Consumer use of digital technology during the shopping trip has accelerated during the pandemic. Most of us are spending more time researching purchases in digital channels and many retailers are seeing triple-digit growth in online sales.
As digital becomes even more integrated into our everyday lives, we are seeing two quite different opportunities emerge for FMCG brands:
Bypassing retailers to sell direct
Partnering with retailers to connect digitally with consumers
Bypass retailers to sell direct
PepsiCo recently hit the headlines when it launched two direct-to-consumer websites selling pantry staples and snacks. Other brands had already started selling direct in recent years: Unilever acquired Dollar Shave Club for a rumoured $1 billion USD in 2016 and Procter and Gamble launched a subscription service in the US for its Tide Pods laundry detergent.
So, when does it make sense for a brand to sell direct?
The direct-to-consumer model sees the manufacturer take responsibility for the entire process from product development through to distribution. Some direct-to-consumer models have always existed, but only when it made economic sense. For example, manufacturers have often been the retailers of big and bulky products (such as cars, furniture and beds) because large cost savings exist from removing physical distribution steps.
Historically, for most products, selling direct-to-consumer made no financial sense. There was no way PepsiCo could profitably distribute products directly to customers’ homes. This is changing as the cost of home delivery reduces, reflecting growing online volumes and competition between logistics companies making home deliveries.
The challenge for brands is that for direct-to-consumer to grow, it’s not enough for a brand to have access to cheap fulfilment. The consumer must also be willing to maintain a 1:1 relationship with the brand. Because the purchase decision to buy a car or a bed has such a significant impact on our lives, we may be willing to invest in a 1:1 relationship with the seller. However, most products are not important enough to justify a 1:1 relationship. For example, unless I eat a huge amount of tomato sauce, I probably don’t want a relationship with a ketchup manufacturer – I will prefer to buy it with the rest of my groceries.
For manufacturers such as PepsiCo who do see an opportunity with direct-to-consumer, the challenge ahead is to acquire the completely new skills needed to transition from B2B to B2C sales.
FMCGs partnering with retailers to connect digitally with end consumers
In the last year both Woolworths (Cartology) and Coles (Coles Synergy) have introduced new ways for FMCG suppliers to leverage the retailers’ data and media assets to connect with consumers. I believe this trend is set to continue and recent developments in the US and UK may show us what lies ahead in Australia.
The US market is an interesting case study because FMCG suppliers have historically led trade promotions there. US FMCG suppliers issue billions of paper coupons each year in free-standing inserts distributed with newspapers. This is quite different to Australia, where promotional activity is led by retailers and FMCG suppliers are invited to participate.
The different market dynamics in the US are leading to collaborations between grocery retailers and FMCG brands on a new marketing tool - personalised digital coupons. For example, Southeastern Grocers recently announced to its FMCG partners that they will be able to buy personalised omnichannel offers in nine issuance channels, including coupon at till.
I believe that although Australia has traditionally not seen widespread use of coupons, this will change due to digital technology and the financial benefits of collaboration. The financial driver is that while the majority of ad spend is now digital, promotional spend by retailers and brands has not followed. An obvious example is the paper catalogue posted by retailers in our mailboxes but funded largely by FMCG brands. The waste driven by the catalogue is not only financial and environmental. Billions of dollars of margin are lost because store-wide offers are used to generate interest. The downside of the store-wide model is that every customer pays the lower price when a product is on promotion, even though many would have happily paid the full price.
Personalised digital coupons, as seen in other markets, provide a model for Australia to move towards a better way of managing promotions. As each customer receives a unique coupon for the promotion, retailers and FMCG players also gain access to a new source of data as individual redemptions can be tracked in real-time. Digital coupons are also simpler for the customer than paper coupons, as they can be integrated into into a loyalty App.
Coca-Cola used personalised digital coupons to drive trial of Coke Zero in the UK. The coupons for a free product were issued through digital channels such as Facebook, Twitter and Coca-Cola’s website. By tracking individual redemptions in the retailer partner (Asda), Coca-Cola could optimise its media spend by monitoring which channels were delivering greatest return. The redemption partner, Asda, benefited because the promotion was funded by Coca-Cola and drove footfall from customers taking up the offer.
Coca-Cola issued personalised digital coupons to encourage trial of Coke Zero
I believe the years ahead will see Australian retailers and FMCG brands collaborating on digital campaigns that directly engage consumers, with less time spent on finding ways to grab our attention through mass media campaigns. This will require completely different skills to those traditionally valued and rewarded in FMCG sales and marketing.