With Amazon Looming, Oreo Maker Dives Deeper Into Online Retail
Mondelez International Inc., trying to adapt as more shoppers buy food outside of traditional grocery stores, is diving deeper into online retail with a holiday-season website that is selling Oreo tins directly to consumers.
Big food companies, which have dominated the shelves at brick-and-mortar stores for decades, have had mixed results selling products directly in recent years as online retail slowly takes hold in the grocery industry. The holiday Oreo website, which kicks off Monday, marks the first time Mondelez will directly handle the supply chain and shipping logistics, without going through a store or online retailer like Amazon.com.
Mondelez created a dedicated e-commerce team last year with a goal of generating $1 billion in revenue by 2020. Most of that money will come from customers shifting their purchases online -- buying snacks like Triscuits and Toblerone chocolate on Amazon or Wal-Mart’s website, rather that visiting a store. Yet, Mondelez says it can also increase sales with limited-time and seasonal offers directly through its website, selling unique products that customers won’t find elsewhere.
“There’s definitely value in scarcity,” said Arthur Sevilla, global director of e-commerce strategy at the Deerfield, Illinois-based company. “As social media becomes the predominant market value, scarcity drives buzz.”
Mondelez had a holiday website in the US in 2015, and did a direct-to-consumer test in China with Alibaba earlier this year. But in both cases, the company outsourced the logistics, cutting down on profit margins. In the past 18 months, the Mondelez e-commerce team, which includes Amazon veterans, has grown to more than 60 employees from four when it started.
The 2016 holiday website, which sells Oreo tins for $19.99, lets customers send cookies to friends, using only a mobile number or e-mail address. The technology the company has developed for the Oreo holiday experiment could be used profitably in other regions for similar limited-time offers, Sevilla said.
“If it’s successful, we’ll import this model to other markets,” he said.
Mondelez and its competitors in the US food industry are struggling to find growth amid changing consumer tastes. Most of the growth in recent years has come from natural and organic products, with smaller startups that boast clean-ingredient labels muscling into the snack market. And more food is being purchased online, with Amazon making a push into the grocery business.
Last year, General Mills Inc. abandoned a direct-to-consumer snack subscription service after about a year and a half. Kellogg Co., meanwhile, teamed up with International Business Machines Corp. earlier this year on a website that lets shoppers order customised granola. The food-and-beverage market in the US is worth about $800 billion, and currently about $33 billion, or 4%, of those sales occur online, according to John Blackledge, an analyst at Cowen & Co. With younger consumers getting more comfortable buying groceries via the Internet, he predicts online food sales will grow to $70 billion by 2021.
Still, it’s unlikely that packaged food and beverage companies will gain traction with direct-to-consumer websites, at least when it comes to the weekly shopping trips that fill the pantry with staple items.
For one, it’s expensive to lure online customers with marketing, and most shoppers don’t want to visit dozens of website to find the items they buy on Amazon or at a grocery store. In addition, it’s costly to try to match Amazon’s online logistics, Blackledge said. “Amazon has the infrastructure to do it,” he said.
“There’s a lot to it,” Blackledge said. “I’d be surprised if it scales up for the manufacturers over time.”
News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.