It is clear that e-commerce disruption is a massive force of change in the consumer goods world. Even in markets where e-commerce share is still relatively small, it is changing shopper behavior in quite remarkable ways, and that in turn is putting pressure on the relationships between manufacturers and retailers. But there is more disruption to come! Just when you think you’ve begun to understand the impact e-commerce might have on your business, something else comes along. So far, most companies have focused on shoppers moving to e-commerce. Little has been discussed about e-commerce disrupting a route to market strategy. Are you ready for the next wave of e-commerce disruption? Read on!
Remember the little guy? The next front in the e-commerce disruption battle
Across the world, analysts have been forecasting the demise of the mom and pop shop (or traditional trade). When big retail stormed into Asia a couple of decades ago manufacturers focused their efforts on the new big chains. Yet mom and pop shops have proven far more resilient than most foresaw. And if we add the share owned by convenience stores (many of which are franchised, and therefore to some extent independent retailers) this is even bigger. The small store format, in its many guises, seems to be able to tap into something that shoppers universally like. So, what has this got to do with e-commerce, Mike, I can hear you ask? Because small stores are at the forefront of the next big e-commerce disruption. And if this plays out, not only will it give all small stores, independent and chain, a new lease of life, it might also create another monster headache for sales managers and consumer goods professionals.
The next wave of e-commerce disruption – E-commerce is after your small stores business
It is this proximity to the neighborhood that e-commerce operators are looking to exploit. Among all the fuss about the huge sales number of singles day, a low-key initiative by Alibaba in China went almost unnoticed. But Alibaba is partnering with retailers, to act as distribution points, selling points. Of course, this makes sense – and isn’t particularly new. E-commerce players have been looking for delivery/pick up points for years as they recognize that the ‘last mile’ to people’s homes is incredibly expensive.
So why should consumer goods manufacturers be concerned? Surely this is a good thing – Alibaba supporting the local stores? Makes you feel all warm inside right? To an extent, yes – it does give extra support for these retailers and potentially a much-needed cash injection. But how about the consumer goods company? How does it impact you? Let me paint a picture, using a very real scenario.
E-Commerce Disruption Case Study – The challenges facing consumer goods sales leaders and professionals
Let’s imagine supply 2,000 outlets across a geography, via a distributor (or maybe direct – it doesn’t really matter). You also supply Alibaba. The business with Alibaba is less profitable, but growing fast, and the e-commerce team are the heroes of the business as they keep hitting their targets.
Alibaba start shipping orders to shoppers via 400 of your 2,000 outlets. And while they are at it, Alibaba start collecting orders from those outlets too replacing the orders that the store placed with your distributor (or your sales team). After all, if they are shipping to those outlets anyway, it makes sense to bulk out the order with product to stock the shelves in those stores.
Your distributor calls to complain – he now only has 1,600 live outlets as 400 stores now order direct from Alibaba, and the economies of his business don’t make sense. He’s losing money as his sales productivity has crashed. He’s also getting pressure from his customers as the Alibaba supplied stores have better pricing. Your distribution to the other 1600 outlets is now at risk.
Next up you get a letter from the distributor’s lawyer, saying that you are in breach of their exclusive distribution license by letting Alibaba distribute to this territory.
Then the CEO calls, and wants to know why sales are down in the most profitable part of the business, and what are you going to do about it.
As I say, this is a real scenario faced by a client in China, and it could happen to you, tomorrow. Anyone in consumer goods who is under the impression that e-commerce won’t affect them, or that they can ‘box away’ e-commerce to a dedicated team without repercussion for the rest of the business is really running a huge risk. E-commerce impacts the entire business, not just what your e-commerce team manages. The impact of even a small move to e-commerce could have massive implications for your offline business and your profitability. Handling this new world of retail and shopping disruption requires new capabilities across the entirety of sales and marketing, not just among those that are managing e-commerce channels and customers. If you don’t want to wait until it’s too late, get in touch, and we’ll rapidly assess your retail disruption readiness.