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Food for Thought2017 E-Commerce Trends Impacting Online Grocery Sales

September 21, 2017

Housekeeping

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Copyright 2017 ChannelAdvisor | Confidential

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Today’s Speakers


Mike ShapakerVP of Product Management

ChannelAdvisor

MODERATORJonathan Laverentz

Product Marketing ManagerChannelAdvisor

Agenda


Major trends driving e-commerce and their impact on online grocery retailing

Threats and opportunities facing established players

Ideas for surviving and thriving

Q&A

Today we’re talking about

Global E-Commerce Expertise

Copyright 2017 ChannelAdvisor | Confidential 6

OUR MISSIONTo connect and

optimizethe world’s commerce

Introduction E -C ommerce and G rocery

C opyright 2017 C hannelAdvisor | C onfidential

US Grocery/CPG E-Commerce

Source: eMarketer, Nielsen

0% 5% 10% 15% 20% 25% 30%

Bakery

Beer and wine

Frozen foods

Meat

Dairy

Packaged groceries

Household care

Personal care

Healthcare

Pet care

Beauty

Share of Sales via E-Commerce by Category

$771B-0.1%

$74B+32%

E-Commerce

% Respondents Indicating Online Food Purchase in Past Year

Sources: E-commerce in Europe 2016, Postnord, CNBC/Cowen & Co. (US)Copyright 2017 ChannelAdvisor | Confidential

Global Grocery E-Commerce Market Share

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Source: Kantar WorldpanelCopyright 2017 ChannelAdvisor | Confidential

TrendsAmazon


Amazon Revenue


$88,988

$107,006

$135,987

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

2014 2015 2016

Amazon Revenue ($M)

Source: Amazon

Amazon’s Stated Mission

“Our vision is to be Earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.”

Key Tenets:• Value• Selection• Convenience


First Party vs. Third Party


GM

V/SK

U

1P Dropship 3P

3P – Long Tail of SelectionSeller sets price.

1P – FMCG, CPG, etc. High velocity.Amazon sets price.

Dropship – bulky, moderate velocityAmazon sets price.

13 million SKUs 350 million SKUsSource: 360pi

55% of Product Searches Begin on Amazon

44%

34%

21%

55%

28%

16%

0%

10%

20%

30%

40%

50%

60%

Amazon Search Engines Retailers

2015 to 2016 % of Searches

2015 2016

Source: BloomReachCopyright 2017 ChannelAdvisor | Confidential

Amazon Growth Rates by Category

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

other

toys and games

tools and home improvement

shoes

health and beauty

food

apparel and accessories

home and kitchen

electronics and accessories

Source: Slice IntelligenceCopyright 2017 ChannelAdvisor | Confidential

0%

20%

40%

60%

80%

100%

US UK DE

Estimated Amazon E-Commerce Market Share


Source: Fung Global Retail Tech, EuroMonitor, Fortune eMarketer, Slice Intelligence, ChannelAdvisor estimates

34%

43%

16%

26% 29%

41%

TrendsC hanges in offline retail


There is Turmoil in Retail

0

5

10

15

20

25

30

35

40

45

2010 2011 2012 2013 2014 2015 2016 2017

Announced US Retail Bankruptcies

Sources: S&P Global Market Intelligence; Fung Global Retail & Tech

ThroughJun 12

0

10

20

30

40

50

60

2010 2011 2012 2013 2014 2015 2016 2017

UK Retail Company Failures

ThroughMid-July


But…There is Still Retail Expansion

Source: Fung Global Retail & Tech

Year-to-Date Major Store Opening Announcements

As of June 23, 2017

Aldi will complete a 400 store expansion by the end of 2018. WM Target of 59 stores includes new, expanded and relocated stores. Target is opening only small-format stores. Macy’s Backstage stores will be opened within existing full-line Macy’s stores.

And Too Much Grocery Space in the US?

