Are FMCG brands like P&G and Unilever getting too caught up in direct-to-consumer?
Procter & Gamble's (P&G) finance chief this week urged analysts to keep the 'direct-to-consumer' trend in perspective, revealing that it represents just 0.3% of the company's global sales. So has the hype been overblown?
Direct to Consumer - worth the hype?
Over the last 18 months, FMCG-giants have been seduced by the promise of cutting out the retail middle-man and being able to sell their wares directly to the customer. So enamored with the idea of ‘direct-to-consumer’ (D2C) was Unilever that it dropped $1bn on a company that had somehow managed to do it (and do it well) in a bid to extract its secrets to use across its suite of brands. But is all the effort and investment into exploring these channels worth it?
D2C has been on the minds of marketers thanks to the advances Amazon, Facebook and Bitcoin have made in not just disrupting the way people purchase goods, but how they pay for them. Couple that with the predictions that global online FMCG sales are projected to top $130bn within a decade - and the rhetoric around the Internet of Things - and its little wonder Mondelez, P&G and Unilever eyed it as a potentially lucrative revenue generator.
And so, under the radar, they began to experiment with their own e-commerce channels and shoppable content for platforms like YouTube and Facebook. But it was Unilever's mega-buy out of Dollar Shave Club that made outsiders sit up and take notice of what had been going on behind closed doors. Quarterly investor calls for these companies have since been plagued with questions on exactly how the elusive D2C plans will play out.
P&G’s quarterly earnings report on Tuesday (25 October) was no different. Chief finance officer Jon Moeller was – once again - asked to relay how it plans to keep up with its rivals in this space as it looks ahead to 2017. He gave little away, but stressed the importance of being realistic when it comes to this conversation and avoid the temptation to get carried away with potential propsects for the Internet of Things.
“Direct-to-consumer sales in our product categories globally currently represent 0.3% of sales. And it's not a reason – I'm not saying that to indicate that it's not a potentially important tool for us, I believe it is. There are opportunities for us to increase our relevance from a selling and brand building standpoint in a direct-to-consumer context across several of our categories, and we're mobilizing against those,” he said.
“And again, I don't want this to be taken the wrong way, but I don't see a mass move, call it 20% or 30% of the market, to direct-to-consumer consumption. If you just think about the experience of that, how many people do you really know that want to satisfy their household products shopping needs in a month or two by going to 40 different websites with 40 different passwords and 40 different packages that arrive at 40 different times? Again, I'm not in any way denigrating the opportunity that tool presents us and we need to fully capitalize on that, which we're working to do.”
So – the question begs – are FMCG brands in danger of succumbing too heavily to the D2C hype?
“The issue is that marketers are - as always - looking for a silver bullet to bring themselves closer to their consumers,” suggested Uwe Becker, strategy director, Brand Union.
“It has always been the holy grail for brand owners to get their hands on highly valuable insight data to truly understand their consumers and to remove middlemen who eat into their profit margins. As so often the answer lies somewhere in the middle – D2C is neither a silver bullet nor should it be dismissed as a fad.”
For D2C to succeed, there needs to be a distinct consumer value proposition – and making a whole product portfolio available online is simply not sufficient. Dollar Shave Club’s model was successful because it identified and solved a clear consumer problem: most men didn’t bother replacing razor blades because they either didn’t know how often they should or it was not a top of mind purchase.
“D2C – where you just stick a product on a product page without all the benefits of a retailer – retention, logistics, economies of scale, loyalty points…yes, that is overblown,” said Mudit Jaju, head of e-commerce, at MEC
“It’s very difficult to beat the economies of scale of a retailer – both on the logistics and fulfilment end, as well as with consumer attention. The traffic to a Boots.com will always be higher than to any individual manufacturers site, even one as massive as P&G. The retailers can do it much more cheaply and will use it to deliver better service to the consumer through constant innovation.”
P&G’s Moeller has not shared much on its plans for the coming year. But as the hype dies down, it’s clear that - while not ignoring it – FMCG companies will have to better channel their efforts. Baby and beauty are two categories where the D2C model could florish – they are high consideration and repeat purchases.
And when it comes to FMCG brands investing in their own e-commerce platform, especially as retailers like Amazon surge ahead when it comes to tech development.
“With convenience top of the retail and brand agenda, we’re seeing B2C innovation in programmatic retail – where shoppers allow technology to make purchase decisions on their behalf based on pre-programmed parameters and learned preferences,” revealed Sarah Todd, chief executive of shopper marketing agency Geometry Global.
“Taking the trouble out of repeat purchases is a huge opportunity. Think Amazon Echo – automatically adding products to your bag – delivering convenience.”