Skip to main content

NATI HARNIK

A behind-the-scenes scuffle for shelf space between merchant and supplier is spilling out onto the Internet, sparking potential multimillion-dollar battles over everyday items such as soap and toothpaste.

Packaged goods manufacturers, including giant Procter & Gamble Co. , have begun selling directly to consumers from their own websites, bypassing retailers. Those efforts underscore rising tensions between the two sides, as grocers and other retailers squeeze out some of the suppliers' higher-cost brands often in favour of their own private labels.

The suppliers' online selling is in its early stages, yet industry observers say it should be a wake-up call to retailers. Some of their revenue is at stake - including, perhaps, a portion of the estimated millions of dollars in fees that retailers receive from manufacturers for stocking and promoting their products.

The Internet already has played havoc with retailers in such sectors as music, movies, books and travel, shifting more business to cheaper - or free - online alternatives. Now the Web threatens to loosen retailers' stranglehold over familiar household goods. In May, P&G launched an online store in the United States that carries hundreds of its items such as Crest toothpaste, Pampers diapers and Gillette razors.

"Procter & Gamble has often been the trail blazer for this industry - a beacon that others watch," said Mark Layton, chief executive officer of PFSweb Inc., a Web service provider that teamed up with P&G to launch its eStore. "It created a lot of new interest in a channel that had previously been untapped."

In Canada, other suppliers are dipping their toes in the e-commerce waters, including Johnson & Johnson (Neutrogena ID skin care products) and Nestle (Dolce Gusto coffee). Producers are betting they can persuade enough consumers to switch to online purchasing of low-priced packaged items.

Manufacturers' wager on e-selling is already making a difference. Among visitors to producers' websites, 54 per cent said they are likely to purchase directly from them in the future, compared to 17 per cent who already do, according to a study last month by Forrester Research Inc. in Cambridge, Mass. "Other retailers are scared it's taking market share," Forrester's e-business analyst Sucharita Mulpuru added.

The shift could pinch retailers hard: In Canada alone, many grocers charge suppliers up to $50,000 for every item they stock, according to "listing fee" estimates from the agri-business think tank George Morris Centre in Guelph, Ont. Merchants stand to lose some of that income if their suppliers shift to selling more products online.

Major chains such as Loblaw Cos. Ltd., Canada's top grocer, declined to comment on the fledgling e-commerce initiatives. Shoppers Drug Mart Corp. spokeswoman Lisa Gibson said in an e-mail that customers still prefer to head to a store to "touch and feel" products.

P&G envisions a "great opportunity to significantly increase online sales," said Tonia Elrod, spokeswoman for the titan's digital business team. It wants to connect with its consumers "when and where they seek to research or purchase P&G products," she said. Less than 1 per cent of its $78.9-billion (U.S.) of annual revenue is estimated to be generated from online sales.

Manufacturers' flirting with e-selling comes amid a sluggish economy as retailers try to ditch slow-selling items to spotlight the winners. Wal-Mart Stores Inc., for instance, dropped thousands of its brand-name offerings in a bid to bolster productivity (although it restored hundreds of them this year after sales softened.) "It's created quite a profit dilemma and growth dilemma for the consumer products manufacturing industry," Mr. Layton said.

The moves underline how powerful retailers have become in controlling their aisles, said Jeff Doucette, a former packaged-goods executive who now consults for suppliers and retailers to improve their collaboration.

"The retailers have made the shift to becoming real estate agents for shelf space," said Mr. Doucette, of Sales Is Not Simple in Calgary. Still, the chains have reason to be wary about stocking too many items, he added. Most new products fail.

Yet without the manufacturers developing new merchandise, retailers would have no innovations to copy for their own private labels, he said. "The real warning to retailers here is: don't squeeze the consumer packaged-goods brand so that they can't survive and innovate. Without Procter & Gamble, there would be no Swiffer and there would be no Febreze."

The suppliers are emulating producers such as Nike and Sony which years ago set up their own physical stores to peddle their products. Nevertheless, the consumer product companies struggle with a tough economic model of e-selling low-priced everyday household items at relatively high shipping tabs. P&G, for example, charges a flat $5 for delivery.

PFSweb, which runs P&G's eStore, is racing to offset the costs by offering promotions to customers to get them shopping more. Repeat customers shell out $180 a month on their online packaged-goods purchases, more than twice the spending of first-time customers, Mr. Layton said.

P&G has already found ways to woo them back: It posts coupons right next to items being sold on its sites and, as a result, customers redeem more of them on its own sites than at other retailers, he said. And it stocks - and sells - many more varieties of each product on its sites as conventional retailers.

So far, P&G's eStore sales have been modest because of limited marketing, he said. "This is not about trying to compete with the [retail]channel … Maybe it's a stick to say: 'Hey, wake up.'"

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 11:24am EDT.

SymbolName% changeLast
FORR-Q
Forrester Resrch
+0.19%21.52
JNJ-N
Johnson & Johnson
+0.36%158.53
NKE-N
Nike Inc
-0.38%93.77
PG-N
Procter & Gamble Company
-0.08%162.48
WMT-N
Walmart Inc
-0.28%60.55

Interact with The Globe