Source: WSJ

Grocery Discounters Have Expanded Globally

Source: Planet Retail, BCG

0%

10%

20%

30%

40%

50%

60%

Turkey Germany Poland Denmark Austria Ireland Netherlands Switzerland Portugal UK Belgium France US Australia

Grocery Discounters' Market Share

2000 2015


An Example from the UK

Source: Kantar Worldpanel

27.8%

16.0% 15.1%

10.6%

6.9% 6.1% 5.2% 5.0%2.2% 1.3%

3.8%

0.0%

5.0%

10.0%

15.0%

20.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Tesco Sainsbury's Asda Morrisons Aldi Co-op Waitrose Lidl Iceland Ocado Other

Y/Y

Grow

th

Mar

ket S

hare

UK Grocery Market Share %, June 2017

Share Y/Y Growth


Retail Outlets Redefined

Copyright 2017 ChannelAdvisor | Confidential Source: Wall Street Journal

Pure Play Online Moving Offline


…the ability to pick up…purchases straight away without having to wait for them to be delivered, combined with low, online-world prices has long-term appeal: "It's like the future of retail.” 28-year old Amazon Books customer

Source: BBC

Amazon and Whole Foods


Public Grocers

- $40 billion

Amazon+ $14 billion

Source: CNBC

TrendsDevices , Apps , and Digital


The Consumer is Mobile First

2016• 1.46 billion smartphones

shipped; 260 million PCs shipped

• 2 billion people worldwide have a smartphone

• ChannelAdvisor data over Cyber-Five US: 72% of traffic and 46% of

orders EMEA: 72% of traffic and 64%

of orders

Sources: eMarketer, Wall Street Journal, IDC, ChannelAdvisorCopyright 2017 ChannelAdvisor | Confidential

Mobile Usage Dominated by Handful of Apps

Source: KPBC Internet Trends 2016

Average # Apps Installed

on Device

Average # Apps Used

Daily

Average # AppsAccounting for

80% of App Usage

Time Spend on Phone (per

Day)

Most Commonly Used Apps

Worldwide 33 12 3 4 hours FacebookWhatsApp

Chrome

USA 37 12 3 5 hours FacebookChromeYouTube


In E-Commerce, Marketplaces are Winners on Mobile

Source: comScoreCopyright 2017 ChannelAdvisor | Confidential

Top Shopping Apps1. eBay Classified2. Amazon

Top Shopping Apps1. eBay 2. Amazon

Smart Speakers Enabling ‘Voice Commerce’


Consumption of Media is Changing

Sources: Fung Global Retail & Tech, Ofcom Communications Market Report 2016

Proportion of Time Attributed to Activities, by Age (UK)


Social Consumes a Large Percentage of Screen Time

• ¾ of Facebook users and ½ of Instagram users use each site daily

• In China, messaging is used for “everything”

Source: Pew Research, Statista, SmartInsightsCopyright 2017 ChannelAdvisor | Confidential

Millennials Trust in Advertising by Format

Copyright 2017 ChannelAdvisor | ConfidentialSource: Nielsen, Fung Global Retail Tech

Connecting with Consumers


% of consumers that trust online reviews as much as personal recommendations

84%

Smaller brands using social to connect with customers and build audience

• # Reviews• Authenticity

Source: BrightLocal

TrendsS hopping B ehavior


0%

5%

10%

15%

20%

Compare prices Find productinformation

Find or redeem acoupon

Read customerreviews

% Consumers In-Store Smartphone Use

Online is Influencing Offline Sales

Copyright 2017 ChannelAdvisor | ConfidentialSources: Forrester, Deloitte University Press

0%

10%

20%

30%

40%

50%

60%

2013 2014 2015 2016

% In-Store Sales Influenced by Digital/Mobile

Digital Influence Mobile Influence

Millennials Aren’t Brand Conscious


Source: Cadent Consulting Group/ Adage.com

% of No Preference Between Private Label and National Brands

51%

0

5

10

15

20

25

30

Generation Z Millennials Generation X Baby Boomers

% Total Population in US/UK/DE/FR/IT/ES

Millennials Want Clean/Healthy and/or Lower Cost

0

10

20

30

40

50

60

70

80

Expect GMO-Free Food Expect ancient grains Willing to pay more fororganic/sustainable foods

Trust in smaller brands hasgrown

Would buy all food online ifpossible

Millennials Age 50+

Sources: Fung Global Retail & Tech, Maru/Matchbox

0 5 10 15 20 25 30

Baby Boomers

Generation X

Millennials

% US Population That Sees Eating Right as Most Important Behavior to Stay Healthy

0 5 10 15 20 25 30 35 40 45

Baby Boomers

Generation X

Millennials

% UK Population Agreeing that Cheaper Products are Chosen Over Branded Foods

2014


TrendsS maller B rands


Smaller Manufacturers Driving Grocery/FMCG Growth

0%

10%

20%

30%

40%

50%

60%

LargeManufacturers

MediumManufacturers

SmallManufacturers

Private Label

Share of Sales Share of Growth

-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Small Manufacturers

Medium Manufacturers

Large Manufacturers

Private Label

Clean Conventional

Share of Sales and Share of Growth by Company Size Sales Growth by Type of Product

