CPG Online

This could fit into our ‘Follow-Ups’ department, since that is where we regularly discuss online issues. Just last week we carried an item about Procter & Gamble’s eStore initiative, which is also discussed (along with a similar move by General Mills) in this Advertising Age article.

Despite the tremendous growth of online retail in a number of categories (I do a fair amount of my own shopping online – books, music, video, and electronics for the most part), I have been skeptical about the viability of online for CPG. I’m still not 100% convinced, but I am sufficiently intrigued by the business model for a venture called Alice.com that I am willing to be convinced.

The full purchase price of products at the site goes to the suppliers, meaning that they get their own margin plus the retailer’s margin on all sales. Where Alice makes her money is on marketing support funding from the suppliers:

[Alice] is collecting $10 to $12 in marketing dollars from manufacturers for coupons, loyalty programs and free samples on a typical shopping cart, which has 10 to 11 items and a ticket just less than $50.

This is really not as new as it sounds. After all, a traditional supermarket has net profits in the low single digits – which means that most goods are sold at a loss, offset by income from the 15%-20% trade promo funding the stores receive on most purchases.

Two benefits for suppliers selling through Alice.com (there are already more than a hundred, including some very big names) are that they set their own prices and that Alice, who makes her money from them, has no incentive to introduce private label.

The big names will of course garner the most attention, but I also think sites like this might be a way for second-tier suppliers and niche products to maintain distribution as they see their shelf space diminished by SKU rationalization.

The concept is certainly not proven yet, but the site, which was launched in June 2009, is already getting two million unique visitors per month, a pretty impressive total. This is a development worth watching. Last fall, I bought a new GPS from Amazon. This past December, I bought most presents online; perhaps soon I’ll be buying my tea there as well.

Exit question: In three years, what percentage of CPG products will be sold online?