Going direct:
What CPG brands need
to know about going
beyond D2C
This whitepaper is a collaboration between VML and Shopify.
Introduction
The Consumer Packaged Goods (CPG) sector has traditionally exhibited a very neat
division of labor. Manufacturers produce. Retailers sell. Operationally, CPG brands are
set up for production and supply, for B2B trade and relationships. While understanding
of the consumer world is important for product development and marketing purposes,
consumer-facing sales are someone else’s speciality.
But rules and modes of commerce are evolving, routes to market are shifting.
Forward-thinking brands are embracing opportunities to sell directly to the consumer
so they might take full control of the customer experience, customer relationships and
customer data. This is called D2C.
CPG brands are no strangers to D2C. But for a variety of reasons, they have been
more reluctant to embrace D2C than other channels. The COVID-19 pandemic was a
turning point. With retail severely disrupted, many brands almost felt as if they had no
choice but to go direct. There was no other route to market.
But now retail operations and consumer habits are back to ‘normal’ again, some CPG
brands find themselves at a crossroads with their D2C offer. The value proposition
of separating CPG purchases from regular grocery shopping is proving a hard sell
to consumers. Supermarkets continue to command a significant slice of the market.
Yann Gautier
And online, the presence of marketplaces like Amazon makes the task of gaining any
Global Industry Lead – CPG
traction doubly difficult.
VML
Yet there are also clear D2C success stories in the sector. As the benefits grow,
we’re seeing major CPG companies adopt a more proactive approach to D2C.
We’re also seeing a number of agile disruptors shake up the market with fresh ideas
and approaches.
In this paper, as we explore how D2C can be profitable for CPG brands, innovation Génesis Miranda Longo
and fresh, proactive approaches will be a key theme. Because the brands that will truly Senior Consumer Goods Marketing Lead
thrive in the direct-to-consumer realm will be the ones that go beyond the confines of Shopify
the traditional D2C playbook.
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In 2022, nearly two-thirds (64%) of consumers across the globe regularly purchased
directly from organizations. D2C was already on the rise prior to the COVID-19
pandemic, but with lockdowns disrupting their normal shopping habits, many
consumers welcomed the D2C experience and haven’t looked back.
Brands in categories such as Consumer Electronics have been selling D2C for many
years. Companies like Samsung and Dyson have well-established eCommerce
operations and branded stores – including demo/experience stores* – giving them
end-to-end control of the consumer experience, not to mention ownership of
consumer data.
Apparel brands have also made their mark. Nike is one example that boasts a
powerful channel mix. Its products can be found in both generalist and specialist
retailers, as well as being available through its own stores and eCommerce channels.
IN 2022, 64% OF CONSUMERS GLOBALLY PURCHASED
DIRECTLY FROM ORGANIZATIONS.
By contrast, CPGs have generally been slower to move into D2C. That’s not to say
plenty of brands haven’t launched D2C operations in the past few years. During
the COVID-19 pandemic, selling to consumers directly online was a vital means of
circumventing the severe disruption caused to retail.
The CPG sector has also seen its share of niche D2C start-up brands – agile, digitally
native outfits that don’t have the same legacy business models or scale of operations
*dyson.com/demo-stores as the sector’s major incumbents – and so can be more nimble and single-minded in
samsung.com/us/samsung-experience-store their approach.
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But otherwise, established CPG brands have been cautious about embracing
D2C, for reasons including:
■ Fear of channel conflict with existing retailers and distributors. Many
CPGs are very aware that implementing D2C channels in effect puts them into
competition with the same retailers they supply, potentially jeopardizing those
relationships. Procter & Gamble, for example, has been at pains to stress that its
operations remain “channel agnostic”, with a focus on serving customers wherever
they shop, even as it expands its D2C reach.
■ Perceived high set-up costs. By selling directly to consumers, CPG companies
can cut out intermediaries such as retailers, distributors, and wholesalers, which in
turn can lead to higher profit margins. But it also entails additional costs upfront,
for example to create the infrastructure needed to sell directly. When the margins
on your products are low, the ROI on these set up costs is called into question.
