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  • Writer's pictureBeerajaah Sswain

The World's Leading brands go DTC

Selling directly to consumers used to be the preserve of upstart brands that would otherwise have been crowded off shop shelves by larger rivals. By cutting out retailers, young firms have won brand loyalty and backing from investors who have poured billions into “direct-to-consumer” companies. But those larger competitors are themselves coming to see the merits of the business model. A number of the world’s best-known brands, hitherto content to rely offline on traditional retailers and online on e-commerce giants, have in recent months built their own direct-selling operations. Others that have long had in-house e-commerce platforms are now relying on them far more heavily to make up for sagging in-store purchases.

The upstarts had to carve out niches in highly concentrated industries such as spectacles (Warby Parker) or razors (Dollar Shave Club, Harry’s). Established brands already have plenty of loyal customers. So they have not needed to cut prices to offer their customers new products and deals. Rather, what has long been seen as secondary sales channels have gained in importance during the pandemic. Many people working from home have favored the “athleisure” offerings of brands such as Nike and Lululemon over the more formal wear of now-bankrupt firms such as Brooks Brothers, J. Crew, and Neiman Marcus. And with shops closed or shunned by wary customers, the two brands’ direct-to-consumer operations, which they have invested in for years, have boomed. In their most recent quarters, Nike’s online sales spiked by 75% to just under $2bn, and Lululemon’s by 68% to $352m. Nike relied on direct-to-consumer sales for 30% of its revenues—a target it had not expected to reach until 2023. At Lululemon more than half of revenues come from the channel.

Large food-and-drink companies, long content to rely on their prime position on supermarket shelves, are getting in on the act, too. In May PepsiCo launched and to sell its drinks and snacks. Shopify, a Canadian form that helps companies set up their own e-commerce platforms, claims it finished doing so for Heinz, part of food conglomerate Kraft Heinz, in just seven days last April. The platform, Heinz to Home, serves the firm’s British customers. AB InBev, the world’s largest brewer, has begun to test its own direct-selling scheme at home in Belgium.

Food firms’ furious burst of direct-to-consumer activity seems puzzling. After all, unlike boutiques and shoe shops, grocers and supermarkets—their traditional strongholds—have remained open throughout the pandemic. But many customers are nervous about crowded shops. Those who do venture out may find shelves less than fully stocked. And the data show that cravings for staple big-brand comfort foods, which for years had been losing market share to niche producers or shop-branded goods, have risen during the pandemic.

Big food companies do not necessarily need their own platforms. PepsiCo sold $2bn-worth of products over the internet last year (about 3% of total sales) thanks to partnerships with Amazon, Walmart and other grocery-delivery services. The websites of e-commerce giants can put products in front of enormous numbers of potential customers.

But firms that build their own direct-to-consumer operations can exert more control by keeping their sales channels in-house, something that the start-up pioneers of the business model came to value. The consumer data that brands can collect by selling on their own sites are simply too good to pass up. Since 2018, Nike has bought two data-analytics firms to help measure and track data collected from online shoppers. Last year it ended a two-year pilot program wholesaling through Amazon, choosing to direct all to e-commerce sales through its own website.

Data may be an even more important consideration for big food brands’ recent direct-to-consumer aspirations. They are less reliant on digital sales, and the webshops, being so new, will account for only a small portion of revenue for the foreseeable future. PepsiCo did not even mention its two new websites in its second-quarter earnings release on July 13th. But the firm may glean insights even from even limited purchases. Gibu Thomas, PepsiCo’s head of global e-commerce, says the company plans to use the data not only to customize online offerings but to inform in-store selling strategies as well. Information can be hard to collect from shoppers buying chips from their local supermarket or corner shop. Rather than relying on market-research reports, firms with direct sales can monitor consumers’ behavior on their own websites. “What is different about this,” Mr. Thomas said in May upon the shops’ launch, “is we’re getting data on what people are doing versus what they say they will do.”

This article was originally found at The Economist

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