DtC scaling – strategies to mitigate risks

There is no doubt that the pandemic accelerated growth for several e-commerce FMCG/CPG (FMCG = Fast Moving Consumer Goods; CPG = Consumer Packaged Goods) brands. However, scaling DtC (Direct to consumer) brands online is far more expensive than scaling through supermarkets.

According to Statista, 80% of sales are still happening in store. Whether that is ‘buy online, pick up in store’ or ‘buy in store’. Also, conversion rates in supermarkets range from 20% – 40% vs online conversion rates of 3% on average.

Also, as more established companies and brands enter the DtC & e-commerce space, they push up the cost of customer acquisition due to their deep pockets. According to Statista, the cost per click on Facebook in Q4 2019 was $0.81. In November 2021, this was $1.22. Compare this to supermarkets or convenience stores where significantly more consumers walk by the shelf (an impression) at no incremental cost.

So what do DtC brands need to be aware of when entering the brick & mortar space?

  • Lack of proximity to shoppers & consumers: A key advantage that DtC brands have that has allowed for accelerated initial growth vs brands by large FMCG companies is that the teams behind the DtC brands are closer to their consumers. They leverage the data from their own DtC website to understand shopper behaviour, consumption patterns and preferences, which they use to fuel their supply chain. Also, they get valuable product feedback through reviews on their platform that they leverage to improve their brand.

    Large companies/brands, in contrast, are typically at least one step removed from their consumers as they sell through retailers. So the retailers are usually the ones who get the data on shopper preferences and consumer preferences. This may not always be passed on to the ‘brand owners’.

    When entering the brick & mortar space through supermarkets & convenience stores, DtC brands face the same risk. DtC brands can mitigate this by building a strong community for the brand as this encourages brand loyalty and feedback. Also, this can be mitigated, partially, by maintaining an online presence while also selling through brick & mortar stores to remain close to their consumers and shoppers.
  • Supply chain unpredictability: As mentioned in the previous point, DtC companies are able to leverage the data on their e-commerce portals to forecast sales. However, when selling through 3rd party aggregators (supermarkets, convenience stores and discounters), they are dependent on their customers sharing this data, which is not always common. This makes it difficult to predict sales as they then do this on the basis of historical orders placed by customers. So when they receive unexpectedly large orders, they are at times pressurised into fulfilling customer orders at the cost of going out of stock on their online stores. This may result in alienating loyal consumers who have been buying the brand since launch.

    This can be mitigated by taking a data driven approach to sales. DtC brands should consider making data sharing a key part of the negotiations during the listing process. This can help anticipate spikes in demand from customers that they can be better prepared for.
  • Inability to influence order volumes: As the size of revenues that DtC brands generate at aggregators is a fraction of the revenues that large and well established brands generate, sales teams at DtC brands are less able to influence order decisions made by ordering teams at these aggregators. So in situations when these aggregators should be holding more of the brands in stock at warehouses due to higher expected demand, DtC brands most often are not able to influence order volumes which results in stock outs at stores, losing them sales and market share.

    Conversely, aggregators may order significantly higher volumes than they should, which results in overstocking at their warehouses. While this sounds like a good outcome for DtC companies as they generate better revenues, it puts them at risk of an eventual delist if they do not sell the stock fast enough or, if some or all of the stock expires/is damaged while in the warehouse. This can be lethal for small companies.

    DtC companies should consider hiring seasoned sales people who have established relationships with customers. This may help with influencing order volumes placed by replenishment teams. Alternatively, DtC companies should consider ‘owning’ inventory management at retailers to the extent that a sale is recognised only when the brand is sold to the consumer.

    Given how this may ease working capital for the retailer, they maybe more willing to concede/collaborate on other areas like data.

If you have any questions or would like more information on the above, please leave a comment or contact me on veena@salesbeat.co

Pricing strategy and pricing

Price is the only KPI of retail execution that creates revenue, while all of the others are costs.

FMCG companies need to be very clear about pricing objectives, methods and the factors that influence price setting. The pricing team needs to know if their brand is losing or gaining market share at the current price offered for the product. This requires data collection and its subsequent computation to gather actionable insights. 

If you need to price a brand or a SKU in a new market, it makes all the difference in the world if you can understand consumers’ willingness-to-pay. As price affects the value that consumers perceive they get from buying a brand, it can be an important element in their purchase decision.

