Opinion: Retailers should fear a more direct approach

The subscription economy disrupted the music industry several years ago and, right now, it looks like a similar model might be doing the same for the consumer packaged goods (CPG) industry.

At a time when customer loyalty is at its lowest for stores on our high street, online direct-to-customer (D2C) start-ups are continuously engaging, delighting and overdelivering to their customers.

And, in doing so, these companies are increasingly eating up market share from traditional retailers and CPG brands.

Now these disrupted CPG companies are fighting back by doing it themselves. But what does this mean for retailers?

Why D2C?

You couldn’t miss the disappointing, but unsurprising, news this week that shopper footfall declined substantially (6%) in March – the steepest year-on-year drop since 2010, according to the British Retail Consortium (BRC).

BRC chief executive Helen Dickinson summed it up nicely when she said that “shoppers face more and more choice in terms of how, when and where they shop”.

And what do customers do when they are able to choose how, when and where they shop?

It’s not just about convenience any more, as it was just a few years ago.

“Consumers want a relationship. And D2C can offer this. From the customer’s perspective, they start to question the role of the retail middle man”

Consumers now want to shop where they are also guaranteed a fantastic customer experience, where they are not only buying a product, but a service, too.

They want a relationship. And D2C can offer this. From the customer’s perspective, they start to question the role of the retail middle man.

By owning customer relationships, D2C firms can tailor a consumer’s shopping experience, from suggesting personalised additional items to ensuring delivery that is convenient for the customer.

Data from D2C websites can be used to improve pricing and promotions, improve ROI on marketing resources and accurately forecast demand, reducing supply chain costs – all benefits that can be forwarded on to the customer.

It’s no surprise, therefore, that according to market research company IRI, online sales will account for 10% of all CPG sales by 2022 – up from 1.4% in 2015.

It’s a rising trend. Traditional retailers, take heed…

Not just for start-ups

More and more CPG brands have been dipping their toes in to the D2C model.

For example, Gillette has launched the Gillette Club razor blade subscription scheme.

It may be harder for an established CPG business to develop a D2C model, but by thinking like a start-up and, in some cases, keeping the D2C start-up business separate from the established business at first, CPGs are starting to successfully create fast-moving propositions able to keep up with consumers’ ever-growing needs.

Certain products lend themselves easily to the D2C or subscription model: high-ticket items (such as Casper selling mattresses online) or smaller, frequently consumed items (eg, healthy snacks by RXBar).

“The truth is, if CPG brands don’t start creating D2C opportunities for themselves, there will be a start-up on the horizon to fill the void”

Also, high-end fashion, luxury and electronics – products that experience high levels of counterfeiting – and heavy products, such as pet food, all are experiencing an increase in online D2C sales.

Don’t they care about damaging their B2B relationships with retailers? You might well ask.

The truth is, if CPG brands don’t start creating D2C opportunities for themselves, there will be a start-up on the horizon to fill the void.

And that means trouble for retailers, too.

Retailers should be planning now on how to turn this into an opportunity to improve relationships – by sharing data, sharing customers, sharing risk.

It’s an ever-changing world in retail today. The labels of CPG, retailer, B2B and B2C are starting to blur, and those that don’t adapt and change as well may live to regret it.