■ Lack of a compelling value proposition vs conventional operating model.
CPG brands continue to report higher growth from their B2B channels than they
see from their D2C operations, so understandably invest where they see the best
returns, and where they know most growth is set to come. For many CPGs, this
means a focus on emerging markets.
■ The complexity of developing new capabilities, particularly in terms of
transitioning from operating as a supplier to a consumer-facing trading
organization. These challenges are especially evident around workforce and skill
sets – for example, brands are likely to lack the digital skills that are essential
in B2C commerce these days, while knowledge and processes generally are
optimized for B2B business models.
Nonetheless, there are good grounds to argue that the opportunity is ripe for CPG
companies to invest in direct-to-consumer efforts. VML’s Future Shopper survey
data underlines this. According to what consumers told us about the different stages
of their online shopping journeys, marketplaces may still dominate, but their share
of spend percentages did not grow this year. On the other hand, spend on D2C
channels doubled from 7% in 2022 to 14% in 2023.
However, CPG companies need to pave their own way and go beyond the traditional
D2C playbook, incorporating the learnings of the past couple of years. What
sets established CPG brands apart is their ability to achieve sustainable growth, OUR FUTURE SHOPPER 2023 SURVEY FOUND THAT
something that upstart D2C companies often struggle with. While trendy D2C brands 14% OF CONSUMERS PURCHASED VIA D2C CHANNELS,
may have initially generated significant buzz, scaling their operations has proven DOUBLE THE PREVIOUS YEAR.
challenging. CPG mega-brands have no such issues.
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Five areas where D2C can transform CPG
brand operations
1. Consumer data
D2C allows brands to collect valuable consumer data and gain insights into customer
behavior, preferences, and purchasing habits. This first-person data can be used
to tailor products, marketing, and pricing strategies, leading to more effective
decision-making.
As such, D2C empowers CPG brands with a newfound agility in product
development, addressing the pain points they encounter when relying on third-
party data or retail partners. By embracing D2C, brands and organizations are
more inclined to adopt a test-and-learn approach, accelerating their go-to-market
2. Personalization
strategies for products and services. In today’s fiercely competitive landscape – With direct and unified consumer data, CPG brands gain the power to respond,
where speed is paramount – this agility becomes critical, not only enhancing ROI but adapt, and pivot in response to ever-evolving consumer needs. This applies not only
also securing a competitive edge on the digital shelf. to products and services, but also to the content and assets used to communicate
with them. The beauty of D2C is that personalization can occur not just at a generic
However, many D2C brands have also struggled with data – not with collecting it,
level across the entire customer base, but also at an individual level.
but unifying it, analyzing it, and putting it into action. As D2C brands have scaled and
expanded into new channels (brick-and-mortar, marketplaces, B2B, etc.,), they’ve Personalization unlocks the true value of the data resources available to a company.
found themselves grappling with a multitude of fragmented data sources. Instead of According to McKinsey, personalization is worth $15 – $200 billion to the consumer
adopting a unified commerce strategy, they have embraced multichannel approaches, goods sector. Little wonder, then, that it has become a paramount focus for CPG
resulting in scattered data that fails to tell a cohesive, unified story. Their data is organizations.
everywhere, yet the ability to weave it into a seamless narrative remains elusive.
Without the ability to connect the dots and create a unified, cohesive story from their D2C facilitates this process by enabling A/B testing, MVPs, and trials, which gather
data, D2C brands face challenges in leveraging its full potential. valuable insights and contribute to the development of scalable 1:1 personalization.
By leveraging D2C capabilities, CPG brands can deliver tailored experiences that
CPG companies can learn from this. To truly harness the power of their data, resonate with consumers on a deeply meaningful level.
CPG brands must prioritize unifying their data sources, before analyzing all data
collectively, enabling them to make informed decisions and drive impactful actions
across all channels.
During my time in CPG, half the battle was gaining
access to the right data to forge genuine, empathetic
connections with consumers. That’s why, at Shopify, I’m
so excited to see brands break free from the old model.
