The rise of DTC and the changing FMCG landscape

DTC brands’ surge in popularity is putting pressure on other players. But traditional retailers do have ways to compete, and FMCG brands can contribute to direct brands’ growth.At first, the news of Covid-19 came as a shock to the retail world. Stores and brands have always been able to rely on retailers to sell their products for them. But now, with Covid forcing consumers to buy directly from brands, retailers can no longer sit back and assume that sales will come automatically.For brands, this means taking a more active role in sales and marketing. No longer can they simply create a product and leave the selling to others. They must now create compelling content that engages consumers and drives them to purchase products themselves. This is a daunting task, but it is one that must be undertaken to survive in today’s market.It’s no secret that direct-to-consumer (DTC) brands are on the rise, and if you think they are just for Millennial shoppers, think again. A 2020 Direct Brands report commissioned by IAB Australia highlighted that nearly two-thirds of DTC-brand shoppers were over 40. So, what does this mean for the FMCG space?To start with, it’s important to understand what DTC brands are and why they’re growing in popularity. DTC brands are those that sell products to consumers through their own websites or online stores. This differs from traditional FMCG brands, which typically sell products through traditional retailers.There are a few reasons why DTC brands have been so successful in recent years. For example, by speaking directly to their customers, these brands have been able to create an intimate relationship that builds trust and loyalty. Additionally, DTC brands often have a more personal story behind them, which helps people connect with their mission and values. This sense of connection is another key factor in the success of DTC brands.What’s special about DTC brands?There’s no doubt that the retail landscape is changing. Traditional retailers are shutting their doors, and online-only brands are thriving. But what’s driving this shift?People are drawn to them for a variety of reasons: the sense of connection they provide, the feeling of being part of a community, the authenticity and transparency that comes with them.Sure, there are other factors at play: the convenience, the lower price points, and so on. But it’s that sense of connection that sets these brands apart.Here are three key ways that the DTC model differs from traditional retail:DTC brands can build a closer relationship with their customers.They can control the entire customer experience, from purchase to delivery. They can offer a more personalised shopping experience.The market is changing rapidlyThere’s no question that Covid has created much uncertainty for businesses around the world. The market is constantly shifting, and it’s becoming more and more difficult to keep up with the changes. In this environment, it’s crucial for brands to adapt and innovate at pace if they want to stay afloat.Many companies are struggling to make tough decisions in these uncertain times. But those that can quickly adapt will be the ones that thrive in the long run. Even before the pandemic, e-commerce accounted for 9 per cent of Australia’s total retail sales, or $28.6 billion overall, and in 2021 has grown to $43.1 billion, placing us as the 11th-largest market globally for e-commerce revenue.That’s why going DTC through e-commerce is a growing trend, as it shifts your brand from an entirely physical store into a digital and contactless platform.How can traditional retail compete?As traditional retail continues to feel the pressure from DTC brands, many are looking for ways to leverage the growth of these insurgent players. What strategies can traditional retail employ to compete?DTC offers a more direct connection to consumers, which can result in higher engagement and loyalty. Plus, it allows brands to build stronger relationships with their customers, providing them with valuable insights into what they want and need.But on the other hand, traditional retailers have years of experience and expertise in merchandising, marketing, and customer service. They also have established relationships with suppliers and manufacturers. So, should they embrace DTC or stick to their tried-and-true approach?Some experts believe that traditional retailers need to focus on creating a unique customer experience. By providing an engaging and personalised shopping experience, traditional retailers can differentiate themselves from DTC brands. Additionally, they say, retailers should invest in technology that makes the shopping experience more convenient and efficient for customers.Others argue that it’s not enough to simply replicate the DTC model, that traditional retail needs to find its own unique voice. To do this, retailers would need to develop a strong brand identity and focus on storytelling by creating a narrative around their products. So which approach is best?The answer is: It depends. Each retailer and brand needs to evaluate its own situation and decide what’s best for them. There are pros and cons to both models, and each has its own unique strengths and weaknesses. We asked one manufacturer that has grown its DTC and traditional retail business during the pandemic what it has experienced, with the following results.Has the pandemic fast-tracked your DTC strategy? How?Pre-Covid, we relied on our retail partners to educate and market our brand; as we were predominantly a wholesale manufacturer, if the brand marketed itself, our retailers would see this as direct competition with their marketing. Throughout Covid and post-Covid, however, we have turned on our brand marketing and e-commerce strategy.Along with this, our DTC strategy was also increased to align with changing consumer buying behaviours throughout the pandemic.Has DTC played a role in driving increased sales and brand awareness on-shelf?Turning our brand marketing and DTC strategy on has had a ripple effect in all channels across the business. This has only positively affected all relationships and brand awareness, and increased sales.Our online DTC business is an introductory tool for the brand. Once consumers engage with the brand and our community, they source our brand within our retail partners.What role do you see DTC playing in FMCG for the future?Consumers are now very much multichannel shoppers – online and instore. There’s no denying online growth trends and online penetration. IRi Shopper Panel results indicate that omnichannel customers spend more than double what in-store/online only customers buy.How IFMCG players can support growth in DTCWith their massive reach and distribution networks, FMCG players have the potential to play a role in helping DTC brands grow. They can provide the necessary scale and infrastructure to help these brands reach new consumers and expand their product portfolios.But it’s not just about distribution. FMCG players can also offer valuable insights into consumer behaviour and purchasing trends. This knowledge can help DTC brands fine-tune their marketing strategies and better understand what products to develop next.SummaryThere is no doubt that DTC brands are on the rise. Consumer packaged goods companies have been forced to adapt, and retailers need to embrace this new sales channel to stay competitive.One reason for the success of DTC brands is that they’re able to connect with consumers in a more meaningful way. They often have a more personal connection with their customers, which helps them build trust and loyalty.Retailers need to find ways to bring these DTC brands into their stores if they want to see increased sales on-shelf. By providing an engaging shopping experience, retailers can help drive their own on-shelf sales and increase brand awareness for these up-and-coming brands.About the author: Craig Matthews is the founder and director of Stock Box and Good to You.