Direct-to-consumer (DTC) food and beverage sales have come full circle from the days when farmers sold fresh eggs, meat and produce or prepared items such as jams and pickles from his farm store or a stand to his regular customers. He knew their names, he knew where they lived, and he knew how they were going to use those products to prepare a meal.

What better way to respond to customer needs and their long-term buying behavior than to have regular and direct contact with them? Consumers who are well-versed in shopping from their increasingly connected homes on online marketplaces such as Amazon globally and JD.com, Pinduoduo, and Alibaba in Asia are also irrevocably turning to them for their food and beverage needs. 

Amazon responded with initiatives such as Amazon Fresh grocery delivery and Subscribe & Save. The fracturing of the food and beverage landscape by digital-native vertical brands such as snack brands UnReal and Rxbar in the US, non-alcoholic apéritif brand Seedlip and noodle brand Mr Lee’s in the UK, fitness food brand Foodspring in Germany and snack brand Three Squirrels in China are chipping away at traditional brands’ business – and margins – with products that are special, authentic and transparent, and cater to conscious eating trends. Now consumer packaged goods (CPG) companies and brands are taking their lead and following their customers online to stay competitive.

This propensity of consumers to shop online and on mobile has led to beverage company AB InBev’s DTC sales touching a figure of US$1 billion a year¹. AB InBev, whose stable of beer brands include Budweiser, Busch, Corona and Stella Artois, says they have made 250 million DTC customer connections across stores, popups and websites. Like many other companies dipping their toes into DTC, they used Asian countries as a test market – AB InBev’s China DTC business is booming – before launching them worldwide. 

Nestle is another DTC pioneer. Earlier this year, they announced that British consumers could get the brand’s snacks, candy and coffee delivered to their doorstep via delivery service Deliveroo. In addition, Nestle’s KitKat Chocolatory offered customers the opportunity to order custom chocolate through a website and popups first before opening standalone stores first in Tokyo before rolling them out around the world. 

While newer entrants such as the plant-based food brands Beyond Meat and Impossible Foods are going the DTC route offering bulk, trial and combo product packs, even brands that have been around for a long time are joining the bandwagon. Maille has been selling its mustard products through retailers since 1723. Since the company’s acquisition by Unilever, they are now available directly through their own website, while household name Heinz is bundling products such as beans and spaghetti for home delivery. Pepsico, another staple brand, set up Pantryshop.com within a month to allow users to select specialized bundles of products such as Quaker oats and Gatorade under categories such as ‘Snacking’ and ‘Workout & Recovery’ with free and fast delivery. 

Why Go The Direct-to-Consumer Route?

CPG brands – traditionally sold via sales channels such as retail stores or third-party eCommerce sites – are sensitive to any changes to those channels. Besides, brand growth for CPGs are slowing on regular channels, if not going away entirely. The Centre for Retail Research predicts, for instance, that more than 20,000 British shops will close in 2020, a 28% increase on 2019².

In an uncertain retail environment, Lindt Canada, historically a brick and mortar supermarket and high-street staple in many countries, went online using Shopify Plus in just five days and enabled curbside pickup at its stores before Easter 2020 and the start of the company’s second-largest annual sales period³.

Another way to growth – build it or buy it

In 2020, eMarketer forecasts that DTC as a percentage of eCommerce sales will grow by 24.3% to US$17.75 billion, rising to US$21 billion in 2021⁴. The share of ecommerce in F&B is also expected to grow to 15-20% in 2025⁵.

Credit: LEK Consulting

CPG companies are investing in DTC models and platforms, alongside their traditional sales channels, to enable direct contact with their end-customers. 

In doing so, they can also:

• Own the customer relationship
• Build trust with their customers
• Gather first-person data
• Offer loyalty programs and run promotions
• Personalize the experience across all channels. 
• Extend the customer experience into different channels such as events and experiences 

Another route is to set up internal innovation labs to develop products specifically for DTC. AB InBev has its ZX Ventures. Ocean Spray is another brand trying to expand from its cranberry juice association to move into new products such as water enhancers for dogs, a line of herbal tonics, and an oral supplement to help protect the skin from the sun. 

Acquisitions can be yet another way to grow. HelloFresh, which has built a leading position with its meal kits subscription service is extending its brand by acquiring Factor 75, a company specializing in health ready meals geared towards health and wellness. Besides bringing with it offices, production and fulfillment facilities, this newest addition joins other portfolio brands such as EveryPlate, which offers affordable meal kits and Green Chef, which offers healthy meals⁶.

How to Go DTC?

Defining your goals and strategy at the outset of your DTC transformation journey is important. Things to consider include infrastructure support, supply chain networks, frameworks to underpin orders and data as well as the product mix.

The main components for CPG brands considering a DTC transformation, just like with other products that are sold direct, are a robust eCommerce infrastructure that offers speedy set-up, access and can scale quickly, a supply chain and logistics providers that can provide on-time, hassle-free fulfillment, and robust customer data platform and great customer service. Free and fast shipping is part of the deal on most DTC platforms.

Customer Experience is Key

With DTC as a new model of business, customer experience becomes paramount and the brand owns each and every touchpoint. Customers want not just convenience and easy intuitive UX, but they are often looking for the product to improve over time. DTC turns the sales process into a two-way street taking customer feedback to tweak current products or even develop new products. User-generated content is also a common feature. An easy-to-access and centralized customer record is also an essential tool for personalized and intuitive customer service. 

First Person Data

First person data is exclusive to your company and its origin is completely transparent. DTC models use data platforms that can gather first-person data not just from buying behaviour but also from channels such as ad campaigns, emails and social media. AI and machine learning can be applied to get deep insights as well as find influencers⁷. 

