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Should CPG brands cast their DTC businesses in a supporting role to stores?
It appears there’s been a significant tide turn for consumer packaged goods (CPG) brands in the direct to consumer (DTC) selling versus retailer distribution debate as marked by a consensus among presenters this week at Groceryshop in Las Vegas.
A year ago, the repeated objective mentioned among CPG executives focused on shifting consumers towards buying from their DTC sites in order to capture the most first-party data possible. This year, regardless of the session, the universal takeaway from the CPG success stories was to instead leverage DTC sites in a way that complements their presence on grocery store shelves and websites.
Charisse Hughes, chief brand and advanced analytics officer of The Kellogg Company, said on day one of the conference that DTC is useful for unearthing consumer insights and for experimenting.
Ms. Hughes said, however, that while DTC is where Kellogg’s innovates and tests, it does present challenges with respect to the last mile. Kellogg’s has determined that DTC sites are best for “swag and new products” so that there’s a differentiated value to the owned channel.
A similar strategy was echoed on day two by Francesca Hahn, VP of digital commerce at Mondelēz, who highlighted the engaging ways shoppers can interact with the Oreo and Sour Patch Kids sites.
“Everyday products are [sold] in-store only,” said Ms.Hahn, emphasizing that the sites are designed for discovery moments and for brand loyalists seeking elevated consumption experiences. Once again raising the issue of the last mile, she acknowledged that Mondelēz is working diligently to ensure delivery timeliness for optimal freshness and so that gift-based purchases arrive on schedule.
Day three’s keynote panel with Bubble Skincare founder and CEO Shai Eisenman and Olipop cofounder, CEO and formulator, Ben Goodwin, shed even more light on the balance CPG brands are now excited about striking between DTC and retail.
Ms. Eisenman described her brand’s retail presence as pivotal given consumers’ preferences for shopping for skincare products in person, especially when buying an item in that category for the first time.
Mr. Goodwin noted the value Olipop’s site brings in its ability to “complete the loop” for in-store grocery shoppers. In conversation after his session, Goodwin reiterated how crucial offering a range of flavors and consistently available inventory has been, saying “If shoppers get frustrated by out of stock issues in stores, they can find the product on our website or sign up for subscriptions online.”
Discussion Questions
DISCUSSION QUESTIONS: Is it imperative for CPG brands to have DTC sites in addition to their presence in grocery stores? What can brands do to increase visits to DTC sites to increase their understanding of consumers?
Poll
Loading …BrainTrust
Neil Saunders
Managing Director, GlobalData
Ken Morris
Managing Partner Cambridge Retail Advisors
CPG brands need to be where consumers are and this means being online via DTC and in stores, as most people shop across channels. It is also the case that an in-store presence has become more desirable as the costs of customer acquisition and fulfillment from DTC operations have soared. I would also draw a distinction between innovative CPG brands with loyal followings – like Olipop – which can do well via DTC and subscription services, and more regular brands like, say, P&G or Heinz. The problem with the latter is that people do not want to visit tens of different CPG sites to place orders via DTC – indeed, that’s the whole reason supermarkets exist: to curate a selection of products under one roof for convenient shopping.
Except for the fact that one can buy Heinz ketchup in any grocery store or have it delivered the same day or sooner. No consumer needs to go to Heinz to get it and Heinz should not be selling it DTC.
They launched Heinz to Home in the UK late in the pandemic. It worked incredibly well. Sensibly, the focus wasn’t on buying individual items like a bottle of ketchup; it was on people wanting to stock up on multiple cans of soup or store cupboard essentials. That shows the importance of thinking about the specific purpose of DTC for big, common CPG brands rather than seeing it as a channel that competes with retail.
No – it’s not imperative to have DTC sites, although you certainly need to have a good web presence – you just don’t need to sell directly from your website. Let’s recognize that the people who visit your website are not your average consumers, they are a very special subset of your most engaged buyers. That’s fine for research purposes as long as you recognize that it is not even vaguely representative of anything. If you’re trying to bring in new buyers to your franchise, this is absolutely the wrong sample.