22%

11%

1%

13%

0%

5%

10%

15%

20%

25%

Small Manufacturers Medium Manufacturers Large Manufacturers Private Label

Growth in Items Sold per Distribution Point (Shelf Space), 2013-2017

Source: Nielsen (Apr 2017)Copyright 2017 ChannelAdvisor | Confidential

It’s Never Been Easier to Introduce a Product

• On-demand manufacturing• Investment Crowdfunding/Accelerators

• E-commerce• Drop-shipping• Social networks Hyper-targeted advertising

plus word of mouth/influence

• More off-line shelf space for proven products

Copyright 2017 ChannelAdvisor | ConfidentialSource: Wall Street Journal

Investment in CPG/FMCG Startups

Copyright 2017 ChannelAdvisor | ConfidentialCopyright 2017 ChannelAdvisor | Confidential

Source: CBInsights

TrendP rivate Label


Retailers Promoting Private Labels


CPG Private Label Market Share

Copyright 2017 ChannelAdvisor | ConfidentialSource: William Blair, Nielsen

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

UK France Netherlands Germany Spain Italy US Australia

2015 Private Label Market Share

US Private Label Share by Store Type


0%

10%

20%

30%

40%

50%

60%

Total Value Grocery WarehouseClub

ConventionalGrocery

Supercenters Drug Stores Dollar Stores MassMerchandisers

Private Label Market Share by Store Type (US 2017)

Source: Nielsen

Private Label Share in Select Stores

Sources: CNBC.com, Reuters, Cincinnati.com, Forbes

Private label share (est.)

90% 90%

30%

(in goods similar to those carried by Aldi) (excluding fuel and pharmacy)

25%

“Having a private brand from a margin mix point of view has always been important, but it is even more important now.”

Doug McMillon, CEO, Walmart

Amazon.com – Battery Category


ADVERTISING

Amazon.com – Household Battery Category Top Sellers

Copyright 2017 ChannelAdvisor | ConfidentialSource: KP Internet Trends, Amazon

Amazon Prime Day – Electronics and Apparel


Amazon, 44%

Bose, 3%Sony, 3%Motorola, 3%

Fitbit, 3%Anker, 3%

iClever, 3%

iRobot, 3%

Ninety7 Inc., 3%

Other, 28%

Share of Page One Electronics Deals on Amazon Prime Day

Source: L2

“The Prime Day fashion deals section was almost exclusively Amazon’s private label brands”

Amazon Private Label – CPG


Amazon Private Label – FMCG


July 2016 July 2017 Sep 2017

Priv

ate

Labe

l Pro

duct

s A

vaila

ble

on A

maz

on.c

om

Source: ChannelAdvisor

TrendLogistics as a B attlefield


Impact of Long Delivery Times Varies by Category


70%

23%

5%

2%

Share of consumers choosing different delivery options

Cheapest form of home delivery

Same day

Reliability (time window)

Instant

0% 5% 10% 15% 20% 25% 30%

CosmeticsApparel and accessories

Small electronicsHomeware and small household appliances

Large furniture, white goods, electronicsAutomotive parts

ToysBooks, CDs, DVDs, video games

MedicationsGroceries

Share of respondents who did not purchase an item online due to long delivery times (% of category)

Source: McKinsey & Company, “Parcel delivery The future of last mile”

Click and Collect

Copyright 2017 ChannelAdvisor | ConfidentialSource: Metapack, USDA, eMarketer

68%

51%

32%

51% 48% 49%

38%

0%

10%

20%

30%

40%

50%

60%

70%

80%

UK FR DE ES NL US IT

Stated Preference for Using Click & Collect

0%

10%

20%

30%

40%

50%

60%

70%

80%

% Consumers Used Click & Collect at least Once

Amazon Fulfilment Options

Sources: Morgan Stanley Research, Credit Suisse

Estimated number of global Amazon Prime members

4.6xAmazon Prime members spend

non-Prime members


0

20

40

60

80

100

120

2015 2016 2017E

Amazon Fulfilment Facilities

US EMEA UK DE FR IT ES CZ PL SK

Fulfilment Centers 99 36 14 9 4 1 3 2 3 0

Delivery Stations 44 31 26* 2* 3

Sortation Centers 70 3 2 1

Prime Now Hubs 51 4 1 1 2

Pantry/Fresh DCs 18 2 1 1

US EMEA

76.2 28.5

3.2 2.8

13.5 0.5

1.7 <1

3.8 0.3

US EMEA

34 19

5 -

10 -

1 -

5 -

Active Facilities in US and Europe Active SqFt (M) Planned (#)

