The milkman is back, but this time he’s gone digital

Written by on August 1, 2016 in News with 0 Comments

MilkmanLONDON (Reuters) – Consumer goods maker Reckitt Benckiser has ramped up its efforts to sell items such as condoms and vitamins online, aiming to capture new revenue streams as traditional markets get more competitive.

Reckitt’s own Durex condom website in China is already its single largest customer in the world’s fastest-growing e-commerce market, doubling the number of unique visitors over the last year to over 20 million. It expects that to double again, as consumers lap up its sexual health products, which can be personalized and delivered discreetly.

As part of its drive, the group has established a new global “e-business unit” that Chief Executive Rakesh Kapoor says will help it deal better with customers like, be present in marketplaces like those offered by Alibaba and probe new areas such as cross-border e-commerce and direct-selling websites.

“This is a material opportunity that we want to be in the front of the pack on,” Kapoor said on Friday. “Although it seems like we’ve come a long, long way … we’ve only just started. This train is going to run faster and faster.”

Reckitt expects e-commerce to generate half its Chinese revenue by 2020, up from 25 percent last year and 35 percent by the end of this year.

On Friday, Reckitt’s shares fell after it damped its outlook due to a near complete loss of business in South Korea following a product safety scandal.

The British company is one of several manufacturers exploring new ways to sell online as they struggle to secure shelf space amid the rise of discount supermarket chains like Aldi and Lidl, which stock their own brands, and smaller stores that stock more independent brands.

So far, most of them have focused on selling through websites of “e-tailers” or traditional retailers, but Reckitt and peers including Nestle, Diageo and Unilever are experimenting with other models such as delivery on demand and subscriptions with automatic replenishment.


The world’s online shoppers spent over $87 billion on grocery items like food, drink, beauty and personal care items in 2015, according to Euromonitor International. That represents about 9 percent of the total online spend.

Because such products can be perishable, cheap or needed immediately, they are generally less suited for online buying than goods like appliances, fashion and media. But habits are changing.

A Nielsen survey last year of people in 60 countries found that one-quarter were ordering grocery products online for home delivery, while 55 percent said they would do so in the future.

About 14 percent were using some kind of automatic online subscription service, where orders were shipped at prescribed intervals, like the Dollar Shave Club business Unilever agreed to buy for a reported $1 billion last week.

“The milkman is back, but this time he’s gone digital,” Nielsen said.

Unilever Chief Executive Paul Polman stressed the benefits of expanding Dollar Shave Club’s online expertise to its other high-end businesses, such as T2 tea or Dermalogica skin care. He said the acquisition was needed to be able to move quickly enough in such a fast-changing environment.

“We have to get used to buying in that knowledge and dealing with the higher level of ambiguity perhaps than we’ve seen before,” Polman said.


In buying Dollar Shave Club, Unilever will assume delivery of razors to men’s homes, taking on a logistically complex and expensive task not usually done by packaged goods manufacturers.

“They’re experts at branding and product development, they’re experts at shipping a large pallet of brown boxes to big distribution centers,” EY consumer goods analyst Andrew Cosgrove said about companies such as Unilever. “They’re not experts at micrologistics.”

Cosgrove said any individual packaged goods company trying to deliver its own wares may sell more goods but likely at the expense of profit margins because its product offering would never be broad enough to sufficiently leverage the delivery costs, unlike retailers who gain scale by selling from a variety of suppliers.

Direct-to-consumer businesses work well for high-margin products where brand loyalty is strong enough to fetch a premium price, such as Nestle’s high-end Nespresso coffee.

The Swiss food maker predicts that by 2025 about 12 percent of its overall business will come from online, up from about 5 percent now.

Even as online sales grow, third-party websites will still account for more than three-quarters of that business, predicted Nestle’s head of e-commerce, Sebastien Szcezpaniak, because of the economics.

“Direct-to-consumer can work for niche, premium products, like grooming products, but it is less possible when it comes to a $3 KitKat bar,” said Szcezpaniak, who joined Nestle last year from Amazon. “The only way to do good online business with products that are below $10 is to be part of a monthly basket.”

As home delivery gets more efficient, the threshold will come down, but it is unlikely to ever go below $5, Szcezpaniak said, adding that Nestle is also experimenting with delivery on demand models where drivers pick up certain last-minute impulse items while delivering other orders like takeaway food.

Durex in China is using that same model, which also has applications in alcohol as the world’s largest spirits maker Diageo learned through its investment last year in Drizly, a U.S. start-up that delivers beer, wine and spirits on demand.

“It’s just the way the world is going,” Diageo Chief Executive Ivan Menezes told reporters after reporting improved results this week.

(By Martinne Geller; Editing by Susan Thomas)

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