Most people wouldn’t consider a global pandemic the best time to launch a new sales channel, but that’s precisely what PepsiCo did with the launch of two CPGs DTC websites.
The food and beverage multinational isn’t the only major consumer packaged goods brand that has started selling directly to consumers, either. Unilever, Clorox, Nestlé and Mondelez are all carving out opportunities for themselves in the sector.
What does this mean for smaller DTC brands? How will the landscape change as a result? Below, we break down everything you need to know about big CPG’s move into the DTC space and what it means for their brands.
PepsiCo: Filling up Pantries and Delivering Snacks
At the height of the pandemic, PepsiCo rolled out two brand-new DTC websites: Snacks.com and PantryShop.com. At Snacks.com, consumers can choose from over 100 Frito-Lay products. Over on PantryShop.com, they can buy bundled products of everything from breakfast cereals to workout recovery drinks.
The two websites come at a time when the way consumers buy products is changing. eCommerce adoption had been growing steadily, but the pandemic sent demand soaring. U.S. Department of Commerce data shows online spending totaled 16.2% of total retail sales in Q1 2020. That makes it the second highest eCommerce share in history. Given that Q1 data only accounts for about two weeks of the COVID-19 outbreak in the U.S., Q2’s share will be even higher, predicts Digital Commerce 360’s Fareeha Ali.
According to PepsiCo, the move is about helping consumers access their products as easily as possible. Gibu Thomas, Senior Vice President and Head of eCommerce at PepsiCo, says: “In these uncertain times, as more and more consumers are using eCommerce channels to purchase food and beverage products, PantryShop.com and Snacks.com offer shoppers another alternative for easy and fast access to products they love.”
But why two websites? Speaking to Modern Retail, Thomas explains that it’s all about giving customers convenient solutions to the problems they are facing. Snacks.com focuses on providing consumers access to the full range of Frito-Lay products they might not otherwise have access to in lockdown, whereas PantryShop.com focuses on the convenience of curated packages.
“It made sense to have the tradeoff of having two separate URLs, because we felt like the propositions were distinct enough,” Thomas says. “As with all of these things, we will look at consumer feedback and learnings, and we will iterate and pivot as it goes along.”
The PepsiCo team was certainly quick to take advantage of the gap in the market. George Anderson, Editor-in-Chief at RetailWire, points out that it took less than a month to create both websites. PepsiCo isn’t slow to deliver products to consumers, either. While even the biggest eCommerce brands are struggling to handle their supply chains, most Snacks.com and PantryShop.com orders are delivered in two days.
PepsiCo Isn’t the Only Consumer Goods Brand Selling Direct
PepsiCo may have caught the headlines, but they aren’t alone. Several major consumer goods brands have started selling direct to consumers, says Food Dive Senior Editor and Reporter Christopher Doering. Nestlé runs a Nespresso coffee platform, Unilever sells T2 Tea, Maille condiments and Ben & Jerry’s ice cream online, and Mondelez lets consumers create custom orders of Sour Patch Kids.
Nor is it just consumer goods brands that are shifting their focus to a DTC model. Thad Rueter, a Senior Editor at Progressive Grocer, points to Nike as a standout leader in this respect. The sports brand has invested significantly in the DTC model to take advantage of recent improvements in eCommerce, fulfillment networks and digital communication with consumers.
So, how do CPG brands go about following Nike’s lead?
There are three ways that consumer goods brands can approach creating DTC stores, says Jackson Jeyanayagam, Vice President and General Manager of DTC at Clorox. One option is to invest in research and build a website from scratch. Alternatively, they can use acquisitions to establish a DTC presence. This is what Unilever achieved when they bought the Dollar Shave Club. Finally, brands can create an investment fund — like P&G Ventures — to bankroll young brands and learn how the industry operates. Jeyanayagam says Clorox’s approach combines all three.
DTC Is a Smart Move for CPGs
However CPG brands make the move into the DTC space, the consensus is that it’s certainly worth the time and money.
It’s a good move, says financial markets and investment writer James Brumley at The Motley Fool, although one that probably won’t send PepsiCo’s profits soaring. Online grocery shopping still accounts for a tiny part of the sector’s total revenue. Nevertheless, consumer habits are changing and it’s important for PepsiCo to position themselves to take advantage of that fact and widen their margins.
Retail Brew reporter Halie LeSavage points out PepsiCo’s “ulterior” motives. “Whether you call it sourcing community feedback or mining user data, Pepsi’s DTC channels allow it to own its relationship with consumers,” she writes. Everything they learn about consumer habits can be applied to PepsiCo’s omnichannel marketing strategy in the future.
Becoming more data-driven is just one of the benefits CPGs can gain from creating DTC operations, says Tom Treanor, Global Head of Marketing at Arm Treasure Data. They can also become more cost-effective, particularly with regard to marketing. “Instead of spending a quarter of their revenue on marketing, they can allocate some of that budget toward lower spend channels,” he explains.
CPG companies can also give increased exposure to smaller brands in their portfolios. Food business writer Christina Troitino points out that two of the best-selling brands in the first week of Snacks.com’s launch were its smaller ones. What’s more, the average basket size includes more than five unique products, suggesting consumers are buying a range of different branded products.
Don’t Count Out the Little Guys Just Yet
You’d be forgiven for thinking that smaller brands would be spooked by the prospect of big CPG players coming into the sector, but that’s simply not the case.
Far from being scared at PepsiCo’s websites, one DTC brand has taken to publicly mocking them. Only a week after PepsiCo launched Snacks.com, PeaTos launched a competing website, reports Christopher Zara, a Senior Staff News Editor for Fast Company. The name of that site? BetterSnacks.com.
PeaTos aren’t alone in shaking off the threat from major CPG brands. Ugly Drinks CEO and Co-Founder Hugh Thomas saw the move as inevitable given the success of a DTC approach, but he isn’t worried about the competition.
“For Ugly, we have a fanatical focus on our consumer and community and believe this sets us apart from big companies, who won’t be set up to show the same attention to detail,” he says. “As consumers experience new ways of receiving their groceries, Ugly will be available in all channels and doing our best to meet their needs.”
Understanding how to meet customer service demands is definitely crucial for major consumer goods brands, says Brad Birnbaum, CEO and Founder of customer relationship management platform Kustomer. “With more and more customers demanding personalized experiences and relationships with brands that fit into their life, understanding how to nurture the customer experience can be a real tipping point,” he writes.
For other entrepreneurs, CPGs aren’t so much a competitor as a partner; a way to secure their brand’s future. That was the approach taken by Nutranext, which was acquired by Clorox for $700 mullion.
“Working within Clorox allows us to have a longer-term planning and investment strategy,” says Vivian Chang, VP of Growth at Clorox DTC. “If you’re at a startup, you only have so much capital to go out and get new customers and data, and you’ve got to pay your developers. Until you’re generating profits, you can’t feed all that information back into the growth loop to get new users. With Clorox, we are working on multiple DTC brands simultaneously, so we can balance out that investment. We don’t have to put all of our eggs in one basket.”
Whether you’re an established brand or a startup, the DTC sector clearly continues to offer brands a lot of opportunities. All the more reason to look to DTC BaaS solutions to scale your brand.