By Sucharita Kodali
Over the years, Consumer Packaged Goods (CPG) brands have told me the same two objections for why they don’t invest in direct-to-consumer (DTC) e-commerce websites: 1. Shoppers don’t want to buy directly from brands and 2. It’s too expensive for these companies to ship the items to consumers. I’m convinced that thinking is wrong and that they have much to gain from investing in DTC opportunities.
Breaking the myth
Let’s start with myth busting. While consumers do purchase in multi-item baskets at grocery stores and at mass merchants, it is also true they frequently go to multiple sites to purchase multiple items. Remember that consumers go to dozens of websites daily during the course of their Internet browsing; visiting another website is far less friction than visiting another store. Forrester’s recent research shows this finding: shoppers visit multiple sites during the course of product purchases, including when they’re buying everyday consumables. If there’s one lesson to be learned from Dollar Shave Club, it is that shoppers will purchase low-cost items directly from consumer goods manufacturers. In general, CPGs should embrace the halo their brand sites offer: 30% of consumers expect brand websites to offer more products for sale than mass market sites, and 19% think that brand websites help them avoid counterfeit products. However, brands often are their own worst enemy. In a survey of brands that Forrester conducted with Vorys eControl in 2023, only 26% of CPG brands with DTC websites offered an extended assortment and just 21% have brand protection teams for digital sales.
As for the unprofitability of CPG e-commerce, that is invariably the result of two things: bad fulfillment decisions (too many cardboard boxes with too few items and too much air going to home addresses) and overspending on digital marketing. Brands could partner with stores and other merchants to fill e-commerce orders as some alcohol brands are doing now. But the data again shows how brands don’t do what they should. According to this year’s survey, only 5% of consumer goods brands with consumer-facing websites use retail partners for fulfillment. And only 18% put their website URLs on their packaging, a marketing miss. Given that so few CPGs take advantage of-low hanging fruit, it shouldn’t be a surprise that direct-to-consumer sales are negligible. CPGs on average report 15% of their digital sales coming this way while the industry average is higher.
DTC Has Numerous Benefits for Brands
Now the business case for consumer sales sites. The benefits are numerous: brands can protect sales of items that are discontinued or from retailers that have shrunk their presence. They can develop an audience for long-tail merchandise, and they can capture a plethora of first party consumer insights that come from sales made directly to consumers, no doubt, the biggest benefit of all. While the DTC option has the potential to be at least as profitable as traditional wholesale (24% of CPGs with consumer-facing websites say it already is), the incremental value of shopper information should make it a no-brainer. With consumer information, brands can develop a shopper database for new product development and product sampling, they can improve their ever-growing digital marketing bucket with lookalike audiences, and they may even be able to help upsell and cross-sell other brands and SKUs within their portfolio to existing shoppers.
I am a big believer in DTC CPG brands selling right to the consumer, and believe brands should be too. But the DTC path needs some investment in decent websites, brand protection and strong business development people who will persuade grocers, all aggressively vying for an edge in online sales, to be the fulfillment partners for CPG website sales. Yes, there will be changes needed to order management systems, but the variable cost for labor in allowing another click and collect transaction driven by a CPG website is negligible compared to the variable cost of putting a tube of toothpaste in a box and shipping it to a shopper’s home. As online retail grows, brands would be foolish to not take advantage of the easy traffic they can generate to their websites by promoting their URLs more on their packages. And developing a database of the top 20% of your buyers over time just seems like an opportunity that is too good to pass up.
Doing DTC right is more than standing up a hasty Shopify website in a week (which is what some brands did during the pandemic). It requires organizational, technology and supply chain investments. But these investments are worth making and will have a positive return on investment (ROI) when done right.
Sucharita Kodali is the lead analyst for retail and brand manufacturers at Forrester, a technology research firm. Do you have questions or want to learn more about the datapoints in this piece? Reach out to Sucharita Kodali at skodali@forrester.com.
