Retailers should fear a more direct approach

With more CPG companies going D2C, what should retailers do?



By: Brian Kalms
Blog

The subscription economy disrupted the music industry several years ago and right now, it looks like a similar model might be doing the same for the consumer packaged goods (CPG) industry.

At a time where customer loyalty is at its lowest for stores on our high street, online direct-to-customer (D2C) startups are continuously engaging, delighting and overdelivering to their customers. And in doing so, are increasingly eating up market share from traditional retailers and CPG brands. Now these disrupted CPG companies are fighting back by doing it themselves. What does this mean for retailers?

Why D2C?

You couldn’t have missed the disappointing but unsurprising news this week that shopper footfall declined substantially (6%) in March, the steepest year on year drop since 2010, according to the British Retail Consortium. The BRC’s chief executive Helen Dickinson summed it up nicely when she said that “shoppers face more and more choice in terms of how, when and where they shop”.

And what do customers do when they are able to choose when, where and how they shop? It’s not just about convenience anymore as it was just a few years ago. Customers now want to shop where they are also guaranteed a fantastic customer experience, where they are not only buying a product, but where they’re buying a service too. They want a relationship. And D2C can offer this. From the customer’s perspective they start to question the role of the retail ‘middle man’.

By owning customer relationships, D2C firms can tailor a consumer’s shopping experience, from suggesting personalised additional items to ensuring delivery convenient for the customer. Data from D2C websites can be used to improve pricing and promotions, improve ROI on marketing resources and accurately forecast demand reducing supply chain costs – all benefits that can be forwarded on to the customer.

“Customers now want to shop where they are also guaranteed a fantastic customer experience, where they are not only buying a product, but where they’re buying a service too.”

It’s no surprise therefore that according to market research company IRI, online sales will account for 10% of all CPG sales by 2022, up from 1.4% in 2015. It’s a rising trend. Traditional retailers – take heed…

Not just for startups

More and more CPG brands have been dipping their toes in to the D2C model. For example, Gillette have launched the Gillette Club razor blade subscription scheme. It may be harder for an established CPG business to develop a D2C model, but by thinking like a startup- and in fact- in some cases keeping the D2C startup business separate from the established business at first, CPGs are starting to successfully create fast-moving businesses that are readily able to keep up with consumers ever growing needs.

By owning customer relationships, D2C firms can tailor a consumer’s shopping experience, from suggesting personalised additional items to ensuring delivery convenient for the customer.

Certain products lend themselves easily to the D2C or subscription model – high ticket items (such as Casper selling mattresses online) or smaller frequently consumed items (e.g. healthy snacks RXBar). Also, high end fashion, luxury and electronics, products that experience high counterfeiting, and heavy products such as pet food, all are experiencing an increase in online D2C sales.

Don’t they care about damaging their B2B relationships with retailers? You might ask. The truth is, if CPG brands don’t start creating D2C opportunities for themselves, there will be a startup on the horizon that fills the void. And that means trouble for retailers too. Retailers should be planning now on how to turn this into an opportunity to improve relationships – by sharing data, sharing customers, sharing risk.

It’s an ever changing world in retail today, the labels of CPG, retailer, B2B, B2C are starting to blur, and those that don’t adapt and change as well may live to regret it.

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