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30 October 2019 5 min read

Nailing a Direct-to-Consumer business model - part 1

John Calder

John Calder
Partner | Supply chain and procurement | London

Sofia Gkiafi

Sofia Gkiafi
Senior Manager | Supply chain and procurement | London

Direct-to-Consumer business models can take different forms, but they all have two things in common: they reach the end consumer directly, bypassing any middlemen, and they are growing. In this blog we focus on Consumer Packaged Goods companies (CPGs) that have a Direct-to-Consumer offering and we explore their different maturity levels. We also offer the five key learnings we took from a series of interviews with some of the biggest CPGs active in this space.

Direct-to-Consumer (DtC) has been on offer by CPGs for a while, but only recently has it become a growth engine rather than an offering “on the side.” The benefits are hard to ignore: potentially healthier margins and a closer relationship with the end consumer – and the precious data that comes with that. Inevitably, it carries the added burden of managing an extended complex and often costly supply chain –more on the supply chain implications will follow in our second blog.

We recently had the exciting opportunity to support a convenience retailer who have been exploring ways to deliver products directly to their end consumer’s front door in partnership with the likes of Deliveroo and Uber Eats. They were keen to explore new partnership models with CPGs in a bid to grow this revenue stream.

Firstly, it was important to understand the current CPG DtC offerings – publicly available research helped us get the lay of the land. We realised there are different levels of maturity when it comes to DtC offerings. For the leaders in the field – NIKE, L’Oréal and Adidas – DtC is a clear strategic priority and represents a big chunk of their overall sales (~ >20% with plans to grow further). All three have focused on premium, personalised products, advanced data analytics and machine-learning technology to drive DtC sales. Next come the likes of Nestlé, Unilever, P&G, Heineken and ABInBev (~ 5%–10% of sales), who have developed or acquired DtC offerings predominantly for high-value premium and customisable products. Many CPGs are still in the beginners’ stage, like RB, who are exploring DtC with their Durex and Scholl brands, and PMI, who offer their smoke-free products direct to consumer. Finally, some CPGs are DtC only (e.g., Dollar Shave Club, acquired by Unilever), although a few have now launched in pop-up stores or selected retailers (e.g., Casper mattresses). The last two follow the model of affordable, quality product and started with a limited product range.

To find out more than what is available online, we interviewed some of the biggest CPGs, and were amazed to discover how many more pilots are underway – DtC is without a doubt one of the most exciting growth avenues for many CPGs. We took away five key learnings for successfully delivering DtC: 

  • Delight your consumer – user experience is key to DtC success. A product range exclusive to DtC or products from different CPGs cleverly combined can excite and engage customers.
  • Pick the right product – some just don’t work for DtC, e.g., low-value and heavy products.
  • Find the right price point – the consumer is generally unwilling to take on the delivery cost, so finding the right commercial model can be tricky; basket size becomes important.
  • Understand the urgency – time between request and actual consumption need is different depending on the product in question, e.g. ice cream should be delivered fairly quickly post request.
  • Flex your supply chain – look at partnerships where you are not set up for DtC, and be flexible. Partnership models have stretched from transactional relationships with final-mile delivery providers all the way to taking a stake in them.

In our follow-up blog, we will explore the supply chain implications involved in CPGs taking up a DtC offering.