Online sales channel creates space for nimble insurgents as giants sleep

03 April 2019 3 min. read
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Consumer products risk considerable disruption, with companies pressured by online sales, shifts in consumer expectations and tastes, the expansion of low-cost retail models, and wider shifts towards more sustainable consumption. Yet meeting the changing market conditions can be challenging, particularly in response to pure-play giant platforms such as Amazon and Alibaba, which provide easy market access to corporations, long-tail players, and smaller newcomers.

Understanding the possible impact continues to be a challenge for firms that may be mistaking strong online growth with success in that space. New analysis from Bain & Company considers some of the challenges faced by the industry as small players increasingly siphon off market share.

Top global consumers companies log respective category e-commerce penetration

Digital distribution channels are increasingly seen as intrinsic to sales revenue. While considerable investment is being made into the segment, new analysis shows that some companies have fallen considerably behind in terms of their channel strength, ceding market share to competitors.

According to the consulting firm’s analysis of the top 10 largest consumer goods companies globally, seven are below their category e-commerce penetration, reflecting that they are still far below their categorical potential. The challenge is that the online world allows for competitors to offer a wide array of products far outnumbering what is possible on store shelves.

There remain several advantages, with key online channels such as Amazon having a relatively tight first search result outcome. Indeed, fewer than 70% of online shopping searches extend beyond the first page. Approximately half of online shoppers in the US do their initial search for products through Amazon.

Insurgent brands benefit from highly fragmented Amazon assortment across categories

Larger companies' effectiveness through scale, which allowed them to expand and outperform smaller competitors, has been reduced because of the development of social media and other online platforms. Small insurgents with niche offerings are now better able to access demand, and can often provide better products and services than larger competitors while leveraging local knowledge and production. Insurgents* benefit from a lack of legacy systems, providing the ability to be nimble in fast-changing markets.

In terms of current conditions, insurgent brands have considerable presence in a wide array of product categories. In skin care, for instance, major brands have approximately 40% of the market, long-tail brands have 45%, and insurgents claim 15%. The coffee, tea and beverages category has a considerably higher incidence of insurgent activity, at almost 40% of market share for the top 100. Snack foods also tend to have a relatively high incidence of insurgent brand activity. Candy and chocolate and oral care, however, remain stalwarts of market dominance for traditional brands.

* Defined by Bain as brands that are less than 25 years old, growing at more than 10 times the category growth rate and with revenue in excess of $25 million.