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ONLINE CPGINDUSTRY REPORTJanuary – December 2016

In This ReportIntroduction3CPG Online Sales Growth4Category Sales & Growth5Brand Sales & Growth7Retailer Growth10Conversion Rate by Device11Search Terms12What to Expect in 201713

IntroductionWe said CPG killed it in 2015, but CPG slayed in 2016. Asonline sales continued to grow, CPG surpassed 10B forthe first time since we began tracking this market! Someof the biggest categories, like Health Supplements, PetCare and Cosmetics, each generated more than 1B insales. CPG’s strength online shows no signs of stopping.Online subscription and pantry-box retail models aregrowing rapidly due to ease of use and price savings.Consumers are more conscious about how they shop,whether it’s about saving money or opting foreco-friendly products. CPGs that invested in low priced,natural products had big payoffs in 2016.CATEGORIES1010data Market Insights assessed the CPGonline market and determined which categoriesand brands crushed it in 2016. For the purposeof this analysis, we focused on the following keyCPG TICSDRINKSSNACKSBABYKEY TAKEAWAYSSales from subscription and pantry-box shoppingmodels grew tremendously in 2016Health Supplements is the biggest CPG industryonline with 2.6B in salesPet Care grew 67% YOY and is one of the biggestCPG categories onlineBrands that focus on “natural” products experiencedthe most NCARESHAVINGLAUNDRY& DISH

CPG Online SalesGrowthAfter the first half of 2016, 1010data estimated that CPGonline sales in key CPG categories would reach 10billion for the first time ever. Now that 2016 has come toan end, we are pleased to report that our estimateswere correct. Total sales grew 36% from 2015 to surpassthe 10 billion mark in 2016. The nearly even split inrevenue between H1 and H2 2016 implies thatconsumers are more frequently buying CPG productsonline all year round, and not just during the holidaydeal season.One reason consumers are buying more CPG productsonline is that online retailers have made the processeasier. For example, home staples like paper towels anddish soap need to be replaced immediately, soconsumers won’t wait a week for them to ship. Now thatmore online retailers offer free two-day shipping andsubscription options, CPG sales have grown 2x as fastas total ecommerce sales, which had a 16% YOY growthrate.4Annual CPG U.S. Online Sales ( ) 10.4B 7.6B36% 5.6B 4.2B 4.8B 3.4B20152016H1H2online sales among keyconsumer goods categoriesgrew 36% vs. same period theprevious year

Sales by CategoryTop CPG Categories Ranked by Online Sales ( ) 2016 2.6BHealth Supplements 1.5BPet Care 1.3BCosmetics 1BFacial Care 720MHair Care 590MDrinks 560MBaby 530MHealth OTC 410MOral Care 330MSnacksHand/Body Care 240MCleaners 240MShavingSun CareLaundry & Dish 170M 100M 90MCategory performance in 2016 demonstrates the strength of CPG’s online presence. Health Supplementsgenerated 25% of total key CPG category sales and exceeded the size of the next biggest category by 1B. PetCare, Cosmetics and Facial Care also all surpassed 1B in sales in 2016. Cosmetics were driven by fragrances,which earned 500M in online sales in 2016.5

YOY Growth by CategoryFastest Growing CPG Categories Online in Sales 201667%Pet Care62%Laundry & Dish60%Cleaners48%Health OTC45%DrinksHand/Body Care43%Health Supplements43%40%Oral Care39%Snacks28%Hair Care26%Facial Care25%Sun CareShaving22%Cosmetics21%Baby21%Pet Care is the fastest growing category among categories with at least 500M in sales. Specialty pet care siteslike Chewy and Drs. Foster & Smith are propelling this growth. Laundry & Dish and Cleaners experienced themost growth out of all categories with less than 500M in sales. The popularity of pantry box options fromAmazon, Boxed and Jet has contributed immensely to the growth of both the Laundry & Dish and Cleanerscategories.6

