June 19, 2013
What Challenges Face CPGs With Direct-to-Consumer?
Forget the middleman. According to new research from the Grocery Manufacturers Association (GMA) and PwC US, more than 40 percent of consumer product goods (CPG) companies expect to sell directly to consumers through digital channels this year. That’s up from 24 percent last year.
"CPG companies that engage with consumers directly through digital channels and build out their direct-to-consumer processes will have the best advantage for creating new growth," said Steven Barr, PwC’s US leader, retail and consumer industry, in a statement. "Fifty-two percent of U.S. consumers are already buying directly online from brands they trust, proving that CPG companies now have far greater opportunities to walk alongside their shoppers in real time while driving sales of existing and new products."
According to the report, Growth Strategies: Unlocking the Power of the Consumer, digital channels provide CPG firms with the ability to test new products and connect with consumers more quickly and effectively than ever before.
"By providing consumers with innovative products and convenient, cutting-edge shopping experiences, CPG companies are well positioned to enhance consumer loyalty and profitability," said Pamela G. Bailey, president and CEO of GMA, in a statement.
The GMA/PwC research reinforces previous studies on the consumer direct opportunity. Research conducted by the Economist Intelligence Unit (EIU) for Oracle Consumer Goods last year concluded that there were numerous physical and digital touch points where CPG companies could interact with consumers.
Procter & Gamble has been one of the CPG firms at the forefront of selling directly to consumers through its own e-store, shopping walls using QR codes, pop-up stores, third-party platforms such as Alice.com and more.
- CPG Companies, Retailers Shift Focus to New Rules of Consumer Engagement Says 2013 GMA-PwC US Report – Grocery Manufacturers Association
- Brands Skip Retailers, Go Direct to Consumers – RetailWire
- Is it time for Brands to Go Direct to Consumers Online? – RetailWire
- Alice Takes Brands on Different Path – RetailWire
BrainTrust
Recent Discussions
Discussion Questions
Should almost all CPG firms today be selling directly to consumers through one platform or another? What do you think are the greatest opportunities and challenges facing CPG companies that go the consumer-direct route?
Poll
It’s hard to ignore the opportunities that have opened up for CPG companies to direct-sell to consumers. The only downside could be the newly uncovered competition with their retailer partners. Retailer-supplier collaboration has emerged as a strategy that benefits both organizations. I wonder if retailers will pull back from sharing data if they feel threatened by competition from their CPG partners?
I think it’s going to be important for CPG companies to develop direct to consumer capabilities because I foresee a future where retailers will want to leverage those capabilities as part of the long tail opportunity for goods retailers would love to sell, but can’t fit on their shelves and certainly can’t fit through their distribution in their own direct to consumer efforts. So while some people could view this as a challenge to collaboration, it could also be seen as an opportunity to drive collaboration even further.
There is always power in aggregation, and while I think CPG companies can be successful in direct, I also see that they won’t be the exclusive player—successful player—in direct. There is room for both, as other verticals have already learned.
I agree that the relationship between CPG marketers and their retail partners must be considered part of the strategic equation moving forward on selling directly to consumers.
There may also be a customer saturation point for value if convenience of purchase is not taken into account, especially if there are too many single and small amount purchases such as 1 product from company A and 4 from company B, and so on.
It’s easy to forget how we have morphed into a society that is aggravated when booting up takes longer than a few seconds. Our threshold for time spent buying (the actual transaction, not the shopping) seems to get lower and lower, so it’s hard for me to imagine how much time a shopper will spend buying CPG products online. I’m guessing there will be some limit on the number of individual products that typically cost under $9.00. But then again, I’m ready to be surprised.
Keep in mind that this “of companies,” not “of products,” and just because online works for media and fashion and other durables does not mean it will work for CPG. And in my Google search and a look at P&G’s annual report, I saw nothing about the profitability of these offerings. It may be profitable because they are charging $3 more than Walmart for their products plus $5 shipping (Walmart is free if you buy $45 worth of stuff). CPGs are going to have to be as cheap as Walmart to make x-stop shopping make sense.
