F&B brands must think through their e-commerce strategy if they hope to capitalise on this growth, with the addition of a direct-to-consumer (DTC) approach especially attractive for many.
Growing brand adoption
Challenger brands have been quick to leverage the DTC route. A creative and targeted use of social media, for example, has enabled them to quickly build a close relationship with affluent younger consumers, especially urban Millennials.
And with the typical product launch time for DTC companies just four months, compared to 22 months for CPG companies, their speed to market and direct relationship with consumers makes them attractive to investors.
Hint, a US-based flavored water brand, raised $25m this summer to fuel continued hyper-growth online and in retail locations across the country. DTC sales represent approximately 60% of turnover and have more than doubled this year, with survey data showing that online shoppers buy in stores as well, demonstrating the power of allowing consumers to choose when and where they purchase their favorite products.
Big brands are also aware of the promise of DTC. It took PepsiCo just 30 days to launch its PantryShop site, selling bundles of essential grocery products snacks direct to US consumers. Heinz launched a similar initiative in the UK, creating Heinz to Home in response to a lack of stock in supermarkets and a fall in physical shopping visits.
But, once lockdown measures ease, it’s unlikely consumers will continue buying all their food products online, opting instead for those brands they really love or can’t find in the shops.
Considerations of a DTC approach
- Consumer Data Ownership
Direct communication with customers means brands have ownership of data which, along with immediate feedback, allows them to personalise their products, and build greater loyalty. But effective and dynamic acquisition and retention tactics are needed to motivate consumers to transact more than once, while taking care to avoid over-communicating, especially via email.
2. Brand Discovery
Freedom from grocery stores has its benefits – unlimited shelf space, no margin handed out to retailers, and full control over pricing. But there are advantages to being in-store – having a physical product on a shelf offers immediate visibility. Online, that visibility must be bought, and this is becoming increasingly expensive as competition grows.
3. Complexity & Added Costs
Online retail platforms and the accompanying logistics – picking, packing, and shipping – are expensive to set up and maintain, and require dedicated and skilled e-commerce, e-marketing, and customer service teams.
4. Limited Reach
DTC products will appeal to a specific group of customers – those that are happy to order just a single brand, are reachable via online ads and social media, and who are open to buying food online.
So what, then, makes a brand fit for DTC?
- Brand & Content
A strong brand and good content are paramount to DTC success
2. Fit with strategy & priorities
Brands must ensure DTC fulfills a clear strategic role (e.g. increase loyalty, provide full range, etc.). Visibility/market entry is only in rare cases a sound DTC goal considering how cost of traffic
- Products bought on high repeat (water, coffee) lend themselves more to DTC than low-frequency or occasional purchases (ketchup).
- Those with a high number of SKUs or flavours (spices, chocolate) are more suitable than those categories where choice or breadth of product line is less relevant for consumers (ketchup).
- Brands whose products enjoy strong consumer engagement (chocolate, coffee, snacks) will fare better than those in lower engagement categories (canned goods, broth), unless the brand is uncommonly strong.
- High-gross margins are needed to cover the increased marketing (esp. traffic to website) and logistics costs relating to DTC.
- A high value-to-weight ratio is important in ensuring shipping is cost efficient.
- With the exception of popular digital-native brands, an established brand is preferred, to lower the cost of acquiring customers and building trust.
Alternative E-commerce routes
Brands should also consider other routes than DTC for e-commerce and to access consumer data:
- Amazon now allows for brands to have their own space and content on its platform, where the cost of customer acquisition can be 20% to 50% lower than with a branded website
- A rich consumer CRM can be built by giving a good reason for customers to share their data, by providing great content, or making them participate in engaging contests