Nike, Pepsi Lead The Year Of Direct To Consumer
This year will not only go down in history as “the year of the pandemic,” but for consumer packaged goods brands, it will also be known as “the year of direct to consumer.”
Big brands like Nike and Pepsi jumped into D2C sales in a big way – partly out of necessity amid the digital shift, but also because it turns out that selling directly to consumers is actually a pretty good business.
“The test for D2C is always: ‘Can you provide a value proposition that really resonates with the consumer?’ Because that’s when you get the repeats. That’s when you get the sustainable proposition,” said Gibu Thomas, Pepsi’s head of eCommerce. “We’ll continue to invest in it and will continue to iterate and pivot until we find the propositions that consumers find delightful and sticky.”
More Than a Third of Consumers Want D2C
PYMNTS’ recent How We Shop: Measuring the Rapid Digital Shift study, done in conjunction with PayPal, found that a large share of U.S. consumers surveyed (37 percent) are interested in direct-to-consumer sales. The No. 1 reason cited involves loyalty to well-known brands. Some 40 percent of those interested in D2C said they’ve bought from and trusted the brands where they want to purchase directly. Another 33 believe D2C retailers have better deals on their websites, while 33 percent say it’s easier to see all of a brand’s offerings on one site:
Even better, from the brands’ point of view, is that the consumers most interested in D2C are typically younger, better educated and wealthier than those with less interest in the concept.
For example, 43.9 percent of those making more than $100,000 told PYMNTS that they’re interested in D2C purchases versus only 31.1 percent who earn less than $50,000.
College-educated shoppers also outpace those with only high-school degrees or less, while bridge millennials, millennials and Generation Zers expressed greater interest than Gen-X and Baby Boomers did.
Interestingly, a separate PYMNTS study entitled D2C and the New Brand Loyalty Opportunity, done in conjunction with sticky.io, found that consumers most commonly buy shoes, clothing and accessories via D2C channels. For example, D2C channels accounted for 41.1 percent of all shoe purchases and 35.6 percent of clothing and accessory buys. By contrast, D2C only accounts for 8.5 percent of household goods purchases. This suggests that D2C does well in areas where consumers have strong brand preferences.
sticky.io CEO Brian Bogosian told Karen Webster during a recent On The Agenda panel discussion that while COVID-19 served as a catalyst, “people are now realizing that there’s a convenience factor in addition to the safety factor around getting what you want and not wasting time going to a retailer.”
Panelist Jason Thomstatter, head of digital commerce for Mars Inc., agreed. “Even pre-COVID, we were seeing a massive acceleration in this space. I think COVID just kind of lit a fire and had it growing even faster.”
And Abhishek Ahluwalia, global eCommerce growth platforms leader for Mondelez International, said the pandemic has helped make D2C “more mainstream” for companies, “while from a consumer viewpoint, it has become clear that people prefer to buy from a trusted brand directly.”
Here’s a look at what some well-known firms are doing in the D2C space:
Kraft Heinz launched “Heinz to Home” – its first-ever DTC business line – earlier this year, offering warehouse club-sized packages of staples like spaghetti for home delivery. “We’re building and strengthening both organizational and individual capabilities. This includes leveraging digital as an enabler, which will allow us to accelerate our growth and raise the bar on what it means to be better,” Carlos Abrams-Rivera, head of Kraft Heinz’s U.S. business, said during the company’s recent earnings call.
Nike has been building a digital-first, D2C sales presence for years – an investment that really paid off when the pandemic hit. The shoe giant recently reported that digital sales of its flagship Nike brand (the firm also owns two others) soared 84 percent unadjusted for currency changes during fiscal Q2, which ended Nov. 30. That included more than 100 percent digital sales growth in North America.
“We’ve now had three straight quarters of roughly 80 percent [worldwide] digital growth,” CEO John Donahoe, a former top eBay executive who took the helm at Nike in January, told analysts. “This is the sharp point of our strategy. The consumer shift to digital is permanent, and our digital penetration will only increase in years to come. … We have a proven playbook, led by digital.”
Nike’s digital engagement goes beyond merely selling products online. For instance, the firm generated more than seven billion brand impressions and 400 million social engagements worldwide on social media during the latest quarter. Nike also reported big gains for its Nike Membership initiative, a free loyalty program that offers exclusive sales events, rewards points and more.
“Since the pandemic began, we’ve added more than 70 million new members globally, and we’re deeply focused on the member-funnel outcomes, including new member buying, reactivation and retention,” Donahoe said.
“The direct-to-consumer model [is] more of an attempt for us to stay closer to the consumer and read them – understand reaction to early innovation – and then obviously take it mainstream into the balance of the channels,” CEO Ramon Laguarta said on Pepsi’s latest earnings call. “It is still … very embryonic – [a] smaller percentage – but we’re getting good insights. And we plan to obviously scale them up a little bit and get better at reading consumers.”
Digitally Native Firms
Of course, plenty of digitally native firms have focused on D2C from day one rather than pivoting to that after COVID-19 hit.
For example, Misfits Market focuses on selling consumers tasty but ugly or excess produce that traditional supermarkets just throw out, leading to some 40 percent of items going to waste.
“Maybe it’s apples that don’t even have bruises, but … a grocery store wants all their apples to be perfectly red,” Founder and CEO Abhi Ramesh told Karen Webster in an interview earlier this year. “We see things that are too small or too large. It’s just sort of like nonstandard versions of food that traditional retailers either are not able to buy or refuse to buy.”
Ramesh’s two-year-old platform packages such produce into a subscription product available by D2C only. The firm recently held an $85 million funding round led by actor Ashton Kutcher’s Sound Ventures and Valor Equity Partners.
The pandemic has actually been great for business, with demand soaring 400 percent and Misfits Market adding 400 employees.
“The behavior of the customers that joined from late February till now actually looks very similar to the behavior of customers that joined pre-COVID,” Ramesh said. “The purchasing habits or frequency of purchasing — all that stuff looks very similar. What is different is that a much larger percentage of the customers we acquired from February until now are having their first online grocery experience. That’s interesting to me.”