CPG giants and the new e-commerce formula

In May 1913, five San Francisco entrepreneurs (a banker, a wood and coal dealer, a bookkeeper, a lawyer and a miner) invested $100 each to set up the first commercial-scale liquid bleach factory in the United States, on the east side of the San Francisco Bay. The firm was first called the Electro-Alkaline Company and ran into difficult times during the first 3 years.

So, investor William Murray took over the company as General Manager. His wife, Annie Murray, saw the potential in a less-concentrated liquid bleach for home use. She built customer demand by giving away 15-ounce sample bottles at the family’s grocery store in downtown Oakland. The product was called Clorox and the rest, as they say, is history.

The birth of Clorox marked a century of dominance by consumer packaged goods companies. They made their way into our houses by selling us their soaps, tissues and the like, and sponsoring serials in our living room (“soap” operas). Their formula was –

  1. Invest heavily in advertising to build the product’s brand and make customers want to buy it
  2. Invest in retailer relationships so customers can find the product easily when they go shopping

In last week’s “Notes by Ada” note (/essay?), I argue, that we’re reaching the point where these giants are beginning to unravel. The signs are out there – multiple reports about their struggles, disappointing earnings and attempts to buy each other and consolidate. It is no surprise. The formula, if there was one, for succeeding in e-commerce is –

  1. Sell direct to consumers online and cut out all middle-people and costs
  2. Choose to either build a brand using smart digital advertising or build a subscription based relationship

This is another example of “old world” companies facing the chasm and finding the gap between them and technology firms (they’re stuck trying to figure out the cloud while tech firms are implementing machine learning) harder and harder to bridge.

If this piques your interest, the longer version is on Medium or LinkedIn.