There’s no doubt that consumers’ food-buying behavior is fundamentally and permanently changed. E-commerce growth continues to eclipse in-store. But the evolution isn’t nearly complete—and eliminating the middleman is the next step for many brands.
In response to the COVID-19 pandemic, decades of digital progress happened in a matter of months. Food and beverage companies around the world almost miraculously pivoted to e-commerce, seemingly overnight. Online ordering and delivery became available for restaurants and grocery stores that had long believed it impossible—or at least years away. And countless food, beverage and CPG brands were along for the ride.
It was a triumph of digital ingenuity that helped the industry keep its doors open. But as the dust settled on pandemic innovation, triumph turned to turmoil—because not everyone felt they had walked away a winner.
|This article is featured in O'Dwyer's Mar. '22 Food & Beverage PR Magazine
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Small- and medium-sized brand manufacturers and food companies realized a much smaller portion of revenue from e-commerce than their big brand, big retail counterparts. Outsourced fulfillment, bulk warehouse minimums and third-party control of pricing models left many brands moving major volumes with minimal—or non-existent—financial returns.
With fresh eyes towards the fastest path to profitability, many brands are making the move to a direct-to-consumer path that eliminates retailer intermediaries. But profitability is only part of the story. Here’s a look at several reasons why successful companies are switching to a DTC e-commerce approach.
The DTC e-commerce sales model is growing in importance because it offers businesses and brands key competitive advantages over traditional retail supply chain distribution models. Brands that adopt the DTC model are cultivating more loyal customers, enjoying fewer inventory hassles and generating higher profit margins, all while gaining a business edge over their competitors.
Greater inventory insights and control
Retailers entered 2022 filled with challenges. The supply chain shortages mean empty retail shelves, and record-high inflation continues to force companies to raise prices (and increase frustrations felt by their customers).
Industry experts acknowledged these challenges but also pointed to numerous opportunities they created for DTC food and beverage. The first is that DTC creates enhanced inventory control for brands. Instead of having to maintain physical stock levels at a brick-and-mortar location (often based on mere educated estimates about demand levels), DTC e-commerce brands selling directly to consumers can scale their supply levels based on clear insights from big data into actual demand patterns. Less waste = greater return.
Profitability opportunity for brands
DTC within the food segment—and the elimination of intermediary retailers—is the most obvious example of how brands can capture more profit margin (and offer lower prices). It’s one of the biggest drivers of DTC e-commerce adoption. By streamlining the sales and distribution process and going directly to consumers, the DTC sales model allows brands to retain revenue that would otherwise be going to wholesalers and supply chain partners. DTC also allows brands to directly control their customer relationships, opening the door to explore even more lucrative purchasing options, like subscriptions.
Enhanced access to consumer data
As the food and beverage industry increasingly migrates online, brands are gaining access to more customer data than ever before. Beyond simple retargeting for trial and loyalty, this data can improve a brand’s ability to satisfy desires for more personalized shopping experiences. In short, it creates a better customer experience.
Customers prefer to deal directly with brands because it provides a better guarantee of product authenticity, quality and freshness. Customers also feel more confident in receiving reliable customer support when they deal directly with brands. By meeting these consumer preferences, the DTC sales model promotes greater customer loyalty, repeat sales and advocacy.
Faster product innovation
Finally, with a direct access point to customers via DTC, brands can also test, trial and distribute new product innovations faster than ever before. Without the need to fight for shelf space—or delays caused by needing to sell through proof-of-concept to a third-party retailer—more brands are able to shorten the cycle of product innovation and customer satisfaction.
This new model expedites the innovation lifecycle—allowing faster flow from screening to consumer testing, to commercialization. It also lowers the investment needed for concept marketing.
Kristen Ingraham is SVP, Group Lead at Padilla.