Sources: Internet Retailer; Amazon, MWPVLCopyright 2017 ChannelAdvisor | Confidential

* Delivery Station/Prime Hub

Amazon Logistics Ambitions

Sources: Amazon, The Wall Street JournalCopyright 2017 ChannelAdvisor | Confidential

Amazon FBA Growth Accelerates

Copyright 2017 ChannelAdvisor | Confidential Sources: Internet Retailer; Amazon

Amazon’s Delivery Experience is the Highest Ranked by Consumers

Copyright 2017 ChannelAdvisor | ConfidentialSource: Metapack

Retailer E-Commerce Website Brand/Manufacturer Website

Amazon Other Marketplace

Excellent Good Fair Bad Terrible

31% 31%

56% 29%

% Excellent

TrendB 2B as E asy as B 2C


B2B customers increasingly expect B2C-like experiences

Copyright 2017 ChannelAdvisor | Confidential Sources: Avanade, Forrester

~50%61%

B2B buyers that report third-party sites and feedback from business partners, industry peers or social channels as more important than conversations with a company’s sales team

B2B buyers that prefer making work-related purchases on the same B2C websites they use for personal purchases

Amazon Business

• Available in US, DE, UK• Free two-day shipping with min order value

(US: $49; DE: €29; UK: £30)

• Amazon and FBA items• Business-specific offers and pricing• Enhanced product content (e.g., CAD

drawings, user guides)

• Live chat with product experts (manufacturer)• Business-specific features

Purchasing system integration, tax exempt purchasing, order approval

Copyright 2017 ChannelAdvisor | ConfidentialSources: Computer Business Review; Amazon; Baird Equity Research

• Products US: “Hundreds of millions”

• Business customers > one million since launch Up ~400,000 in last year

Conclusions and R ecommendations


Ensure the Foundation for E-Commerce is in Place


High QualityProduct ImagesProduct Data

Marketing Site/ E-Commerce Site

Advertising

&more

&more

&more

Additional DestinationsRetail Partners / Marketplaces

Brands: Understand Your Customers


Mass Market / Low Price Niche / High Value

Ret

aile

rsC

usto

mer

N

ames

Aggr

egat

eC

onsu

mer

Dat

a

Have an Amazon Strategy

Brand /Manuf. Retailer/

BrandHybrid

Consumers

Third-Party (3P)First-Party (1P)Select remaining inventory

Inventory sold directly to Amazon

New EntrantsEstablishedBrands

IncreasingCatalog


Borrow Tactics from Smaller Companies


Distribution• Amazon FBA• Logistics/fulfilment partners

Promotion to specific audiences• Google• Social

Promotion to mass audiences• Marketplaces• Social (e.g., YouTube)

Evaluate B2B Distribution


Comparison Traditional Distributor (UK)

Amazon.co.uk

Result following search for unbranded food item (i.e., don’t include brand in search term)

450+ results; categorynavigation on left had a variety of unrelated categories; no filtering options

70+ results with clean user interface; navigation on left with easy-to-understandcategories; ability to filter by brand, cuisine, grocery specialty, and delivery option

Price at time of comparison £35.39 for 2 x 1kg (cheaper than Amazon by 59p for 2kg)

£17.99 for 1kg

Minimum online order £75 No minimum

Delivery charge Charge for orders less than £100

Free delivery for Prime members or orders greater than £20

Next day delivery Could not guarantee Next day delivery by 1pm for a fee

Source: ChannelAdvisor

Strengthen Value through Collaboration


Manage Your Online Retail ‘Shelves’


OFFLINE MERCHANDISING ONLINE EQUIVALENT

Aisles and Shelves

Product Packaging

In-Store Demos

TV/Print Ads

Category/Search Pages

Product Content

Rich Content

Reviews, Social Media,Retail Site Digital Ads

Questions?Type them into the Chat With the Presenters box located on the left side of your ReadyTalk panel and hit SEND

Copyright 2017 ChannelAdvisor | Confidential 73

Thanks for Attending!

CONTACT USPhone866-264-8594Emailmarketing@channeladvisor.comNewsletterwww.channeladvisor.com/newsletterBlogwww.channeladvisor.com/blogWebwww.channeladvisor.comTwitter@ChannelAdvisor

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