P&G Takes Stake in Online Grocer
Procter &
Gamble has made a $7.5 million investment in Ocado, an online grocer operating
in the U.K. With its investment, P&G now holds a one percent stake
in the company.
A
P&G spokesperson, Damon Jones, told The Cincinnati Enquirer that
the consumer packaged goods giant has been a supplier to Ocado since 2000
and is looking at its investment as a means to
"learn to
better communicate with consumers and deepen our knowledge of Internet shoppers."
Mr.
Jones added, "We see their business model
as a fertile testing ground for new ideas."
P&G’s
investment in Ocado follows another test selling products directly to consumers
through theessentials.com. The website, which is owned by Field Companies
Inc., sells P&G products exclusively.
Discussion Questions:
What do you make of P&G’s investment in Ocado? What will it learn
and how will it help it in other sales venues either online or in stores?
I agree with the folks who praise P&G for trying and testing, and I think James raises an interesting point about defending against private label incursions. Name brands should have a strong advantage in online shopping environments.
Big deal here. Very big deal. P&G has been very shrewd about putting an inexpensive toe in the water to check out data potential (see Reflect.com and Tremor) and then it jumps in. P&G will start to be more active about selling its products online, and precedent shows it is a very cautious company. This is a preliminary step.
P&G invested early in several Internet experiments to learn about using the Internet to market to consumers. Some of them survived; some of them did not. A few morphed into successful trials.
This investment is an example of experimenting with another form of direct consumer contact. It may survive; it may not; it may morph into something else. The important thing about this investment is that P&G is continuing to experiment with new ways of interacting with consumers rather than thinking they have already found “the” answer.
Ocado sells P&G products exclusively and $7.5 million is a small investment for P&G. This relationship will give P&G numerous controlled opportunities to test market new products, gained new insights into evolving British buying patterns and gain other marketing information at a low unit cost.
Remember the days when even big brands were afraid to sell directly to consumers for fear of losing distribution with key retailers? How our world has changed! What I admire about P&G’s decision in this area is their unwavering focus on learning from the consumers. That is the truest form of staying ahead of the market. I hope other brave, well-financed companies will lead through this recession with innovation and courage. It creates a culture of hope and excitement in our business that we all need more of.
P&G already knows a great deal about online retailing–enough to conclude that most of its major brands should not be sold “direct to consumer” as manufacturers fantasized in the dot-com 1990s.
Its investment in Ocada is a notable action, because it implies a P&G endorsement of the virtual retailer’s business model. Since Peapod and Streamline were introduced circa 1994 in the U.S., we have observed that a percentage of shoppers will opt for online grocery ordering and delivery a percentage of the time. On those occasions, automatic replenishment of staples and home delivery of bulky items is regarded as a desirable, value-added service.
Strong brands can fare very well in such a system, since they provide the assurance of product quality that allow shoppers to purchase them sight-unseen. This difference in dynamic may be meaningful to P&G in the U.K., where own label products command a stronger share than the U.S.
And I agree with Gene’s comment about the controlled marketing test bed Ocada provides. (Although I’m not certain it requires an equity investment.)
I admire P&G for investing in their learning curve. That’s one of the things that keeps them ahead of the pack. They were also one of the first to try branded mobisodes too (Crescent Heights for Tide).
They’ll know more about this than their competitors by this time next year. Further, they may also gain some revenue in the process. I only hope they share a bit of the learning with us.
P&G is always a leader in R&D and they do it in channels as well as in products. For a small investment, they’re going to learn a ton about the viability of selling their various products online, creating subscription models and understanding profitability. Great move and great opportunity for them to learn for cheap.
It’s hard to say whether this relatively small investment represents a way for P&G to understand changes in consumer behavior in a “real time” setting, or whether it means a bigger move toward vertical integration on the part of the company. P&G has never been in the forefront of managing its own retail channels, preferring to collaborate with strong partners like food stores and Walmart, but has done some direct marketing of its more complex and costly products like Swiffer. So this is something to keep an eye on, regardless of P&G’s eventual goals.