearney.

Grocery delivery is more cost effective for retailers, which can pack several low value goods into the same basket, although even most of them fail to turn a profit from it.

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Coronavirus has made direct initiatives more viable. Steve Chantry, Kraft Heinz’s commercial director for northern Europe, said: “Different companies have had direct-to-consumer ambitions, but they haven’t found the right market circumstances.”

Appetite for processed food has risen in the crisis, reversing a multiyear trend in which consumers shunned old brands in favour of fresher and healthier alternatives. At the same time, shoppers have encountered bare shelves in supermarkets and struggled to secure online delivery slots.

“We felt there was an opportunity to create curated solutions for consumers,” said Gibu Thomas, head of global ecommerce at PepsiCo.

Stockpiling in lockdown has boosted demand for bundles. PantryShop’s kits are based around themes such as breakfast, family gatherings and workouts, and cost US$30 or US$50, depending on the size.

Heinz to Home offers three packages. An “essential” parcel, which includes baked beans, spaghetti hoops and tomato soup, and a sauces package, which features ketchup, salad cream and mayonnaise, each sell for £10 (US$12.3). A selection of baby foods is priced at £20 (US$24.6).

The company charges £3.50 (US$4.3) for delivery, although the fee is waived for essential workers in the UK.

In taking the tentative steps in selling directly, the companies are part of a much bigger rush into ecommerce during the pandemic.

Online sales have leapt from little more than three per cent of the U.S. grocery market before the outbreak to 10-15 per cent at its peak, according to Bain & Company estimates.

While Thomas said he did not expect direct to consumer to “remotely match” the scale of traditional retail channels for companies such as PepsiCo, he said the new projects were giving the group valuable insights.

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Quaker Chewy apple fruit crumble granola bars. Big food companies have made several efforts before to go direct, both online and in stores.

Tyler Anderson/National Post

“Obviously we want any business we get into to be sustainable, but the value can come in many different ways,” he said.

The data that PepsiCo and Kraft Heinz are gathering relate both to who the online shoppers are and also how they behave on the sites.

“There are a lot of things we can learn from it,” said Nier. He hinted that the company was looking at adding new products to the service in the U.K., possibly including gift options.

The ventures also give the food companies a foothold from which they could delve deeper into grocery delivery if the economics become more favourable in future.

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Sujata Dantiki, a former global ecommerce strategy manager at Newell Brands who is now a consultant with SSA in New York, noted it came at a time of tension between some consumer packaged goods groups and retailers, which have stolen market share with own-branded products.

“The lines between CPG (consumer packaged goods groups) and retail are getting blurred,” she said.

Kraft Heinz, based in Chicago, is eyeing direct-to-consumer initiatives in other countries, including the U.S., although it has no firm plans for another launch.

In the pandemic crisis, customers stuck at home have been more willing to receive several deliveries during the day. As they return to work, they will be more likely to consolidate any online shopping.

While packaged food groups maintain consumers are rediscovering the appeal of out-of-favour brands, it is an open question whether processed fare will retain its appeal after the crisis has passed.

“For sure there is potential, for us and many other companies,” Chantry said. “But I think the value in this is as much in the data, testing and learning as it is in any scale commercial proposition.”

Additional reporting by Judith Evans

© 2020 The Financial Times Ltd.

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