The opportunities to sell products, particularly niche products that are not carried by all retailers, can be good for both consumers and CPGs. However, cost will be a factor until CPGs figure ways to bundle and make shipping affordable. Short sighted retailers may not like the circumvention, but they will need to collaborate on the majority of products as most consumers will not want to have shipments arriving from multiple companies at different times.
Amazon still looks like the best way to aggregate products and meet consumer needs for various brands of CPG products.
Only if they can do it flawlessly. While I support additional use of technology and social media to engage customers and to create additional customer intimacy, the concept of direct-to-consumer raises several issues for CPG firms, including managing the transaction, fulfillment, customer complaints, etc. In effect, all of the issues that the traditional “bricks and mortar” face must be dealt with in the online direct channel.
Retailers have skills that have served them well. Manufacturers need to replicate these skills in these evolving retail spaces—a real challenge. What will CPG firms be known for, as “best in class”?
Although I believe it’s essential for all CPG to go direct asap, there is the convenience factor provided by the middle men that you can’t just discount altogether. Can you imagine going to 22 different sites to do your grocery shopping? HOWEVER, if they all push their goods through a central online agent, like Amazon, well, then you’d have something. So, a new middle man.
As Pete Townsend once said, “Meet the new boss, same as the old boss.”
CPG companies will all want to establish closer relationships with customers, but selling direct is simply not practical for brands or consumers. Given an opportunity to walk through a drugstore and vacuum up products, or order them online individually from manufacturers, customers will choose the drugstore every time.
Should CPG firms sell directly? Of course. The challenge is to find ways of doing it effectively and profitably. A half-hearted attempt at selling through a Web site and calling it e-commerce is not what it takes in a channel with sharply-edited offerings, dynamic pricing, omni-channel capabilities and social media support. And for starters, there will also be a challenge in managing the relationships with existing store-based customers.
The greatest risk for retail stores is CPG selling direct to consumers. Reality is, this will happen, the question is, how? Only a few CPG companies have a large enough product line to support consumer direct economical shipments. Keep in mind, FedEx and UPS have built their networks to handle this volume.
My vision is a CPG Consolidator. CPG web sites are linked together, but managed separately. Orders from all the CPG sub-sites are directed to a consolidated distribution center for processing. The CPG companies would be responsible for keeping the consolidator in stock and could test new items without having to involve retailers. Retailers will not like this, but the CPG gross margin would be outstanding.
Whenever I get into this conversation, the first thing that pops in my mind is the old ‘economies of scale’. Can CPG companies maintain the profits by selling onesies?
If they go at it full fledged, then they will need skills such as merchandise and demand planning. New levels of marketing and outreach. Oops, that’s retail!
I too see a collaboration of sorts coming out of this. We all know retail needs to push as much as they can back up the supply chain to maintain margins, so this could offer the beginning of a win-win. IMHO
I know of several types of CPG manufacturers that are seriously diving into D2C selling. Brands are CPG’s most valuable assets, and it’s time to leverage those assets in today’s digital marketplace. Brand awareness is only a challenge if the shopper doesn’t know the brand. Those brands that may be unknown, like a holding company for a portfolio of CPG brands, need not be concerned about the overall holding company logo becoming familiar to shoppers, of course.
The principle behind all this is, “He who owns the customer, owns the business!” Over the past many decades, retailers have awakened to their “ownership” of the shopper, and moved to leverage that ownership for their own benefit. The main thing saving the brands through this onslaught is that no single retailer, ahem, dominates the entire market.
So, while any given retailer might turn the screws on brands, brands could assist other retailers, covertly even, to turn the screws on that retailer.
But over all, the principle enunciated above means that retailers gain more and more of an upper hand in the relationship with brands, given their very real, physical “ownership” of the shopper in their bricks stores. This means that just as retailers attack their own suppliers through private label, suppliers can seek a direct line to the shopper, bypassing the retailer via the web, P&G in the van.
I understand that a decade or more ago a coalition of brands were planning to launch a “brands” online store, but pressure from bricks retailers put a stop to that. (There are other obvious problems with brands cooperating with brands.) However, the physical walls of the bricks retailers have become increasingly porous, (smartphone and other communications,) and this phenomena will accelerate tremendously over the next few years. Another way of saying that is that bricks retailers are, willy nilly, losing ownership of their own shoppers.