Sales by BrandTop CPG Brands Ranked by Online Sales ( ) 2016Optimum NutritionBlue BuffaloPampersNow FoodsCliniquePhilipsWellnessEstee LauderRoyal Canin Veterinary DietHuggiesHill’s Science DietHill’s Prescription DietGilletteNatural BalanceGreeniesMACOral-BLancomeTaste Of The WildJYMDiving into brand size and growth gives an additional level of understanding about who’s winning, what the nextbiggest brands are and how this impacts CPG categories. Optimum Nutrition, the leading protein supplementleader, continues to crush it online. The two biggest brands based on online sales correlate with the top two CPGcategories, Health Supplements and Pet Care. Both categories have five brands among the 20 biggest CPGbrands, which indicates that a few big players are the driving force in these categories.7

YOY Growth by Brand ( 10M in Sales)Fastest Growing CPG Brands Online with 10M in Sales 2016Art NaturalsPure Body NaturalsOrgainRadha BeautyRachel RayTerry NaturallySports ResearchCaza TrailTidy CatsNutroHill’s Prescription DietViva Labs Inc.BalBlue BuffaloPro Plan Vet DietsRed BullPedigreePurina ONEArm & HammerHill’s Ideal %129%127%124%124%123%113%111%110%109%The five fastest growing brands all sell “natural” products. Art Naturals, Pure Body Naturals and Radha Beauty allsell body oils, while Orgain makes health supplements. Rachel Ray has made a splash in the Pet Care categorywith a line of natural pet food. The Rachel Ray Nutrish brand heavily advertises on major CPG sites, like Amazonand Chewy, which is clearly paying off. It’s no surprise that nine of the fastest growing brands come from thefastest growing category, Pet Care.8

YOY Growth by "Emerging" BrandFastest Growing "Emerging" CPG Brands Online with 2M - 10M in Sales 201660636%Asquared Nutrition6841%SonishareDoctor RecommendedBodyTechHK Anderson93449%2321%1139%Bronson Vitamins997%Jean Patou656%Vimerson Health547%Victor519%Hi-Tek457%First Botany ed Muscle400%Nutricost399%Analyzing brands with less than 2M in sales in 2015 and no more than 10M in sales in 2016 gives a goodfoundation for identifying the top “emerging” brands in CPG online. Most emerging brands are HealthSupplements, including the fastest growing new brand, Asquared Nutrition, which experienced tremendousgrowth in 2016. Victor is a Pet Care brand gaining in popularity, while HK Anderson makes snacks that are mainlysold offline. Sonishare sells non-branded electric toothbrush head replacements. Their success speaks to the lackof brand loyalty in a marketplace environment where price rules.

YOY Growth by RetailerFastest Growing CPG Retailers Online with 5M in Sales 2016381%jet.com192%chewy.com - mazon.com - 5%abercrombie.com44%walmart.com42%amazon.com - direct40%petco.com39%The fastest growing seller of CPG products online is Jet.com. Jet launched in the middle of 2015, and their growthover the past 18 months is very impressive. Jet drops prices the more you shop, which is similar to Amazon andChewy’s subscription sites. The growth of all these online retailers shows the popularity of subscription servicesonline. Consumers are looking to save money while making the shopping experience easier, both of which areachieved by buying a subscription. Drs. Foster & Smith is a Pet Care retailer that is gaining traction and advancingonline at the same pace as the biggest online pet retailer, Chewy. Drs. Foster & Smith’s advancement demonstrateshow easily new retailers and brands can take advantage of the low barrier to entry that exists online.10

