FMCG Direct-to-Consumer: The COVID Effect
A trend that has increased dramatically over the past few years has been fast moving consumer goods (FMCG) targeting end consumers directly, and it comes as no surprise really. With brands facing pressure from supply chains, high streets winding down, and the ever-increasing consumer expectations, FMCG Direct-to-Consumer (DTC or D2C) is a much-needed competitive advantage.
However, what we weren't expecting was simply how quickly brands would prioritise this channel. The ease at which a large brand can engage with a digital agency and get an ecommerce platform up and running was the original catalyst. Couple that with the increasing demand for online purchasing, it was a no brainer for brands to turn to a D2C business model.
Going D2C amidst a global pandemic
As a digital agency servicing FMCG clients, we speak to many businesses who have plans to invest in D2C as part of their marketing strategy. However, this has usually been more of an afterthought. Never has D2C been as much at the forefront as it is today, and there's one main reason for that - COVID-19.
Like most parts of our life throughout 2020, COVID has had an enormous impact on the retail environment. It has affected the way we shop, how goods are moved throughout the world, and everything else in between.
FMCG companies have had to adapt in order to continue delivering and surviving. One way to do that is investing in a D2C model. According to a recent article on WARC, whilst they "have no plans to replace retailers," they are using this time to experiment D2C offerings in the right market conditions.
Why do FMCG brands go Direct-to-Consumer?
The barriers to entry are now much lower
Ask most Executives at the head of an FCMG brand about going Direct-to-Consumer 20+ years ago and it wouldn't have been anywhere in their plans. The barriers to entry were simply too high. Too much outlay was required to compete with the high street retailers who had been dominating for years.
Of course, this did not last forever. Technology has improved tenfold, sparking a huge shift in consumer behaviour. The relative ease in ecommerce shopping has led to a high street downfall.
FMCG companies that couldn't previously compete in physical retail can now compete online by launching ecommerce platforms overnight.
FMCG brands can now control the customer experience
Historically, retailers have owned the experience with the customer, with FMCG brands playing a supporting role. This has typically been a challenge, leaving the final piece of the customer experience to another party.
At worst, when retail stores get it wrong, it can leave a bad brand image in the minds of the consumer. D2C completely eliminates this problem. Selling directly to consumers allows brands to own the important moments with the consumer, ultimately putting them in charge of their own brand destiny.
D2C brands can experiment more with product development
It's a much slower process when retailers are part of the equation. When brands go Direct-to-Consumer, they have a much faster go-to market strategy, enabling them to be nimbler across their operation and product development.
They can come up with their own product propositions and test them amongst the client base without the shackles of a retailer holding them back. No longer are they creating products for what the retailer needs. They are both creating and selling their products for and to consumers.
You can look at Nespresso as a perfect example of a D2C company. Despite their coffee machines being available throughout retailers worldwide, they held control of supplying their coffee capsules to the consumer. They did this via their own website and physical stores. Not only did this allow them to own the regular customer experience, but they could also quickly adapt the product range and test new coffee flavours amongst consumers.
Drive significant growth through D2C
Brands can see significant returns when going Direct-to-Consumer, as they are owning more of the channel strategy. Retailers often need significant margin in their products to be able to run a successful business, particularly on the high street. Bypass this and FMCG brands can increase their margins and profits significantly.
Technology is more accessible than ever before
We couldn't create this article without mentioning technology, could we? The one thing that underpins all of this is technology, which has become much more accessible to FMCG brands in the last 15-20 years.
It's much easier now to launch something like an ecommerce platform quickly with the sheer number of solutions available, both out-of-the-box and bespoke. Brands can even count on most systems being able to fit with their current technology systems, with the vast number of integrations available.
Data ownership provides more balance
Similar in the way that brands can own the customer experience, they can also take more of the pie when it comes to data. The rise in technology has opened our eyes to a whole world of accessible customer data that can be used to make more effective business decisions. The party that knows more about the customer was the winner, and typically that was the retailers.
FMCG Direct-to-Consumer brings more balance, providing brands with customer data that can further influence product development and what is sold both D2C and through retailers themselves.
Earlier this year drinks giant PepsiCo launched their ecommerce D2C offering, PantryShop. Consumers can use the website to order specialised bundles containing their favourite branded beverages and snacks. An excellent example of how an established brand can launch an online store and sell a completely different offering to that of their retail channel.
Heinz to Home
Heinz is not only leading the way in the variety of sauces; they're also leading the way in D2C. Earlier this year, they launched Heinz to Home, an online service that allows consumers to order bundles of their favourite Heinz products and have them delivered straight to their door.
Now is the time to launch D2C
Whilst it may sound like an easy option for brands to go D2C, there are many more factors to take into consideration. For most brands, owning the customer experience is a completely new ball game, one which their current retailers have been winning at for hundreds of years. Brands should engage in some digital transformation consulting to help guide them on where to start.
D2C takes serious investment, not only in technology but in people and processes in order to get it right. Make no mistake about it though, there has never been a better time for brands to at least experiment in this area. Customer behaviour has changed dramatically in light of the pandemic, and that requires a shift in how products are created, marketed and delivered to them. The brands who move quickest now could just own their most profitable channel in years to come.