What Retailers Need To Know To Power Up Their Direct-To-Consumer Model

Increasing health concerns surrounding food hygiene and food safety, immature infrastructure that lacks the capabilities for scalability based on seasons, even the ban on one-time plastic usage. The concerns F&B brands are facing is increasing, and challenges to penetrate the D2C market is rising.

On one hand, a successfully implemented D2C system comes with unique benefits. Increased control over your branding, first-party data to help you understand customer needs, cutting the middleman to reduce cost and increase profits, and pivots in inventory management can be implemented much quicker. Brands are now empowered connect directly with their consumers.

On the other hand, being on an online marketplace enables you to reach an existing group of consumers with increased visibility. Instead of worrying themselves about establishing a customer support team and customer acquisition strategy, brands can afford to divert their manpower for product/service innovation. When dealing with perishable goods, there are more considerations than usual. Is selling through D2C or online marketplaces really the best channel for your brand?

In a post-event Q&A with Pavangopal Alavattam, former CMO from Nandus Foods and current Business Head at The Pet Project, and Nizar Naushad, Associate Director- Head of eCommerce at Kellogg Company, we find out about his experience in discovering the right balance between rapidly expanding a D2C network in F&B and ensuring the utmost quality control the fresh department. To make it more challenging, he’s doing this while overcoming regional nuances across the diverse markets in APAC!

How do you decide the speed of expansion for D2C networks (specifically in a fresh category) given the time needed to build?

From several months to years, the duration is highly dependent on the complexity. How do you ensure quality is ensured throughout? Is your team trained for optimal inventory management? Are your operating procedures aligned to your plans? For Pavan, it depends on the speed of expansion in the fresh category relies on the operational readiness to deliver on the customer promise of the D2C model.

It’s crucial to focus on setting up the fulfilment process, the means, and the mechanism to execute on delivering the order and tracking the customer experience metrics. With these bases in place, the speed of expansion, it boils down to your desire to scale the business and have the wherewithal to in terms of people, customer acquisition, and the necessary tech enhancement.

For Nizar, given there is a high recurring ordering potential, there is a strong case for setting up a D2C platform earlier on than later. However there are some considerations to be kept in mind. It is important to get the supply chain right before expanding far and wide. This would include accurate forecasting for every SKU in each location and working backwards to produce on time in full. Ensuring that customers are loving the product the delivery experience and are coming back to buy the product are important considerations.

Lastly, while it is possible to find partners for each leg of the operations and therefore skip capital investment for variable costs, the cost of customer acquisition requires a lot of capital. Constructing a cash flow that can afford this investment for every city one enters is another important consideration.

With difference consumer nuances across the continent, can the same Above-The-Line marketing be cross-regionally?

The varying culture and customs of a different country, complying with legal regulations, crossing the language barriers, it’s without saying that the first step if for brands to overcome these challenges. Once these nuances have been studied and covered, for Pavangopal, his experience shows that the large awareness with desired off-the-shelves in the shortest period of time can be achieved via ATL more effectively irrespective of the market and geography.

For Nizar, ATL enables a company to pull more customers instead of the push BTL enables. This ensures brand recall and repeats (provided the product is great) far better than a BTL-only approach. Given Singapore’s high digital adoption, one would expect a higher digital share in the media mix. Connected TV could work out to be a great option that allows targeting at a very low cost.

D2C or e-retailer, is one more cost-effective than the other?

Selling directly to your customers gives you access to first-party data, giving you insights on who they are, what their buying preferences and patterns are, and the opportunity for direct engagement to innovate and tweak based on their feedback.

Considering the other side, going through a retailer might bring you a fresh group of audience at a larger scale, allowing your products to be sold at a faster rate while minimising the operational hassle of fulfilment and delivery operations.

To Pavangopal, choosing between going D2C or e-retailer is not directly comparable. Instead, evaluate what the ‘cost-to-serve’ and ‘profit-to-serve’ for your brand.

To Nizar, if one is able to negotiate excellent terms of trade with an etailer, it is possible that the etailer is better off in terms of unit economics, at the cost of no customer data albeit. However if the cost of fetching traffic, inventory holding, delivery and customer service together work out to be cheaper than the terms one is able to fetch from an e tailer, D2C could be more cost effective and it gives in depth knowledge of your shopper. Etailers can scale your sales much faster than one’s own D2C as they already have a strong traffic advantage.

On attracting your consumers and non-consumers for D2C marketing instead of an online marketplace.

It varies based on what category you’re operating in, as well as your D2C consumer proposition comparison with an online marketplace. In the initial stages, it’s crucial to have balance, to be available through both systems. Analyse whether your brand and category sells better on online marketplaces or on D2C channels.

If the online marketplace comes out as the winner, focus your efforts and investments on building a better brand salience, rather than moving your customers to your D2C channel. There’s no concrete answer as to whether your brand should go D2C. Analyse your competition and market and take data-driven and strategic steps to determine whether your brand will succeed with a D2C network.

Nizar thinks that this depends on the industry one plays in. There needs to be a strong hook to get shoppers to inconvenience themselves by shopping on a site that’s alien to them. Hooks could be of various natures. Customisation, gifting, subscription, exclusivity, contests, better pricing could all be hooks. If the industry is of a high repeat order nature, such as F&V, Dairy, Meat a seamless ordering experience and superior product quality can be great hooks too.