A Small Investment By Colgate In Hubble Reveals A Lot About The Future Of Grocery

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The Wall Street Journal reported that Colgate is negotiating to make a minority investment in the startup Hubble, an online seller of contact lenses by subscription

Photo: © Depositphotos.com/zhukovsky

WSJ also reported that Colgate and Hubble will jointly develop a subscription service for some Colgate products, beginning with teeth whitening later this year.

Why This Is Important

The grocery business is at a turning point. The world has moved to buying products online, but the transition to online grocery shopping has been much slower than in other product classes. Consumer resistance to online shopping is driven by how they buy certain foods: fruits, vegetables, meat, chicken and fish. Consumers believe they have to go to the store for those items, and as long as they’re going, there’s no reason to buy groceries online.

It doesn’t help that online shopping has so far proven unprofitable for virtually everyone who offers it. The additional picking and delivery cost for vendors isn’t covered by the price consumers have been willing to pay for grocery products. That means there isn’t a lot of capital available to solve consumers’ online grocery dilemma. Developing innovation in grocery will will take time.

Technology will be important for the development of the online grocery business. Various fixes are being developed, like computer vision that ensures the produce and protein products consumers get are fresh and reliable. Other technology is being developed to help manage inventory that will result in less leftover produce and protein and enhance the likelihood that consumers will get the fresh products they want.

Amazon has a big interest in seeing the transition to online grocery happen faster. It needs continued revenue growth to further fuel its stock price, with the market valuing its high revenue growth. Because Amazon is already so big, there are very few product categories left that can give the company the revenue lift it needs to support its stock performance.

In addition, a large number of Amazon employees are incentivized with stock ownership, and if the share price doesn’t continue to go up, Amazon is vulnerable to large numbers of middle and upper management losing their incentive and going elsewhere. Getting consumers to convert to purchasing groceries online will be important for Amazon. Because it is a retail technology leader, the incentive to grow its online grocery business will help accelerate the transition from supermarkets to online shopping. Getting into online grocery in a bigger way is also why Amazon bought Whole Foods.

What Will Happen

When the transition to online grocery happens, the grocery business will change dramatically. Fewer store visits will be necessary, and the number of stores will shrink. There will be an enormous overhang of grocery real estate that will have to be closed, and more small, local grocery stores will open. Consumers will use those stores to make quick visits for things they need on short notice. Eventually there will still be big supermarkets, but they will require a consumer to drive farther to a store than they do now. Most grocery will be bought online.

Why Colgate Cares

Colgate and all consumer packaged goods companies are highly vulnerable in that change. Even though their products are sold in both grocery and health/beauty, the shift in grocery will change consumer attitudes about shopping in-store for nearly all home products.

Colgate’s placement on grocery store shelves — which it has paid and fought for and which has kept the brand in front of consumers for decades — will no longer be nearly as important. The ability to make consumers see its brand and products will be severely diminished. That will be true for every consumer packaged goods products company with products sold in grocery and health and beauty retail channels.

When the change to online happens, consumer packaged goods companies will respond the way all brands have responded to the shift to online: They will go around the retailer and sell directly to consumers. If they don’t go direct to consumer, their brand values will diminish because the way they’ve marketed in the past — with store shelf presence that creates marketing impressions and supports impulse purchases — will count for a lot less.

For the many products that are bought regularly by consumers in grocery and health and beauty, the best way to sell direct to consumers is by subscription. It gives the brand the assurance that its sales will continue into the future with minimal marketing costs.

Also, many products purchased in grocery and health and beauty channels are replenishables, products that consumers buy all the time. Those products are ideal for subscription. When you think of what you may buy in a supermarket, things like ketchup, breakfast food or even refrigerated items, it would be convenient if you could buy those items direct from the manufacturer and have them appear at your door without having to do anything to get them. Manufacturers would be able to absorb the shipping cost because there would be no retailer involved: What would have been the retailer’s margin will pay for the individual shipping and handling costs.

Colgate and Hubble

Colgate gets all this. It knows it has to act now to start planning for the day when its products, like so many grocery and health and beauty products, will be bought online. It knows it has to be talking to consumers now to learn how to adapt. Investing in Hubble and experimenting with direct-to-consumer sales allows Colgate to learn more of what it will need to do to be ready for the day when everything will change.

For Colgate, the Hubble investment is a small deal that might be overlooked by the market. But its impact is potentially huge. When the changes come, brands as big as Colgate that don’t get ready will find themselves overtaken by smaller, more nimble competitors that know how to sell directly to consumers. You only have to look as far as Kodak, a consumer institution once thought of as unbreakable, to see how changes in consumer behavior and technology can overturn the giants. Anyone can be vulnerable.

Richard Kestenbaum, Contributor

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