CPG and Food Businesses Develop an Appetite for D2C Fulfillment

Food and CPG brands take a bite out of the popular D2C fulfillment market

With the recent coronavirus outbreak, much has changed.  From social media to journalists talking about supply chain and logistics, both consumers and companies now have a fundamental awareness of how the supply chain works.  With the restrictions designed to help prevent the spread of COVID-19, consumers have often limited their visits to retailers, instead opting for home delivery of orders processed through online stores.  As consumers stockpiled toilet paper, meat and other essentials, CPG and food brand companies took careful note of the competition that they have been enduring from both retailer brands and online retailers.  Some of these companies have begun to launch e-commerce online stores so that they can sell direct to consumer.

Currently 98% of food brands are sold offline through intermediaries such as distributors and retailers.  Consumers tend to prefer convenience and their online food purchasing behavior aligns closely with their offline grocery purchasing behavior.  Convenience is a significant part of the value proposition, such as being able to shop from the one’s living room.  There are limitations to this, however.  Currently, the shipping of a small volume of perishable food products, especially frozen food is prohibitively expensive.  Meal kit subscriptions seem to have mastered this challenge, developing business models that have been thriving during the quarantine, providing a bounty of fresh foods and tasty recipes that are relatively easy to prepare.

Recently, CPG and food brands began selling direct to consumer (commonly known as D2C or DTC).  This means that traditional distribution and retail channels were bypassed as consumers were allowed to order products directly from manufacturers.  Legacy manufacturers find selling direct-to-consumers beneficial and often strategically sound when competing against Amazon.  Frequently 3PL fulfillment centers are leveraged to ensure positive customer experiences, keep shipping costs under control and provide value added services.

One of the advantages of selling D2C is that it enables the gathering of customer data that can then be leveraged by the manufacturer to personalize the customer experience and monetize the relationship.  Companies that sell online benefit from having the visibility of the order fulfillment and delivery process as well as access to customer behavior and feedback on customer experiences. This helps with numerous issues from building brand loyalty, ensuring higher rates of customer satisfaction to minimizing returns and personalizing the entire omnichannel brand experience.

In utilizing a D2C strategy, the brand has more control over the customer relationship, enabling the development of brand awareness and loyalty.  DTC companies are able to incorporate their own values, develop personalized products or custom packaging, solicit feedback from customers and streamline new product launch and align their brand with a social cause.

Selling direct to consumer speeds up the innovation process enabling food brands to have insight and communication channels directly to consumers as well as data that can be used in product development

What are the risks of implementing a D2C strategy?  Traditional grocery distribution channels are typically vitally important in bringing branded food products to market.  Taking the D2C route may cause traditional retailers and grocery distributors to view the move as competitive, however this may be averted if the food brands sell completely different products online.

What is a digitally native vertical brand (DNVB)?

These are brands that started online and have an evangelical-like concentration on customer experience.  Rather than rely on traditional retailers, DNVBs are D2C brands that control their own distribution and are known to experience explosive growth. Although DNVB originates online, these companies often transition to include a brick-and-mortar retail presence.

Here are some examples of DNVBs:

  • Aloha, organic nutrition, protein products
  • Food52, one stop shop for tools, food and more for food enthusiasts
  • Hungry Root, fresh, healthy packaged foods
  • Noble Brewer, unique craft beer club
  • HVMN (formerly Nootrobox), nutrition company

How the COVID-19 Outbreak Shifted the Focus to D2C Fulfillment

In the past few weeks, consumer packaged goods (CPG) companies, packaged food manufacturers have ventured into the world of D2C brands, perhaps partially buoyed by the wave of consumers now buying online as well as the need to quarantine.

Taking a foray into the direct-to-consumer channel, PepsiCo launched two new DTC websites to make ordering snack foods fast and easy:

Snacks.com

Frito Lay online snack ordering, minimum $15 order

PantryShop

by PepsiCo, online ordering of a variety of pantry kits filled with family favorites

Other household names taking the plunge into D2C include:

  • Heinz, Just Food, featuring pantry favorites and shelf-stable foods including beans, soup, condiments and pasta
  • Nestle DTC service for its KitKat brand

 

Foodservice companies are also getting in on the D2C trend, including:

How do Food Brands Handle DTC Order Fulfillment?

Often food brands partner with third party logistics providers, warehouse operators that provide a variety of services to multiple clients within the same warehouse, including storage, inventory management, quality control, order fulfillment, shipping, transportation and logistics.  Third party logistics (3PL) providers are experts in supply chain management and warehouse operations and can leverage technology, expertise and economies of scale, such as for lower shipping rates to provide enhanced services to clients, saving them time, money and labor.  3PLs are highly useful as they typically invest in technology such as warehouse management systems, EDI, ecommerce platforms, integrations to shopping carts, shipping carriers and other systems and provide an array of customizable fulfillment options.

Most third party logistics providers provide an array of value-added services including custom packaging, labeling, returns processing, kitting and assembly and much more.  This can reduce the strain on food brand manufacturers by enabling them to contact directly on the core business while the 3PL provides the required services to handle the direct-to-consumer order fulfillment needs.

Third party logistics providers tend to invest significantly in technology including warehouse management software, electronic data interchange (EDI), material handling equipment, enterprise resource planning systems and much more.  Using a 3PL for order fulfillment enables manufacturers to focus on their core business while realizing the benefits of expert fulfillment tailored to meet the needs of each food brand.

Summary

The movement of CPG and food brands to D2C fulfillment seems to be steady, perhaps propelled by stay at home orders designed to keep the coronavirus from spreading.  Consumers enjoy the convenience of online ordering and home delivery of their favorite brands and value the positive customer experience.

To facilitate D2C fulfillment, CPG and food brands are leveraging supply chain experts, third party logistics providers.  3PLs tend to rely heavily on technology, are experts in warehouse operations as well as transportation and logistics and enable companies to outsource critical work so that focus on the core business can be maintained.

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