Taking the direct route: how CPG companies can prepare for the new normal

The term “Direct-to-Consumer” (DTC), is not an unfamiliar concept for consumer goods businesses. In fact, with intensifying pressures on manufacturers from pricing and sourcing of materials, accessing labour, currency fluctuations, and from political change as a result of Brexit, manufacturers are finding that they need to adapt in order to move ahead. Taking the Direct-to-Consumer route has been emerging as an important consideration for some time, albeit in a fledgling state until now.

During the lockdown period, consumer behaviours globally have changed dramatically from initial panic buying and stockpiling, through to a surge in online spending. Consumers seeking comfort in challenging times are turning to the familiar, with 49% of UK consumers trying to only buy from their favourite brands during lockdown[1]. A massive 97% of UK online shoppers are aware of the leading DTC brands and 35% have purchased from them[2]. Clearly, consumer goods manufacturers need to adapt now to seize future opportunities as consumer priorities change and some are already waking up to the fact that there is a gap in the market for serving customers directly.

• Unilever who already owns the DTC businesses The Dollar Shaving Club and Graze, has seen e-commerce accelerate in Q1 and is adapting to new demand patterns. At the end of May Unilever teamed up with Grocemania, a London based delivery service, to provide ice cream direct to consumer
• Heinz has been quick to respond to consumer needs by launching the Heinz to Home service, providing home deliveries of three different packages of bundled canned foods.
• Nestlé, who launched a DTC channel last year for KitKat, has seen significant increases in e-commerce and in the UK Nestlé is now partnering with Essentials by Deliveroo to deliver chocolates, sweets and coffee to consumers
• PepsiCo rapidly launched its PantryShop site in the US selling boxes of snacks and drinks including Tropicana, Cap’n Crunch cereal and Quaker granola bars, along with the sister site Snacks.com selling a range of Frito-Lay products such as Doritos

Advantages of going direct to the consumer

In partnership with Cranfield University, BearingPoint previously surveyed 100 businesses seeking to understand the impact of DTC channels on manufacturers’ supply chains; at that time, 87% thought that DTC was relevant for their products and consumers[3]. It would seem that the appetite is there for both manufacturers and consumers; and for manufacturers the DTC route certainly has its advantages:

• Control and clarity of the brand – through product, packaging, and brand message
• Full share of the customer experience through the purchasing process
• Speed to market – development, testing and introduction without seasonal delays or other retails interruptions
• Direct access to the customer – yielding a wealth of valuable data and insight
• Assortment access – providing consumer choice from the full product range, not a limited sample
• A good model for manufacturers to adopt in response to the present pandemic, to absorb some of the current and future risks and ensure their products reach consumers

Developing a DTC channel is not a consideration to be taken lightly

Typically, food and beverage categories have tended to be somewhat slower when it comes to e-commerce and despite the clear benefits for manufacturers there are also challenges. Fulfilling a DTC order is a completely different proposition to fulfilling a bulk retail or wholesale order; legacy assets and processes handle this new segment poorly and many have been held back by weak supply chain capabilities. Some have been reluctant due to cost considerations and logistics; the cost of entry can be high but handled correctly will diminish over time. It is not a straight-forward process and many considerations include building a brand presence, building an e-commerce platform, distribution, and last-mile fulfilment. Our previous research highlights that manufacturers agree that guaranteed delivery, speed of delivery, ease of access and convenience are also key factors. 

A further barrier for many CPG manufacturers has been managing the relationship with their retailers; our previous BearingPoint survey highlighted that 40% of manufacturers thought their retailers would be against a move to DTC[4]. However, developing a DTC channel does not necessarily mean cutting out the middle-man – the value of the retailer is clear, as retailers enable great scale. In fact, those who are already on the DTC journey say they have no ambition to replace retailers on a substantial scale any time soon[5]. Building a new operating model that supports multiple channels to market, treading carefully when it comes to consumer pricing and continuing to manage retailer relationships will be imperative to success.

The move to DTC

When starting on the DTC journey manufacturers should note the following considerations:

Focus on the proposition first: businesses need to deliver a customer proposition that may be new to them but not the omni-channel consumer

Build a sustainable operating model: bending the existing operating model and assets by implementing DTC as an add-on is not a sustainable solution

Doing nothing for DTC is not an option: doing nothing is high-risk as those companies that most need to embrace the DTC channel may not be able to take advantage of future opportunities due to a lack of capabilities.

Will DTC become part of the new normal?

With behavioural shifts and ongoing social distancing measures expected to change the way we shop in the long-term, manufacturers must adapt their operations accordingly. Companies such as Heinz are already gathering valuable insight on how their customers shop, and despite the present limited scope of their eCommerce site, longer-term opportunities will arise from their responsiveness. Customer decision journeys have increasingly more digital touchpoints and many consumers will expect CPG companies to have a presence both on and offline, even as lockdown measures begin to lift.

CPG manufacturers have a unique opportunity to develop a new channel to market and provide a shopping experience through DTC that creates value for the customer. Those who respond to the changing market and adopt new models now will reap the rewards; those who don’t could risk being left behind.