D2C: It’s Beginning To Look A Lot Like … Retail

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As COVID-19 drives a surge in digital traffic and online consumption, merchants and manufacturers alike are racing to upgrade and adjust their platforms to capture as much of the consumer shift as possible this holiday shopping season.

With brands everywhere rushing to either revamp existing channels or launch new ones, the line between traditional retail and direct-to-consumer (D2C) sites is not only getting blurred, but it’s raising questions about whether this trend is a short-term reflexive phenomenon or the start of a long-term strategic realignment. The answer to this yet-to-be-determined trillion-dollar riddle depends on who you ask.

“Even pre-COVID, we were seeing a massive acceleration in this [D2C] space, and I think COVID just kind of lit a fire and had it growing even faster,” said Jason Thomstatter, head of digital commerce for Mars Inc., during a recent CPG panel discussion hosted by PYMNTS.

Procter & Gamble Vice Chair Jon Moeller told analysts last month that the household products giant is positioning itself to be channel-agnostic and win wherever consumers prefer to shop, whether that’s in-store, online or directly.

“You will see us continue to increase our D2C presence, but again, not at the preference of, or the de-prioritization of, any other channel of trade,” Moeller said, before extolling the unique benefits that come from getting closer to consumers.

Going for Growth

The one thing that will keep the commitment to – and investment in – D2C humming along is growth. At a time when economic uncertainty looms large around the world, double- and triple-digit growth metrics are simply too large to be ignored. Colgate-Palmolive, for example, said D2C would be one of its key growth areas next year, noting a 50 percent overall jump in eCommerce last quarter, with certain products like its Optic White tooth whitening systems spiking more than 200 percent.

Whether it’s food, drinks, clothes or candy, the fact remains that virtually every brand on the planet seems to be making efforts to eliminate the middleman and sell their products directly to consumers.

Retailers Are Customers, Too

Manufacturers of consumer packaged goods (CPG) once had no choice but to place their wares in their retail partners’ physical stores, according to a recent blog post from eCommerce and subscription platform Sticky.io.

While modern eCommerce has blown that tried-and-true business model to pieces, it’s also important to manage the old and the new symbiotically, Sticky said, noting that D2C is not – and should not be – considered an all-or-none proposition.

While a healthy D2C channel can “insulate manufacturers from the pressure of retailers constantly on the lookout for better margins,” Sticky said, CPG companies should implement whatever elements of a D2C approach make sense for them – including acquisition, such as Unilever’s $1 billion purchase of Dollar Shave Club.

“Brands will need to build up their omnichannel muscles in order to compete,” Sticky.io Chief Product Officer Lyn Tran told PYMNTS. “They will need to leverage customer data from all channels,” making sure to keep the customer at the center of the experience while paying close attention to any “buy signals” they may give along the way.

Still, manufacturers cannot ignore the importance of a Walmart or a Kroger buying 10 million units of a particular product, and the need to embrace deep data analytics to accurately assess their sales mix and selling costs.

The Three-Tiered Model

As much as experts say D2C should not be an all-or-none proposition, the ratio of the proper channel mix is also an industry-dependent art rather than a precise science.

In the case of the liquor business, industry giant Constellation Brands, which produces and imports more beer, wine and spirits than any company in the U.S., has followed a three-tiered model for years, and has tweaked the balance between producers, distributors and retailers.

“eCommerce for beverage alcohol has exploded due to the pandemic, increasing three to four times in volume versus prior year,” Constellation CEO Bill Newlands told analysts on the company’s earnings report in October. “We were focused on eCommerce as a growing channel even before COVID, and have further accelerated our strategy with increased resources and focus on digital shelf management and redeploying marketing dollars to support our digital commerce channels.”

While Constellation, like so many other major owners of brands, has invested substantial time and money into developing its digital and direct-to-consumer portfolio, Newlands was not prepared to make predictions concerning future adjustments.

“What I would say is, we have worked aggressively, as you’ve seen, to make sure that our portfolio is positioned for where the consumer is going, not where the consumer has been,” Newlands said.

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