CPG Companies Are Getting Personal to Stay Ahead of Challenger Brands

In January, L’Oréal will unveil a state-of-the-art innovation center in Paris, inviting startups to pitch their best ideas on everything from artificial intelligence to augmented reality for the chance to work with the conglomerate. Meanwhile, L’Oréal has hired nearly 1,700 digitally focused employees over the past five years and increased its digital advertising budget to make up 35 percent of its media spend, up from 30 percent in 2016. “We’re seeing a strong consumer appetite for digital experiences like virtual makeup, diagnostics, online beauty consultations, live broadcasting and personalization,” said Lubomira Rochet, L’Oréal’s chief digital officer. “Open innovation supports the growth and development of new entrepreneurs and brings new ideas to our brands.” L’Oréal isn’t alone. With looming competition from Amazon and upstarts like Glossier and Blue Apron, mainstays like Unilever and Procter & Gamble are combating sluggish growth by investing millions to catch up with nimble-minded rivals that have quickly mastered ecommerce, unique products and social platforms. Smaller challenger brands are “providing the road map for what some of the larger brands should be doing,” noted Ben Zeidler, research director at L2. However, “there’s always an advantage to being a P&G when you have that reach and scale.” All told, CPG brands that invest in technology and digital transformations are poised to gain $2.95 trillion in revenue and efficiency savings (defined as value) over the next decade, according to Accenture and the World Economic Forum’s Shaping the Future of Retail report. Here’s how CPG companies are investing in technology, as well as the challenges they face in becoming more digitally minded. Partnering for success In addition to L’Oréal, Mondelez, Unilever and Procter & Gamble have each poured money into programs that work closely with startups to pilot emerging technology through small tests. [kickout id="1"] Unilever’s work is particularly notable, as the company has run 100 programs for its brands since launching the Unilever Foundry platform in 2014. One example: Hellmann’s began testing grocery delivery with on-demand service Quiqup in August, allowing consumers to order mayonnaise and other ingredients online and have them delivered to their house. Hellmann’s declined to share initial stats, but the program is aimed at competing against Amazon Fresh. Such projects help brands “grow their business just by seeing how a smaller business operates—it’s a complete reversal of the understanding of the market traditionally,” explained Brady Donnelly, founder and managing director of digital agency Hungry. While investing in close-knit relationships with startups is paying off for the biggest brands, only 28 percent of all CPG companies provide extensive resources for startups like money and offices, per the Accenture report. Part of the problem: investing in startups requires heavy financial investments, and hard metrics such as sales are used to gauge a program’s success. “They look at it from a purely fiscal perspective and fear creating competition for themselves,” Donnelly said. Data-based shopping Ecommerce only makes up one-third of all CPG sales, but savvy brands see an opportunity: online channels drove 89 percent of growth for CPG products between 2016 and 2017, per Nielsen. The challenge for brands lies in understanding the customer experience, according to L2’s Zeidler. There’s still a gap between offline and online shopping. While 85 percent of CPG companies use cookies to track consumers’ digital activities, only 49 percent of brands plug personalized data into offline experiences that mimic online shopping, according to Accenture’s data. That said, Zeidler added that there is a big opportunity for brands to beef up their own data capabilities instead of leaning on retailers. “If you’re not sure what Amazon, Walmart or Jet are going to do in the long run, you want to build a moat by having your own direct-to-consumer capabilities where you own the data.” Digital deliveries From autonomous trucks that deliver products to real-time shipping notifications for shoppers, CPG brands are making their supply chains—the process of manufacturing and distributing products—more efficient and convenient. Anheuser-Busch, for example, piloted Uber’s self-driving trucks to carry 52,000 cans of Budweiser 120 miles down a Colorado highway last year and is now partnering with Convoy, an online marketplace that matches shipments with truck drivers in real time. Meanwhile, Amazon continues to explore using drones for delivery. Still, there is work to be done. Only 28 percent of CPG companies are using the Internet of Things—Japanese beauty brand Shiseido is piloting robot-powered assembly lines to crank out products, for instance—in their supply chains, according to Accenture’s findings. “The more Amazon gets into the CPG world, the more algorithms are determining what people buy and how we optimize the supply chain,” noted David Portalatin, food analyst at NPD Group. “It’s fair to say that traditional industries probably have some catching up to do to get up to speed to that level of data and analytics usage.”