In January, L’Oréal will unveil a state-of-the-art innovation center in Paris, inviting startups to pitch their best ideas on everything from artificial intelligence to augmented reality for the chance to work with the conglomerate. Meanwhile, L’Oréal has hired nearly 1,700 digitally focused employees over the past five years and increased its digital advertising budget to make up 35 percent of its media spend, up from 30 percent in 2016.
“We’re seeing a strong consumer appetite for digital experiences like virtual makeup, diagnostics, online beauty consultations, live broadcasting and personalization,” said Lubomira Rochet, L’Oréal’s chief digital officer. “Open innovation supports the growth and development of new entrepreneurs and brings new ideas to our brands.”
L’Oréal isn’t alone. With looming competition from Amazon and upstarts like Glossier and Blue Apron, mainstays like Unilever and Procter & Gamble are combating sluggish growth by investing millions to catch up with nimble-minded rivals that have quickly mastered ecommerce, unique products and social platforms.
Smaller challenger brands are “providing the road map for what some of the larger brands should be doing,” noted Ben Zeidler, research director at L2. However, “there’s always an advantage to being a P&G when you have that reach and scale.”
All told, CPG brands that invest in technology and digital transformations are poised to gain $2.95 trillion in revenue and efficiency savings (defined as value) over the next decade, according to Accenture and the World Economic Forum’s The Digital CPG Value Opportunity: Seen but Unrealized report.
Here’s how CPG companies are investing in technology, as well as the challenges they face in becoming more digitally minded.
Partnering for success
In addition to L’Oréal, Mondelez, Unilever and Procter & Gamble have each poured money into programs that work closely with startups to pilot emerging technology through small tests.
Unilever’s work is particularly notable, as the company has run 100 programs for its brands since launching the Unilever Foundry platform in 2014. One example: Hellmann’s began testing grocery delivery with on-demand service Quiqup in August, allowing consumers to order mayonnaise and other ingredients online and have them delivered to their house. Hellmann’s declined to share initial stats, but the program is aimed at competing against Amazon Fresh.
Such projects help brands “grow their business just by seeing how a smaller business operates—it’s a complete reversal of the understanding of the market traditionally,” explained Brady Donnelly, founder and managing director of digital agency Hungry.
While investing in close-knit relationships with startups is paying off for the biggest brands, only 28 percent of all CPG companies provide extensive resources for startups like money and offices, per Accenture and the World Economic Forum’s report.
Part of the problem: investing in startups requires heavy financial investments, and hard metrics such as sales are used to gauge a program’s success. “They look at it from a purely fiscal perspective and fear creating competition for themselves,” Donnelly said.
Ecommerce only makes up one-third of all CPG sales, but savvy brands see an opportunity: online channels drove 89 percent of growth for CPG products between 2016 and 2017, per Nielsen.