The Stockout: Nestlé Gets Aggressive With Online Ambitions

Before getting into what's happening in CPG supply chains, here's something for your calendar: I host the next quarterly The Stockout webinar on Dec. 6 at 2 p.m. ET. Here's the link to register. Last quarter, there was a great turnout, and the discussion was enhanced by the many participants who asked thoughtful and pertinent questions. My hope for the upcoming webinar is the same.

Nestlé makes online growth a centerpiece of its 2025 plan. In 2020, e-commerce represented 12.8% of its sales, 47% of its marketing investment was spent online and the company had 205 million consumer data records. By 2025, the company expects its online sales, online marketing spends and a number of consumer data records to be 25%, 70%, and 400 million, respectively. So, expect targeted ads from Nestlé products if you're not receiving them already. For example, if you have pets, expect to receive ads for Purina. Behind the shift to digital media investments is the average return on investment on digital media which is double that of traditional media. Online sales of packaged food is a pandemic behavior that is sticking — the company's e-commerce sales grew 19.2% in the first half of 2021, on top of 48% growth in 2020.

Nestlé is developing new packaging solutions and has more than 40% of its e-commerce sales in "fit-for-purpose" packaging formats. According to Nestlé, the company has strengthened its supply chain to handle product categories that are benefiting from strong demand, including coffee and pet products, which appear to me to have permanently elevated demand levels.

Congestion at the Southern California ports has led to a reduction in container-ship arrivals in the region. As FreightWaves' Greg Miller illustrates, the number of daily container-ship arrivals declined 10% during the first 17 days of November versus the average daily container-ship arrival volume in September. That seems to be a market response to the congestion and, so far, that hasn't been enough to alleviate any of the congestion in San Pedro Bay. This week, a record high of 86 container ships were waiting offshore, and the time it took to get a container ship from waiting offshore to berth was a whopping 18.4 days. 

While still at highly elevated levels, eastbound trans-Pacific ocean rates (China to the U.S.) are down about 10%-16% in the past month. 

This might be something that only bothers senior citizens, but my mom and grandma complain about how flimsy plastic water bottles have become. In case they were wondering why, I sent them this article from Supply Chain Dive, which explains the motivation for using less plastic. Resins, the key building blocks in many plastic products and a byproduct of petroleum refining along the Gulf Coast, have been in short supply due in part to February's winter storm, driving prices up 30%-50%. In addition, the specific resin used in plastic bottles, polyethylene terephthalate, became more expensive after a tax on imported resins was reinstated last year.

Supply Chain Dive describes why fresh fruit and vegetable supply chains are under pressure. The perishability of foods in those categories, the lumpiness of deliveries and recent shortages of fertilizer and pesticides have increased the risk for spoilage. Scarcity has sent prices of fertilizer and pesticides up 35% and 25%, year-to-date, respectively.  

The J.M. Smucker Co. is investing $1.1 billion to build a plant in Alabama dedicated to its Uncrustables product line. It's clear from Smucker's recent analyst calls that they view Uncrustables as their most attractive growth area. Annual sales of Uncrustables are roughly $500 million, and the company expects that to double to around $1 billion in the next five years. Putting that in context, the company did total sales of $8 billion in its most recent fiscal year.  

Additional detail on Hershey's acquisition of Dot's Pretzels LLC appeared in The Wall Street Journal. The company indicated that the motivation for the acquisition was primarily expansion into the higher-growth snacking category and diversification away from chocolates. Secondarily, there are cost synergies associated with the deal; there are manufacturing overlaps between the companies, and Hershey currently buys pretzels from an external supplier (for use in its chocolate-covered pretzels), which it can bring in house following the acquisition. 

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