What is CPG’s Direct to Consumer Play?


Starting off a digital commerce play or DTC strategy for CPG does not have to be daunting

It's no surprise that, in 2020, CPG ecommerce sales hit $175 Billion USD, according to research by IRI in 2021. And, this growth is expected to continue into the next few years. The COVID crisis pushed consumers to buy as many of their favorite products online. More than past years, this definitely gave the consumer package goods (CPG) industry’s ecommerce efforts a clear boost.

New Sales Channel

Historically, physical (bricks & mortar) retailers have been the main channel to reach consumers. For the most part, these retail partners have been successful channels for consumer packaged goods (CPG) companies, across the decades. But, these traditional channels were built for mass scale, not diversification, customization, or personalization. As a result, they're having trouble keeping up with the growing online industry.

New and existing competitors and trends have emerged. Consumers are gravitating toward online-only consumption patterns. Digital channels are driving CPG businesses to adapt—or risk losing major market share in their categories. A great example of this is the Dollar Shave Club and Harry's as new entrants into the shaving market. These new consumer brands provided new 'club' subscription brand experiences. As such, they pushed Gillette from a dominating 70% market share to about 50%, by changing the game to the DTC sales subscription model.

Private Label Challenges

Keep in mind that although CPG firms largely sell through distribution, retail, and grocery chains— nothing is preventing those channels from becoming competitors. For many years, private-label brands have been growing in market share and prominence. In some cases, the private-label brand, often taking the low-cost route, has become the premium brand. A clear example is President's Choice private-label goods, which are seldom the least expensive in a category.

This trend has been taking place in online marketplaces, as well. Since 2009, the largest online marketplace and commerce platform started Amazon Basics. So, even online CPG companies are faced with the private-label threat, when competing in their traditional channels.

Fighting Back

With the rise of private label brands and subscription-based brands in online stores, CPG brands should not feel an obligation to avoid competing with its own direct-to-consumer (DTC) websites or subscription models. Today's consumers expect this as an option. Many shoppers want to have a direct relationship and customer experience, provided by the CPG brand itself.

These models are cost-effective, as the middle-man margin is eliminated by selling direct. New product development can be tested cost-effectively in small select markets. And, the consensus from consultants like McKinsey is summarized by the statement that "what we do know is that for most CPG categories, there’s at least some incrementality from online purchases. This is particularly true in categories like snacks and soda—if it’s in your pantry, it’s gonna get consumed quickly." (McKinsey, Oct 2021) So, consensus points toward CPG direct-to-consumer online plays being a viable option. Add to that a subscription service, and the strategy is complete.

Getting Started

Starting off a digital commerce play or DTC strategy for CPG does NOT have to be daunting. It always makes sense to choose a stable, reliable, robust, and leading-edge platform like the Salesforce Commerce Cloud system. Then a technology partner (like OSF Digital) provides products that are built on the platform. As an example, Quick Start D2C is an incredible product that can get a CPG company selling online within 2 weeks. At that break-neck speed, once your company has chosen to get into digital commerce with your CPG direct-to-consumer approach, you’ll be selling online before the month is out. The key element is to work with technology partners who have deep experience with large CPG companies and have a deep understanding of your business.

Getting into Subscriptions

When delving into online commerce, you can also immediately set up a club or online subscription model, out of the gate. An example of a widely popular product to get a CPG company running fast is the Smart Order Refill system. The beauty of this model is the recurring and highly predictable nature of regular, loyal customer orders. In fact, this allows your organization to directly compete against the digital-native clubs.

Persuade Away

Getting your CPG online is the start. Getting this going fast lets your staff then focus on the marketing, persuasion, and demand-generation functions. This means making sure your product information pages are up-to-date and continually refreshed. Makes sure these pages and your product photography showcase your goods in the best possible way. This also includes seasonal modifications, experimenting with bundles, and providing deal offers online.

A bonus of having this CPG direct-to-consumer channel setup is the option to experiment. Often, experiments with new products are extremely costly in the physical world, to get the SKUs through distribution to your test market. With your own online DTC play, your company can experiment with small batches, sold online. Better yet, given the direct consumer relationship, you can collect direct feedback from shoppers who purchase the new test product.

Track, Measure, Adapt

Regardless of the direction your company takes with your online strategy, you should track, measure, and adapt your approach. Measure and adapt to your performance regularly. Companies in the consumer packaged goods industry must experiment in the market to determine the best strategy, or risk losing market share. Truthfully, this is prudent advice, irrespective of whether the primary sales channel is online or offline.

Next Steps

The consumer packaged goods industry has experienced a windfall from the pandemic. The crisis drove many more customers to purchase their daily goods, and those normally purchased in-store, through ecommerce. As a result, the industry has been investing in ecommerce and CPG direct-to-consumer options aggressively. These models are cost-effective, provide a direct brand experience with your consumers, and provide an additional avenue for sales. That's important to boost your reach beyond historic, geographical boundaries.

Fortunately, there are very fast ways to get a CPG operation deployed online fast. With options like Quick Start D2C, a CPG player can be taking online orders in as little as 2 weeks.

Either way, the most important element for CPG executives, is to make a decision and move fast.

Connect with us for a deeper discussion of your options and how the right business and technology partner can get you there, fast and reliably.

Charles Dimov

Author: Charles Dimov, VP of Product Solutions

Charles brings more than 20 years of experience in marketing, sales, product development, and management. With depth and breadth in varied markets, he drives the right go-to-market and demand generation strategies for OSF’s core products. A lifelong learner, he graduated from the University of Waterloo with degrees in management, business economics, and engineering. Charles also holds several certifications in leadership and marketing.