The Roaring 20s
A glance into contextual commerce and the future of the final mile
Here in Minneapolis we are now exiting a two hundred hour stretch where the thermometer didn’t reach 0 degrees. So even though we are only 48 days into the new decade, forgive us if we are feeling overly optimistic. To that end, we wanted to ramble on about what’s ahead in the land of CPG e-commerce. The pace of evolution continues to be sky high, and that energizes us. There are a myriad of themes, behaviors, investments, and activities spinning around in the CPG e-commerce solar system, and time will tell which of those will solidify into the retail universe. Typically we use this space to talk about what is currently happening, playing the role of historian and analyst; but we are going to switch gears into the role of speculator and philosopher as we look ahead to the next 10 years of CPG e-commerce. The one thing we know for sure is that we will get this wrong, but by studying the prevailing themes a rough illustration emerges of what the new roaring 2020’s will look like.
It all starts and ends with consumer behavior. Consumer traits that took root in the past decade and have continued during the latest hyperactive ecommerce period (see COVID-19) have formed concrete-like consumer guardrails. These behaviors will continue to dictate success and failure for brands, retailers, and platforms alike. The expectation of having frictionless product choice, retailer choice and fulfillment of choice will be king. Platforms that master the art of being matchmakers between products and consumers–wherever they are–will be key in creating a profitable thoroughfare between inspiration, purchase, and repeat.
At the forefront of consumer influence are brands and retailers themselves. Houses of brands, upstarts, and private label are all fighting for their share of the basket. Upstarts and private label brands in recent years have taken advantage of lowering barriers to entry, market gaps, and savvy influence campaigns to achieve greater share of mind. Brands will continue to be looked to for what they stand for (quality, trust, social responsibility) and will flex their scaled strengths doing what they do best: marketing. A key change in these battlefields though will be the shifting power of who controls and influences the shelf. Retailer control of the shelf has changed with the coming of age of digital shelves. Instead of tight control over each and every stores’ planograms, the shelves can now be digitally rendered, personalized, and packaged—allowing brands to take control over the shelf further up the funnel before they hit the store at a scale that was not previously possible. The days of a brand having to influence the consumer through megaphones before they walk through the sliding doors of the store have evolved into a multitude of decentralized yet personalized whisper campaigns that meet the consumer wherever they are at–whether they’re on Pinterest, Instagram, YouTube, or a recipe website–all with a perfectly curated shelf and path to cart a click away. This decentralization of influence is well underway, but will be further accelerated by the biggest force in the coming decade: social commerce.
Social → Contextual Commerce
Commerce has been driven by story-telling for centuries. More commonly known as Marketing; these concerted, somewhat centralized, and highly effective influence campaigns tell the brand’s stories to motivate shoppers to the shelf. The step change that is taking place is where these stories are being told and how they are getting enriched and magnified.
The beginnings of social commerce have already taken root; a growing amount of social digital marketing dollars are funneled to influence campaigns across a variety of social media platforms. The fabric of these campaigns are turning more and more from awareness to conversion, further blurring the lines between social platforms and commerce platforms. The convenience, utility, and surprise and delight for the consumer has been a welcome innovation. This comes to life as the ability to purchase that pair of shoes directly off that Instagram post you saw, connect with the local business products instead of the behemoths, or add that recipe from Pinterest directly to cart–all trafficked and targeted in a way that makes them more applicable to you. These commerce opportunities today are much more sophisticated than they were 5 years ago, but are still the equivalent of spearfishing. The magnification will really occur when these are woven into and personalized with aspects of your social fabric in a way that engenders trust and convenience that we haven’t yet experienced. This will become further magnified thanks to contextual commerce.
Contextual commerce will enrich online purchasing by branching experiences out from mainstream channels that we are used to, and executing them with more diverse personalization signals. While the tree trunks of CPG ecommerce will continue to exist (Amazon, Walmart, Target, Instacart, etc), the branches will proliferate further into your digital life. The personalization will come from increasingly sophisticated signals mixed together, some of them from social commerce, others from retailers, brands, and fintech providers. Current state, this is your ability to order things with your voice while you’re in the kitchen because the device knows your history, clicking through to a shoe ad that happens to remember your previous sizing, or checking out that recipe on Pinterest and it already knows what store you prefer and which location has all those items in stock. We’ve all had that moment on Instagram, Pinterest, or Facebook where something was marketed to you, and it was so perfectly curated and personalized to your interests that it caused you to pause. This will be powered by your preferences, your location, availability in your area, what you like/dislike, where you’ve been and where you are going, what is trending with your friends and family, what is on sale—all providing what you need before you know you need it. Sometime in the next ten years, we will know the marriage between contextual and social commerce has occurred when the majority of our purchases are triggered by this type of curation.
The players involved in this will inevitably include the current social behemoths and largest retailers, but expect it to extend into much deeper brand and retailer partnerships–if not vertical M&A in some cases. Other providers, including Instacart & Shopify, who are more commerce concierges than they are retailers, are sleeping giants and are poised to become key digital marketplaces capable of playing a much bigger role. Comparing social commerce to malls, time will only tell what their aspirations will be; to just rent space, run the food court, develop an anchor store, or own the whole enchilada.
There is one remaining secret ingredient in pulling off this commerce future state: how those highly helpful moments show up in our pantries and closets.
The Final Mile(s) of the Future
If we thought omni channel retailing and fulfillment was complicated, social commerce is going to show up and say ‘hold my beer’. The value of social commerce really delivers when it is…delivered. If social commerce is a tightly interwoven stack of brands, retailers, social networks, inputs, providers, and vendors, then executing on that will require hyper fast fulfillment that bends and never breaks. The last 20 years of ecommerce has given us a good headstart on this with a network of mega warehouses, regular warehouses, micro-fulfillment centers, and local warehouses (aka existing mass merch & grocery stores). New more efficient nodes will be added. Decentralized, mechanized, and temp-controlled micro warehouses–dispersed evenly into food forests– will serve as hybrid pickup lockers and home bases for automated final mile delivery. Mechanized fulfillment within all nodes will become more commonplace.
The flexibility and efficiency of the wires connecting the nodes will become paramount. Automated deliveries will proliferate starting with the final meters, and then expand backwards into the final mile(s). Autonomous grocery delivery will cease being a novelty. Other hyper-local cost saving shortcuts will emerge, like anticipatory fulfillment, and white label fulfillment (think consignment + price arbitrage) of common staples. Even mundane pieces in the final mile will evolve rapidly as retailers & providers attempt to increase profitably—reusable and collapsible bins, insulated totes, and even climate controlled & remotely accessible home delivery boxes.
A tangled mix of traditional third party logistics providers (warehousing, transportation, parcel delivery, etc) and new age providers will likely make up the backbone of the physical fulfillment for the final mile. But a different class of players–the commerce concierges– will be who executes and owns the customer experience in the final miles. UberEats, Drizzly, DoorDash, Instacart, and Amazon all play in this space today. While hammering away in carving out and proving their capabilities, they will amass rich customer information. We expect to see ambition and M&A from the most successful commerce concierges, who will leverage the power of their platform–and the data that they have amassed–to move up the funnel and offer even further social & contextual commerce capabilities.
Ten years is a long runway, as is witnessed by how far CPG ecommerce has come in 10 years. To quote Kevin Kelly, “Any believable prediction will be wrong. Any correct prediction will be unbelievable.” While our forecasts are bound to be off, we believe wholeheartedly in this analysis by Anjali Li from Forrestor who sums it up well: “The future of consumer buying is not a shift from traditional to digital, nor is it an abandonment of self-service in favor of delivery; it’s all of the above”