They are embracing direct access to consumers, turning
pain points into opportunities for personalized innovation.
Génesis Miranda Longo
Sr. Consumer Goods Marketing Lead, Shopify
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3. Social commerce
70% of consumers already search and shop for products on social media, and social
commerce is expected to be a $3bn industry by 2028. Major CPG brands are moving
quickly to embrace the opportunity. The likes of Unilever have seen brand awareness
success on TikTok and Instagram and the impact of influencer partnerships.
TikTok in particular represents the future of CPG brand discovery in D2C. But if
brands are not converting that captive audience by making it easy for them to shop,
they’re missing out. Brands also need to ensure the data captured by selling through
these apps is unified with their commerce platform.
5. Customer communication
D2C is more than simply a sales channel. It’s a direct link to consumers and to a
sharper understanding of their behavior and preferences. And it offers the opportunity
to communicate your credentials, news, updates, price changes and offers etc., in a
way that you have full control over.
One example of where this can be important to brands is the sustainability agenda.
4. Trialing new products Our most recent Future Shopper survey found that 3 in 5 consumers believe
companies are not doing enough to offset their impact on the environment, and 23%
Launching new products through existing routes to market such as retailers is a wished delivery of products ordered online would consider the environment more.
lengthy and costly process for brands. Some manufacturers therefore use their D2C
sites to trial or launch new brands or services – for example, Pepsico’s launch of Controlling your own route to market gives you more direct control of your messaging
PantryShop.com and Snacks.com, or Nestlé’s KitKat Chocolatory. around sustainability, offering a clearer, unfiltered means of engaging with consumers
on a topic that has a growing influence on purchasing habits.
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What should I consider when shaping my
D2C strategy?
When it comes to shaping your D2C strategy, there are a number of important
considerations to weigh against the potential benefits.
The capacity to fulfill should be the number one priority. There are multiple cautionary
examples of CPG organizations implementing direct-to-consumer strategies without
having the correct logistical and fulfillment capabilities. Glossier may be a billion-
dollar beauty brand today, but at first, they faced major difficulties in managing their
supply chain and keeping products in stock.
Getting it wrong is costly and the reputational damage from having to then make
a rapid retreat can be considerable, especially at a time when customer loyalty is
dipping to new lows.
To ensure readiness beyond the crucial matter of fulfillment, CPG businesses that are
evaluating D2C strategies should ask themselves a series of searching questions:
■ Do you have the right level of data and insights? What level of insight do you have
on the market and on consumer appetite for your brand and products?
■ How well do you understand your competitor landscape? Do you have data and
insight about who and what is performing, and among which audiences, and why?
(Local market specifics often play a big part in driving a successful D2C program).
■ Have you identified a gap in your sales growth that can’t be satisfied by your
current channels, retailers/e-retailers?
■ What is your marketing strategy (covering social, media, loyalty etc.) to support an
effective D2C strategy?
■ What is your overall unified commerce strategy to support sustainable growth?
D2C offers CPG brands an unprecedented opportunity to engage directly with their customers, gather
valuable insights, and tailor their offerings. However, success in D2C is not just about setting up an online
shop. It requires laying the right foundations – a deep understanding of your customer, a strong value
proposition, seamless logistics, and exceptional customer service. Brands must also leverage data to
continually refine their strategies and stay ahead in this rapidly evolving landscape.
Yann Gautier
Global Industry Lead – CPG, VML
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Practical steps to take in your D2C journey
So, you’ve acknowledged the need or value of adopting a D2C approach. What’s An additional point is the fact that many big name CPG brands have chosen to jump
next? Here are the essential steps to creating your D2C play: into the D2C space through acquisition – buying D2C competitors to give them an
immediate D2C presence – and a lot of the brands they’re acquiring have their majority
Ecosystem: You first need to identify and detail the right D2C ecosystem for your
of sales through eCommerce. Large CPGs can be reluctant to deviate from their core
needs. There are several services that can help activate a D2C strategy. Understand
operational methods as it can decrease efficiency and increase complexity in the short
your market requirements, locales, languages, content needs, capabilities needed to
term – through the need to develop new capabilities around logistics and fulfillment, a
implement, maintain and run the platform, cost of ownership, partner ecosystem for
transactional website, payments and customer services as well as the skills needed to
support, content production etc.
trade on and operate an eCommerce site, for example.