If they are a very special subset of your most engaged buyers, then the data gleaned from the DTC cohort is not projectable to the average customer.
DTC strategy for CPGs is most conducive to and hence designed to drive engagement with the cohort of most brand loyal consumers – leveraging their loyalty to drive new product testing at low risk, brand engagement to gain valuable consumer insights, look-alike modeling to target similar consumers in the traditional channels, and driving subscription sales (albeit low scale) of curated or personalized boxes of cross-category products (also a source of consumer info). Therefore, while DTC sites may not be a big source of revenue, it’s an excellent way for CPGs to bridge the gap with their consumers. To increase visits, brands should be able to identify their most loyal customers and introduce effective initiatives to engage them.
I’ve always had a problem with the idea of bridging a gap with consumers. I’m pretty sure most consumers don’t want to have that gap bridged. CPG companies that assume they do are going to waste a lot of time and effort.
Most CPG companies would love to be able to increase their presence with consumers and the traffic through their DTC sites but as stated the last mile is the difficulty. They are almost admitting that they have to go through retail channels even though they would prefer not to. This makes for an uncomfortable relationship, but for many years retailers have created and grown own-label so that balance has always been there. A conversation with your consumer is one thing, trading directly to them is a much more difficult job.
I think I disagree. The role of the CPG company in this context should be to advertise the brand and specific products in support of the retailers and not to compete with them. As to using the DTC sites to test new products, maybe it is a good way to introduce a new product, test it and, if it is successful, demonstrate it to retailers, sell it in stores only, take the product down from the DTC site and continue to promote it as “now available at a store near you.” Call me stale!
CPG companies need even more than the last mile from stores, they need the moment of truth when the shopper is interacting with their products. There is a rich store (pun intended) of data from in-store shopper actions that is more difficult—but not impossible—to capture. Online shopping generates petabytes of analytics data, everything from heat maps to abandoned carts to secondary demand. It’s this type of insights that CPG will only be able to get from stores by teaming up with retailers, gathering and analyzing the data, and making better decisions that will benefit CPG, DTC, and their retail partners.
The attraction and appeal for DTC brands to own the brand messaging, vertically integrated supply chain, customer experience, pricing, promotions, and social media outreach are certainly there. Nike, Lego, and other consumer brands have proven that the DTC operating model could be optimized to provide a truly immersive and connected customer experience in their showrooms and digital presence.
However the CPG space is an interesting one, as there is a dependency upon the scalability, end-to-end supply chain capabilities, and inherent efficiencies that come with a collaborative grocery and wholesaler operating model. There is an imperative for grocers to help amplify and enhance each brand they partner with. With their precision marketing capabilities, Kroger has made significant investments in the martech and adtech spaces, which expands its private programmatic marketplace to include video and CTV.
Kroger serves 60 million U.S. households, many of which also watch streaming content. Brands can serve CTV ads to these households with Kroger’s first-party sales data and integrate CTV into a programmatic campaign using the advertiser’s, or agency’s, preferred ad-buying platform. This is a clear win-win for Kroger and its CPG partners.
In a word, no.
Co-op advertising is the right route.
With great fanfare, CPG companies announced DTC websites and all the wonderful things they brought to the companies.
As these executives continue to talk up DTC values, I believe they have realized that the DTC websites don’t deliver the expected volume they originally forecasted, not to mention the operational challenges of DTC.
This is an interesting conundrum. Retailers and brands are both vying to cultivate a relationship directly with consumers. However DTC sites can be viewed as competitive to retail efforts and seldom offer a complete shopper solution.
My advice? Learn to converge these two worlds. They belong on a shared path rather than parallel tracks — or worse yet, a collision course.
From the beginning, DTC sounded like a reasonable, but questionable, channel. As it turns out, the sales volume never matched the hype for most companies. Few shoppers wanted to spend their time visiting several CPG sites to obtain what they needed.