Understanding willingness to pay is a key element of pricing in all sectors. However, a lack of widely available information in the FMCG sector makes this challenging.

One of the biggest challenges faced by FMCG companies is setting a price or prices (depending on channels) that unifies all internal objectives:

  1. one that simultaneously boosts top-line growth,
  2. is aligned with the brand positioning,
  3. and increases penetration & growth

This is further complicated if the route to consumer is not direct i.e. the brand is sold through a supermarket, grocery store, wholesaler or an e-commerce aggregator. In this case, the company needs to set their recommended price for consumers and set their customer’s prices based on the margin they are likely to take. Usually, at this point, there is an element of negotiation with the customer.

All brands selling through aggregators (supermarkets, convenience etc) need to negotiate optimal prices with buying directors

An FMCG company may implement all the best practices of a perfect store and still not succeed if their product pricing is not competitive, and if pricing is not communicated on shelf or (for some countries) on pack. Similar to availability, it doesn’t matter how much shelf space has been secured in store and how effective the point of sale material is, if the consumer encounters an absent price tag. The risk of lost sales is very high. Pre-covid, we’d have said that an absent price tag equals a lost sale, especially for a new brand.

An absent price tag impacts sales

However, 2020 taught us that availability trumps price.

If you’d like to learn more about pricing for FMCG brands in the retail environment or more about retail execution, email me on veena@salesbeat.co

What should the sector expect over 2021 with lockdowns easing?

This blog is about how lockdown easing is expected to impact sales in different sectors.

Over 2020, we saw significant increase in food & beverage sales and cleaning products.

Sales in the make up and hair care sectors was lacklustre.

This was driven by lockdowns causing consumers to stay at home. As they were not able to go out to a restaurant, they shopped at grocery stores for different foods and beverages. Due to the very same driver, sales of make-up and hair care brands decreased significantly.

Increased sales of cleaning products in 2020 was driven by an increased consciousness of hygiene due to the pandemic.

As we look at 2021, with successful vaccination campaigns and with lockdowns easing, we expect make up and hair care sales to increase in anticipation of and due to social activity. As restaurants, bars and cafes opening up, we expect grocery sales of food & beverages to decline slightly. But the sector is expected to retain a major share of the gains from last year as people cautiously venture out as lockdowns ease.

The one sector we expect will retain the increased sales from 2020 is the cleaning products sector. As people go out and enjoy the return to normal, to keep safe, we expect consumers to buy and use more cleaning products than they used to pre-covid.

If you’d like to learn more and understand how individual categories may be impacted by the easing of lockdowns, email me on veena@salesbeat.co

Top reasons why Food & beverage start-ups and NPDs fail

So the stars have aligned and you are ready to launch that new food brand that you’ve been developing for the last 6 months. You have the funding, you have found the right manufacturer with the right licenses and you have a national listing. What could possibly go wrong?

Congratulations, you have a national listing!
  1. Consumers don’t want it: Now you are thinking about the sampling sessions you/your agency held when everyone loved your product and brand. Well, it turns out that unless the product is that bad, your sample group will tell you what you want to hear. After all, you are paying them to be part of the group and they feel obligated to give you the answers you want to hear. Consider speaking to random people at your corner grocers outside of their stores to get honest feedback about your product. Or speak to your kids, they’ll be honest!
  1. Cultural nuances: Brand names, packaging and the right ingredients are so critical to the success of your food product. They can make or break your brand if not done right. Did you get enough feedback from your target consumers in the target market? Did you check whether the ingredients raise any red flags for your consumer group? What about the brand name? Does your brand name mean anything different to your target consumers than to you? More on this subject in a later post.
  1. Pricing is all wrong for the customer segment: Your brand/product is targeting a very specific segment of consumers. It could either be too expensive for the consumer to buy or too cheap for the target segment. Keep in mind that for certain products, price also acts as a signal for quality. So when you work up the pricing, take into account what your consumers should be paying for it. Do your homework and look into what competition is doing and what similar products or even complementary products are priced at for those consumer segments. Then work back the numbers to your selling price to the customer, taking into account retailer/customer margin, warehousing costs, logistics costs and any additional costs the retailer/customer needs to bear. 

Stay tuned for more next week!