Jessica Goodfellow
Mar 2, 2021

Kraft Heinz Asia CMO: As ecommerce grows, profitability must be addressed

As ecommerce retailers undercut each other with discounts, brands' profit margins are becoming squeezed.

(Getty Images)
(Getty Images)

Ecommerce demand has not abated since its explosive growth in the early days of the Covid-19 pandemic, but despite a high volume of sales, some brands are struggling to turn a profit online, according to the Asia CMO of Kraft Heinz.

Speaking during a panel at Spikes Asia x CampaignDhiren Amin said he believes ecommerce is far from reaching its peak.

"From purely a consumption standpoint, the number of times—whether in terms of occasion or basket size—that consumers buy from ecommerce will continue to increase, it will not go back to the previous normal because such an extended period of staying at home creates habits," he explained during a panel at Spikes Asia x Campaign. He believes an increase in home cooking, for example, will last long after the virus has subsided.

As a consequence, Kraft Heinz tipped its 2021 media budget more toward ecommerce than it ever has before, he shared. The FMCG giant has evolved its ecommerce strategy from focusing on uplift to developing a sophisticated funnel of awareness that tracks consideration to conversion.

But despite the growing opportunity, Amin said ecommerce "is a hit to profitability" since online retailers predominantly work on the principle of discounts and impressions.

"Managing our bottom line in such a scenario is a challenge," he said. "As your sales move towards ecommerce, being able to manage that well and change that reality of it becoming less profitable is something that both the channels and the marketers have to work on together for it to be a win-win over the long-term."

Shifting from awareness into loyalty

Amin was joined on the panel by Lyubomir Minkov, the SVP of marketing at NTUC Enterprise, which operates the FairPrice chain of supermarkets. The Singapore-based grocer rapidly pivoted its business into ecommerce in 2020 as the country's lockdown reduced physical sales from April.

"During lockdown the [ecommerce] demand overnight turned three times higher than the supply of slots and we had to very quickly respond, which pushed a lot of our digital transformation plans ahead 12 to 24 months," Minkov explained. Between April and June, FairPrice turned one of its physical stores into a fulfilment centre for online orders to keep up with demand.

Consumer demand has maintained high levels ever since, Minkov said, even after Singapore emerged from its 'circuit breaker' lockdown in June.

"The levels that went up in Q2 last year actually remained for the rest of the year, and we are also seeing a very strong start to 2021. So definitely, ecommerce is here to stay," the marketer said.

As well as accelerating its digital transformation, the spike in ecommerce demand has shifted FairPrice's media plan away from awareness and into loyalty.

"Everything changed from trying to increase awareness and acquire customers to sustaining repeat purchase and improving loyalty mechanics and overall stickiness," Minkov explained.

Fostering repeat purchase is "one of our biggest focuses this year", he said, making CRM its "most important channel". According to the company's internal data, stickiness improves rapidly after a customer has made a fifth purchase.

"In our marketing mix there is a very strong shift from pure paid marketing towards CRM," he said. "We're currently working with Salesforce to design a lot more trigger-based journeys, using all the CRM assets that we have, from newsletters to in-app messages to app and web popups, and basically moving to a smooth personalised transition. So we focused a lot on using AI algorithms to offer, either at micro segment level or at the personal level, the products and promotions that the customers really value."

Paid channels such as Facebook and Google are used to resurrect customers that have churned, he added.

Digital platforms become acquisition targets

Other brands have broadened their paid marketing mix. Pankaj Batra, the chief brand officer at Pizza Hut APAC and SVP of Yum!, said ecommerce has expanded the channels it uses for acquisition from mostly paid search to include digital platforms.

"In the past, we were mostly investing in paid search and display advertising because the intention was to drive more traffic to the website. But in the new era, the awareness building is also happening on digital platforms like TikTok," he said.

When reviewing its marketing mix, Pizza Hut places channels into "now, next and new", Batra explained. For "new" platforms, such as TikTok, it initially invests around 10% of its budget and monitors its performance before allocating more.

In-app marketing is also an important channel for Pizza Hut as digital ordering has increased, and it is looking at ways to innovate the app experience for consumers to improve stickiness, similar to FairPrice.

"We're investing more behind the app, for example looking at curbside pickup and how we can track the customer so that we can only start cooking the pizza when the customer is 12 to 13 minutes away from the store," he said. "And then obviously marketing to the channel becomes more exciting because you make it geo-targeted, you want to reach out to consumers when they're in the vicinity of the trade zone that you operate in and market to them in real-time."

Apps are not for everyone

For Pizza Hut, the app is a crucial part of its marketing mix and its direct-to-consumer offer. But not every brand needs to have their own purchase destination, Kraft Heinz' Amin believes.

"Do need to have an app or you can rely on the retailers? Is leveraging somebody who already has an existing audience base versus you creating your own more useful? I think these considerations are category dependent," Amin said.

"On our business, I don't believe that there is necessarily a need for an app all the time. There could be for certain parts of our business where we are trying to create a more premium experience. But principally, I would believe that if there is already either platforms or retailers or developers who have gone through the effort of creating an audience base that overlaps very well with the audience base that we go after, we would be happier leveraging that," he added.

NTUC Enterprise's Minkov said "everyone wants to create the next super app", and urged brands to consider whether that is what consumers want from your brand.

"We are having this debate as well," he said. "As an online grocery app, do we try to leapfrog to become a super app, or we maybe try to leapfrog and become 'everything food-related' app? So far, maybe we are inclined more towards the latter—focus on a specific category and became a champion in it, versus trying to be everything for everyone."

FairPrice's app now generates 60% to 70% of its ecommerce revenue, up from 30% to 40% a year ago, Minkov shared.

Online-to-offline attribution

Rishi Bedi, VP SEA, Korea and Japan at mobile programmatic company InMobi, said app consumption has grown dramatically in Southeast Asia over the past year, as the region has added 40 to 45 million new internet users. But mobile apps "throw a lot of data" and marketers are yet to figure out how best  to leverage it.

"One of the things that is still evolving in the region is how do we take benefit of the data? How do we use that data to then deploy more intelligent marketing strategies to precisely engage with the consumers that we are looking for? I think there's too much data and what to do with that data is also a challenge," he opined.

Kraft Heinz' Amin said the ability to use mobile data to link offline experience with online purchases has huge applications for marketers.

"How do you merge offline brand experiences and the purchase on mobile or on digital? I think that's really where this will start becoming valuable for consumers, interesting for marketers, and profitable for companies, because we will get to a point where O2O marketing will start becoming a win-win for everyone," he suggested. "That's the golden ticket in terms of what marketers should aim for."

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