Building customer relationships and community

Aside from being data protection regulations compliant, the best backends crunch through data on engagement metrics and create a funnel for constant reviews and feedback from customers to power loyalty programs that keep said customers coming back for more. Allowing customers to take advantage of small perks, like free shipping, free returns, or access to exclusive SKUs, gives customers a reason to shop with you.

A big opportunity with omnichannel strategies is to connect customers with an experiential program, be they special events or experiences, with rewards for participation.  Alcohol brand Campari, for example, hosts happy hour Zoom chats, while MyKitKat workshops can be reserved at KitKat Chocolatory stores. Another example is Mondelez’ Toblerone, which offers custom printed sleeves for travel retail.

R&D

By leveraging first-party data and your community, you create a two-way relationship in which community members collaborate with you to co-create new products. You can also test products quickly and get customer feedback before investing in large production runs. Unilever not only sells ice cream flavors on its online store for Ben & Jerry’s, but also their latest Pint Slice innovations, T-shirts and merchandise. The data showed that cereal flavors were a popular concept so new flavors such as Fruit Loot and Frozen Flakes were created.

Brand Control

Instead of relying on other retailers to get your messaging right, take control over how your brand messages its products, creating consistency across all brand-owned touchpoints. By maintaining your brand identity and relationship with the consumer throughout their purchasing journey, you open up new opportunities to connect, achieve a personal touch and create value in unique and meaningful ways.

Marketing to Drive Sales and Cross-selling

The first-person data gathered can also be used to tweak marketing strategies, such as tailoring the messaging and sending out promotions or contests at the right time of day, week, or month. The larger share of millennial customers also means a different marketing mix such as more below-the-line marketing or social media in general⁹.

When taking a retail-only approach, you can miss out on opportunities to resell, upsell, and cross-sell. Going DTC allows you to test upsell and cross-selling opportunities, not only on site but also through social and email campaigns.

Profitability

DTC enables you to create a more efficient distribution and sales process and helps to retain revenue that would usually go to intermediaries. It also allows for better inventory control, allowing you to scale supply levels based on insights from data.

Channel diversification

Shoppers in four major markets surveyed – US, UK, Germany and France – are increasingly going online to look for CPG products¹⁰.

A diversified growth strategy allows you to test additional channels to see what works best with your audience, as each channel will bring a specific value. Further, such a strategy can result in benefits such as:

• Improved brand awareness and recall

• Measurable engagement

• Precision targeting and retargeting

• Direct communications via email

By owning the entire supply chain, you receive data gathered during the whole customer journey. This gives you the agility to test new advertising channels and digest results quickly.

Choosing a global platform such as Shopify Plus means you can use it to sell across 20 channels in over 175 countries in multiple currencies and languages. Of course, an omnichannel strategy also means that customer service should have the right technology and business tools to move across channels and offer personalized service regardless.

The KitKat Chocolatory store concept discussed above also includes other KitKats flavors from other countries as well as digital innovations such as printing photos on KitKats. 

Subscription

One way to keep customers coming back is the subscription model, which works well for food and beverage items such as pet and baby food where there is a regular incentive to purchase.

While subscription can help companies improve forecasting, smarter cross-selling is also possible. The best baby food companies not only offer products for babies as they grow but also customized pouches (Little Spoon), organic purees (Once Upon a Farm) and solid and finger food for growing children (Nurture Life, Yumble Kids, Tiny Organics). Arla’s Baby&Me concept in China, on the other hand, seeks to foster connections and develop trust with parents through a direct approach.

All in all, the sale of food and beverages direct to consumers online is a trend that is here to stay. What we are seeing now is just the tip of the iceberg. Many of the newer brands may  not be able to sustain current growth patterns, but we are without doubt in an era where brands pivot to become their own retailers, bringing DTC to the forefront of a new normal. 

________

Footnotes

^{1.  Inside Anheuser-Busch InBev’s $1b a year DTC business, Digiday.com, March 2020 https://digiday.com/marketing/inside-anheuser-busch-inbevs-1b-year-dtc-business/}

^{2. The Crisis in Retailing: Closures and Job Losses, Centre for Retail Research, 31 March 2020 https://www.retailresearch.org/retail-crisis.html}

^{3. Lindt opened its first ecommerce store in 5 days to serve customers in a COVID-19 world, Shopify.com https://www.shopify.com/plus/customers/lindt}

^{4. Direct-to-Consumer Brands 2020: Growing Pains Hit Disruptor Brands on Their Path to Maturity, eMarketer, March 2020 https://www.emarketer.com/content/direct-to-consumer-brands-2020}

^{5. Online Food & Beverage Sales Are Poised to Accelerate — Is the Packaging Ecosystem Ready?, LEK Consulting, February 2019 https://www.lek.com/insights/ei/ecommerce-packaging-food-beverage}

^{6. HelloFresh acquires meal producer Factor75, RetailDetail, 24 Nov 2020 https://www.retaildetail.eu/en/news/food/hellofresh-acquires-meal-producer-factor75}

^{7. How artificial intelligence is influencing Unilever’s marketing, Digiday, April 2019 https://digiday.com/marketing/artificial-intelligence-influencing-unilevers-marketing/}

^{8. Inside Anheuser-Busch InBev’s $1b a year DTC business, Digiday.com, March 2020 https://digiday.com/marketing/inside-anheuser-busch-inbevs-1b-year-dtc-business/}

^{9. Reinvigorating growth in the consumer-goods industry, McKinsey.com, August 2020 https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/reinvigorating-growth-in-the-consumer-goods-industry}

^{10. CPG Goes Omnichannel: Shoppers Grasp the Digital Opportunity, McKinsey.com, March 2018 https://www.mckinsey.com/business-functions/marketing-and-sales/solutions/periscope/our-insights/surveys/cpg-goes-omnichannel-shoppers-grasp-the-digital-opportunity}