Conversion Rate by DeviceConversion rates gauge a brand’s ability to convert a product view into a purchase. Understanding yourconversion rate can help inform your promotional strategy. Breaking this metric by device type, PC versusmobile, gives further clarity to brands on how they should invest their promotional dollars.MOBILE11Conversion Rate by MobileConversion Rate by PCArt NaturalsPure Body NaturalsPura D’orNow FoodsGreeniesJarrowKirkland SignatureArm & HammerDoveOral-BGilletteCrestNatrolDoctor’s BestFancy FeastIzzeAffreshGood SenseDawnCoca-ColaCheez-ItFormula 409Chips AhoyBraunHead And ShouldersNespressoIntegrative TherapeuticsAmazing NutritionCaza TrailKMS7%5%5%5%5%4%4%4%4%3%3%3%3%3%3%The top six converting brands on mobile arelesser-known names, but experienced big growth in 2016.Their high conversion rates prove that mobile shoppersare adopting newer brands across all categories. Nichebrands, like Pura D’or or Greenies, have higher conversionrates because consumers that are familiar with the brandwill seek them out directly. Bigger brands, like Crest andDove, experience more clutter. The fact that half thebrands on the mobile list are big-name brands speaks totheir 14%14%14%Most of the top converting brands on PCs are Drinks andCleaners. Izze, a fizzy-drink brand, has a very highconversion rate of 22%. More than one in every fiveproduct views result in a purchase of Izze drinks. Theconversion rates on PCs are much higher than on mobiledevices and most of the PC brands are household names.

Search TermsOver 80% of online shopping begins with search. Why is this important? Keyword relevance is one of the topcomponents of search ranking algorithms. Ensuring that your product titles online include the right keywords ispivotal to driving more traffic to your product pages. On-site search terms can inform how you name yourproducts; off-site search terms will determine which online retailers you should sell through. We ranked searchterms based on the most commonly used terms that consumers searched for that resulted in the purchase of anyCPG product online.OFF-SITETop Search TermsTop Search Termsamazonamazon primeamazon.comchewychewy.comwalmartamazon smilevitacostprime pantrysephoraprime pantrygreeniescat litterpantryfish oilusaprotein powdercat foodcoffeedog foodOff-site searches are based on paths that begin withsearch engines like Google or Bing. Based on this rank,most people who buy CPG products online are beginningtheir search with Amazon. The inclusion of ‘amazon smile’on the list shows that many consumers are shoppingconsciously and trying to raise money for their favoritecharity by shopping on Amazon Smile. Chewy startsmore consumers searches than Walmart, which highlightsthe popularity of Pet Care and the role that Chewy playsin the category’s online success. Also, Sephora’s spot onthe list shows that even as Cosmetics sales grow online,most consumers start their beauty search with Sephora.12ON-SITE‘Prime pantry’ is the top search term on-site, which isthrough search bars within retailers websites. This term isalso on the off-site list and shows the mass-appeal ofCPG and subscription services online. The only brand onthis list is Greenies, which is a pet food brand. Mostconsumers begin shopping more generically, butGreenies has a big base that is searching directly for theirproducts, which explains why they have a highconversion rate. The inclusion of ‘coffee’ on this listindicates big growth for this sector online. The rest of theterms come from Health Supplements and Pet Care, thebiggest CPG categories online.

What to Expect in 2017MORE PRIVATELABELIn 2017, brands will have tobalance the dynamics of onlineretail partners who also haveprivate label brands. Amazonand Walmart, two of the biggestonline retailers, both expandedtheir suite of private labelproducts in 2016.13UNEXPECTEDCOMPETITIONTHE BENEFITS OFSUBSCRIPTIONOverall fragmentation is anotherthing to consider. The onlinemarket has much lower barriersto entry than brick-and-mortar,making it much easier for newbrands to gain traction. Lesserknown and untraditionalcompetitors and cult productsare more prevalent online,posing new challenges fortraditional CPG.Subscription models are trulywinning with consumers online.Retailers that successfullyexecute on this model will have ahuge advantage in 2017.Consumers are looking for fast,free shipping, low prices across awide assortment and ease of usewhen shopping online. Goodexamples are Amazon’sSubscribe & Save option andJet’s ability to let “prices drop asyou shop.”