Commerce Platform: When assembling your commerce stack, there are several
Unilever’s fastest growing business is partly due to acquisitions for which over 50% of
crucial components to consider. Your infrastructure should encompass seamless
their sales are via eCommerce. One of its most well reported purchases and entrées
payments, localized payment methods, analytics, SEO and traffic management,
into D2C was its acquisition of Dollar Shave Club.
scalability, integrations, sales channel availability, and a comprehensive product
management offering. As B2B continues to drive growth for CPG, it’s essential for On the matter of channel conflict, we also see some CPGs introducing new brands to
brands to evaluate commerce platforms with built-in B2B features. Having B2B and help mitigate the issue. There is negligible conflict if the sole distribution path is through
DTC in one place is key to achieving true operational efficiency. Moreover, all of these the brand’s own online store, and this helps avoid the awkward conversation with
features must be delivered securely and in compliance. retailers about the brand owner launching a competing route to market through D2C.
Scale: The ambition for any D2C organization – besides growth – is usually scale.
Building on the comments immediately above, it’s essential to identify platforms
and partners that can help scale your operations. This is crucial to a successful D2C
strategy and shouldn’t be an afterthought. The best advice is to start small, focusing
on one brand in one geographical market. And when you have that right, you can
copy the model across other markets and brands.
Data: A key reason for CPG to implement D2C initiatives is to get access to first-party
data. A robust data ecosystem needs to be put in place to turn data into actionable
insights. Think analytics, personalization, performance marketing and optimization,
A/B testing programs etc.
Customer Service: Having the right support channels to respond to consumer
needs post- and pre-sales is crucial and we often see a lack of attention in this
area. Just like there is unified commerce, there is unified customer service, where all
customer interactions and transactions are visible to your customer service agents,
and connected to existing technologies such as chatbots and AI.
Delivery and Fulfillment: Depending on the markets where you want presence,
you may need to rely on partners, so identify your delivery and fulfillment partners.
A strong partner ecosystem can help facilitate sales, loyalty and increase brand
image – supporting scaled growth at pace.
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How we can help
VML Commerce is working with both large and start-up CPG and brand
manufacturers on their online strategy, D2C business, and eCommerce operations to
develop and establish a powerful channel mix. This includes programs for Unilever,
Kellogg’s, L’Oreal, Danone, Edrington, Glanbia, Tesco and Sainsbury’s.
Shopify makes commerce better for everyone with a platform and services that are
engineered for speed, customization, reliability, and security, while delivering a better
shopping experience for consumers online, in-store, and everywhere in between.
Shopify powers millions of businesses in more than 175 countries and is trusted by
brands such as Mattel, Gymshark, Heinz, FTD, Netflix, Kylie Cosmetics, SKIMS,
and Supreme.
Get in touch to find out more about how we can help you.
Download The Future Shopper 2023 for a closer view on consumer appetite for
D2C experiences.
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About VML
VML is a leading creative company that combines brand experience, customer experience, and commerce
to create connected brands and drive growth. VML is celebrated for its innovative and award-winning work
for blue chip client partners including AstraZeneca, Colgate-Palmolive, Dell, Ford, Intel, Microsoft, Nestlé,
The Coca-Cola Company, and Wendyʼs. The agency is recognized by the Forrester Wave™ Reports, which
name WPP as a “Leader” in Commerce Services, Global Digital Experience Services, Global Marketing Services
and, most recently, Marketing Measurement & Optimization. As the world’s most advanced and largest creative
company, VML’s global network is powered by 30,000 talented people across 60-plus markets, with principal
offices in Kansas City, New York, Detroit, London, São Paulo, Shanghai, Singapore, and Sydney.
VML is a WPP agency (NYSE: WPP). For more information, please visit www.vml.com, and follow along on
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