4 Facts that Show Why CPG Brands Are Embracing DTC

February 27, 2019

There’s no doubt that this is a challenging time to be an established consumer packaged goods (CPG) brand. Whether it’s the constantly shifting landscape of consumer expectations or the agile startups making the most of their digital native status to connect with customers in a more personal way, the need to adapt to the demands of eCommerce looms large over the CPG sector.

However, what is often seen as a threat could equally be framed as an opportunity for CPG brands. With size and status on their side, the ability to go direct-to-consumer (DTC) holds the potential for improved communication with buyers and enhanced brand reputation.

Shopkick CPG growth stat 2017

CPG Brands and DTC Fulfillment, By the Numbers

Whenever an opportunity presents itself, the natural inclination of any responsible business leader is to look for data to support – or discount – the potential and calculate the likely return on investment.

Fortunately, there are plenty of stats to show that the DTC model is a profitable road for CPG brands to start down. We’ve gathered some of the more compelling data below to make the case.

“Sales from eCommerce channels contributed 90% of the CPG sector’s overall growth in a 2017 study, while remaining just a fraction of the market’s total value of $771 billion.” (Shopkick)

The duality of rapid expansion and limited market share makes a compelling case for digital channels as the new frontier for CPG brands. In a marketplace that could be described as either steady or stagnant, depending on your perspective, outsized growth of online sales represents a leading indicator that even this traditional sector is shifting.

Put simply, any CPG growth strategy that fails to include an eCommerce component is overlooking a fundamental part of what is currently driving the market.

Embracing eCommerce means getting to connect with your customer not only at the point of sale, but also through online interaction, content delivery, and unique fulfillment solutions that encompass everything from attractive packaging to exceptional service.  While the adjustment is significant, CPG brands are already starting to spend more in the digital arena, as we can see from the next stat.

“The CPG sector is already expected to spend more than $11 billion on digital advertising channels in 2019, which marks a 17.3% increase on 2018 levels.” (eMarketer)

In a DTC world, simply raising awareness of a product isn’t enough. Consumers see so many ads every day that raising awareness is only the first step of a wider customer journey, one that spans many forms of media and interaction. Understanding those touchpoints and maintaining a brand presence on key channels is the next step for these businesses who are spending more on digital advertising.

One of the most important aspects of investing more in digital channels is to understand the value of the data it yields.

Increasing the flow of visitors through online properties that you own and can measure delivers the kind of behavioral insights that other forms of retail rarely capture. From standard demographic data like age, gender, and location to more advanced information including and path-to-purchase analysis, first-party control of this data is an advantage that no CPG brand should underestimate.

“At 55% combined eCommerce sales share, beauty products (28%) and pet care products (27%) show the way for other CPG categories.” (eMarketer)

The growing success of pet products sold online and the rise of iconic DTC beauty brands like Glossier should give other CPG brands some degree of comfort. The transition is only just beginning in many categories, while these two product types demonstrate the stellar growth that can be achieved by those who lead the way.

Pet care has always been a robust sector and those who have animals are clearly enjoying the convenience of ordering bulky items like pet food online, as well as more unique items like treats and toys. Subscription services like Bark Box are a new solution catering to the latter, but the success of the PetSmart-owned Chewy.com brand also shows what’s possible when a traditional bricks and mortar retailer turns to the web.

For beauty brands, the impact of going straight to the consumer has been even more impressive. New names have exploded onto the scene thanks to a mix of influencer approval and authentic connection with their fanbase, while established brands have embraced online content as a way to give more to their buyers.

In both cases, we see what’s possible when brands of all sizes choose to treat the eCommerce era as an opportunity for innovation, rather than a threat to be deflected.

“Approximately 70% of the CPG sector’s rapid growth to date has been driven by small- and medium-sized businesses.” (McKinsey)

Should there be any doubt remaining that direct eCommerce needs to be on the radar of established CPG brands, the fact that more than two-thirds of the aforementioned growth has benefitted startups and smaller brands in the sector should wrap things up. There’s plenty of exploration and innovation happening in the marketplace, but not a lot of it is coming from the major players. This needs to change.

Essentially, this means that bigger CPG brands who act now will still be early adopters. They will have more room to experiment with different models of selling online and evolve their eCommerce offering to satisfy fans than those who leave it another year or two.

As a CPG, it is time to learn how to integrate your brand more directly into the daily lives of customers. The goal? To engage fans and prospects on a more consistent basis, developing a relationship that lasts long after the sale and keeps customers coming back for more.  

Takeaways

If our recent article on the topic of Be Your Own Retailer lays out the challenges facing CPG brands, the stats above should emphasize the opportunities that lie ahead for those who act immediately.

Rapid online growth, primarily driven by startups and other nimble businesses in the sector, should be the spark that lights a fire under the feet of established CPG brands. The latter may find the territory unfamiliar and question their ability to move as quickly as newer companies going direct-to-consumer, but there’s plenty on the side of longstanding brands to stake their claim in this nascent sector.

With name recognition and greater resources on their side, established CPG brands can quickly amplify their reach and service offering online. They have the ability to roll out more creative digital marketing campaigns across diverse channels, alongside more reliable fulfillment solutions and responsive customer service teams, which hold the potential to carve out a much larger slice of the online pie for themselves.

In the end, the main hurdle facing larger CPG brands could be their own uncertainty. Although an opportunity exists to explore this emerging direct model, the window won’t last long. Right now, the stats show that newer brands are reaping the benefits of eCommerce growth by getting close to customers and moving fast to change their product offering.

Procrastinating on this growing trend will only leave established brands further behind, from which point it will be increasingly difficult to evolve and catch up with those who chose to listen to what their digital customers wanted.  

Nonetheless, while total DTC sales represents a limited portion of the CPG sector today, the numbers above point to massive growth and the fact that now is the time to invest, learn, and experiment with relatively little risk to your business.