Fruit basket upset! Just as the “death” of the confederacy in the American civil war led some hopeful southerners to rally to the cry, “Save your confederate money, boys, the South will rise again!” So we might say of the brands, “Save your brand stocks, boys, the brands will rise again!” However, I am a good deal more optimistic about the brands in this case than of “The South.” 😉
The “rising” MUST revolve around ownership of the customer.
Two other benefits of going direct to consumer for CPG that are big. 1) The marketer will create a direct relationship with consumers that spawns data which can be leveraged for more efficient marketing, and 2) marketers like Procter and Unilever are a house of brands, but if they open a store, they can become more of a branded house. This creates another layer of brand equity that will benefit them and help to differentiate their products.
I stand with the 14% who—for what ever reason—see this as a dead end; actually the “whatever reason” is what Lee mentions: selling a tube of toothpaste or a comb or such at the individual level isn’t very efficient for a manufacturer…there’s a reason why middlemen existed—and still exist—and the growth of e-tail doesn’t (necessarily) change that.
The possibility for direct consumer interaction represents an opportunity for marketers, if…shoppers are immediately engaged and rewarded for shopping on the brand site vs another web choice.
There are many options to purchase, so ease of use, transparency, value proposition and potential for customization must be well communicated. Potential for big investment, but ROI likely longer term.
Direct is not easy, especially when shoppers seek variety. Though new platforms open up huge opportunities for CPG companies to sell direct, when the revenue through these channels becomes more than just a rounding error, it would open up many more challenges in terms of retailer-supplier collaboration, investing in technology to make shopping experience enjoyable, and others.
Also not all CPG companies have a brand value that would pull shoppers to their website. Shoppers do not want to visit multiple places to buy for their needs. Hence if not retailers, then CPG companies would have to rely on aggregators and search engines to get shoppers…that’s just making the retailers’ role digital.
It’s worth noting this research is specific to Beverage, Food, and Household (see page 98). So Health, Beauty and Personal Care can take this with a grain of salt…for now.
DTC works best when you have a clear value proposition that other online retailers can’t offer: special or exclusive items, long-tail/hard-to-find variants, excess inventory, discrete purchases, or information/education that drives product usage compliance. And if the price to weight ratio isn’t favorable for shipping, none of those will matter.
If a brand carries the same item as Walmart and Amazon, they are destined for problems. Yes, it can be about relationships and consumer engagement, but that only scales in a Marketing environment where no one will ever be interested in topline or bottom line ROI, because the investment is viewed as Marketing—not sales. Historically, that is difficult to align all the way to the C-suite, build out, and sustain, inside an organization that exists to sell more cases.
More Discussions
Is Meta Committing to Retail via Meta Lab Stores, or Are Other Goals More Important?
Is Meta playing in retail, actually committing to retail, or looking for more data?Aerie Recruits Pamela Anderson To Highlight No-AI Models Promise
American Eagle’s Aerie banner has recruited former “Baywatch” star Pamela Anderson to broadcast the lifestyle brand’s…How Timely Is the Planned Lowe’s Website Renovation Focusing on Personalization?
Is Lowe’s being timely with its website reno, and is it right to be placed as…
It’s hard to ignore the opportunities that have opened up for CPG companies to direct-sell to consumers. The only downside could be the newly uncovered competition with their retailer partners. Retailer-supplier collaboration has emerged as a strategy that benefits both organizations. I wonder if retailers will pull back from sharing data if they feel threatened by competition from their CPG partners?
I think it’s going to be important for CPG companies to develop direct to consumer capabilities because I foresee a future where retailers will want to leverage those capabilities as part of the long tail opportunity for goods retailers would love to sell, but can’t fit on their shelves and certainly can’t fit through their distribution in their own direct to consumer efforts. So while some people could view this as a challenge to collaboration, it could also be seen as an opportunity to drive collaboration even further.
There is always power in aggregation, and while I think CPG companies can be successful in direct, I also see that they won’t be the exclusive player—successful player—in direct. There is room for both, as other verticals have already learned.
I agree that the relationship between CPG marketers and their retail partners must be considered part of the strategic equation moving forward on selling directly to consumers.
There may also be a customer saturation point for value if convenience of purchase is not taken into account, especially if there are too many single and small amount purchases such as 1 product from company A and 4 from company B, and so on.
It’s easy to forget how we have morphed into a society that is aggravated when booting up takes longer than a few seconds. Our threshold for time spent buying (the actual transaction, not the shopping) seems to get lower and lower, so it’s hard for me to imagine how much time a shopper will spend buying CPG products online. I’m guessing there will be some limit on the number of individual products that typically cost under $9.00. But then again, I’m ready to be surprised.
Keep in mind that this “of companies,” not “of products,” and just because online works for media and fashion and other durables does not mean it will work for CPG. And in my Google search and a look at P&G’s annual report, I saw nothing about the profitability of these offerings. It may be profitable because they are charging $3 more than Walmart for their products plus $5 shipping (Walmart is free if you buy $45 worth of stuff). CPGs are going to have to be as cheap as Walmart to make x-stop shopping make sense.
The opportunities to sell products, particularly niche products that are not carried by all retailers, can be good for both consumers and CPGs. However, cost will be a factor until CPGs figure ways to bundle and make shipping affordable. Short sighted retailers may not like the circumvention, but they will need to collaborate on the majority of products as most consumers will not want to have shipments arriving from multiple companies at different times.
Amazon still looks like the best way to aggregate products and meet consumer needs for various brands of CPG products.
Only if they can do it flawlessly. While I support additional use of technology and social media to engage customers and to create additional customer intimacy, the concept of direct-to-consumer raises several issues for CPG firms, including managing the transaction, fulfillment, customer complaints, etc. In effect, all of the issues that the traditional “bricks and mortar” face must be dealt with in the online direct channel.
Retailers have skills that have served them well. Manufacturers need to replicate these skills in these evolving retail spaces—a real challenge. What will CPG firms be known for, as “best in class”?
Although I believe it’s essential for all CPG to go direct asap, there is the convenience factor provided by the middle men that you can’t just discount altogether. Can you imagine going to 22 different sites to do your grocery shopping? HOWEVER, if they all push their goods through a central online agent, like Amazon, well, then you’d have something. So, a new middle man.
As Pete Townsend once said, “Meet the new boss, same as the old boss.”
CPG companies will all want to establish closer relationships with customers, but selling direct is simply not practical for brands or consumers. Given an opportunity to walk through a drugstore and vacuum up products, or order them online individually from manufacturers, customers will choose the drugstore every time.
Should CPG firms sell directly? Of course. The challenge is to find ways of doing it effectively and profitably. A half-hearted attempt at selling through a Web site and calling it e-commerce is not what it takes in a channel with sharply-edited offerings, dynamic pricing, omni-channel capabilities and social media support. And for starters, there will also be a challenge in managing the relationships with existing store-based customers.
The greatest risk for retail stores is CPG selling direct to consumers. Reality is, this will happen, the question is, how? Only a few CPG companies have a large enough product line to support consumer direct economical shipments. Keep in mind, FedEx and UPS have built their networks to handle this volume.
My vision is a CPG Consolidator. CPG web sites are linked together, but managed separately. Orders from all the CPG sub-sites are directed to a consolidated distribution center for processing. The CPG companies would be responsible for keeping the consolidator in stock and could test new items without having to involve retailers. Retailers will not like this, but the CPG gross margin would be outstanding.
Whenever I get into this conversation, the first thing that pops in my mind is the old ‘economies of scale’. Can CPG companies maintain the profits by selling onesies?
If they go at it full fledged, then they will need skills such as merchandise and demand planning. New levels of marketing and outreach. Oops, that’s retail!
I too see a collaboration of sorts coming out of this. We all know retail needs to push as much as they can back up the supply chain to maintain margins, so this could offer the beginning of a win-win. IMHO
I know of several types of CPG manufacturers that are seriously diving into D2C selling. Brands are CPG’s most valuable assets, and it’s time to leverage those assets in today’s digital marketplace. Brand awareness is only a challenge if the shopper doesn’t know the brand. Those brands that may be unknown, like a holding company for a portfolio of CPG brands, need not be concerned about the overall holding company logo becoming familiar to shoppers, of course.
The principle behind all this is, “He who owns the customer, owns the business!” Over the past many decades, retailers have awakened to their “ownership” of the shopper, and moved to leverage that ownership for their own benefit. The main thing saving the brands through this onslaught is that no single retailer, ahem, dominates the entire market.
So, while any given retailer might turn the screws on brands, brands could assist other retailers, covertly even, to turn the screws on that retailer.
But over all, the principle enunciated above means that retailers gain more and more of an upper hand in the relationship with brands, given their very real, physical “ownership” of the shopper in their bricks stores. This means that just as retailers attack their own suppliers through private label, suppliers can seek a direct line to the shopper, bypassing the retailer via the web, P&G in the van.
I understand that a decade or more ago a coalition of brands were planning to launch a “brands” online store, but pressure from bricks retailers put a stop to that. (There are other obvious problems with brands cooperating with brands.) However, the physical walls of the bricks retailers have become increasingly porous, (smartphone and other communications,) and this phenomena will accelerate tremendously over the next few years. Another way of saying that is that bricks retailers are, willy nilly, losing ownership of their own shoppers.
Fruit basket upset! Just as the “death” of the confederacy in the American civil war led some hopeful southerners to rally to the cry, “Save your confederate money, boys, the South will rise again!” So we might say of the brands, “Save your brand stocks, boys, the brands will rise again!” However, I am a good deal more optimistic about the brands in this case than of “The South.” 😉
The “rising” MUST revolve around ownership of the customer.
Two other benefits of going direct to consumer for CPG that are big. 1) The marketer will create a direct relationship with consumers that spawns data which can be leveraged for more efficient marketing, and 2) marketers like Procter and Unilever are a house of brands, but if they open a store, they can become more of a branded house. This creates another layer of brand equity that will benefit them and help to differentiate their products.
I stand with the 14% who—for what ever reason—see this as a dead end; actually the “whatever reason” is what Lee mentions: selling a tube of toothpaste or a comb or such at the individual level isn’t very efficient for a manufacturer…there’s a reason why middlemen existed—and still exist—and the growth of e-tail doesn’t (necessarily) change that.
The possibility for direct consumer interaction represents an opportunity for marketers, if…shoppers are immediately engaged and rewarded for shopping on the brand site vs another web choice.
There are many options to purchase, so ease of use, transparency, value proposition and potential for customization must be well communicated. Potential for big investment, but ROI likely longer term.
Direct is not easy, especially when shoppers seek variety. Though new platforms open up huge opportunities for CPG companies to sell direct, when the revenue through these channels becomes more than just a rounding error, it would open up many more challenges in terms of retailer-supplier collaboration, investing in technology to make shopping experience enjoyable, and others.
Also not all CPG companies have a brand value that would pull shoppers to their website. Shoppers do not want to visit multiple places to buy for their needs. Hence if not retailers, then CPG companies would have to rely on aggregators and search engines to get shoppers…that’s just making the retailers’ role digital.
It’s worth noting this research is specific to Beverage, Food, and Household (see page 98). So Health, Beauty and Personal Care can take this with a grain of salt…for now.
DTC works best when you have a clear value proposition that other online retailers can’t offer: special or exclusive items, long-tail/hard-to-find variants, excess inventory, discrete purchases, or information/education that drives product usage compliance. And if the price to weight ratio isn’t favorable for shipping, none of those will matter.
If a brand carries the same item as Walmart and Amazon, they are destined for problems. Yes, it can be about relationships and consumer engagement, but that only scales in a Marketing environment where no one will ever be interested in topline or bottom line ROI, because the investment is viewed as Marketing—not sales. Historically, that is difficult to align all the way to the C-suite, build out, and sustain, inside an organization that exists to sell more cases.