“One incident can change a lifetime.” That’s what the psychiatrist tells Bradley Cooper’s character during a treatment session in the 2012 movie “Silver Linings Playbook.” Could COVID-19 be the incident that changes the landscape of the CPG industry for a lifetime? It’s hard to argue against the global pandemic’s ability to massively shift consumer behavior. When consumers speak, markets must listen and respond with desirable offerings. That is the basis of capitalism.

With most Americans dealing with extended periods of quarantined living, consumers loudly declared that online grocery shopping was essential when dealing with COVID-19 challenges. Due to the aggressive adoption of online grocery shopping, it’s predicted that the online share of grocery sales will approach and could even exceed 10 percent this year, four years sooner than previously forecasted. Though years of channel shift packed into a dozen weeks sounds incredible, it has also understandably created stresses throughout the whole online grocery system.

These systematic failures will eventually be corrected, but does that mean established CPG brands should wait for their retail partners to fix them? If brands have desirable offerings for consumers, shouldn’t they control their own destiny and provide them to the market?

This article will explore whether now is the perfect time for established CPG brands to start building out their own direct-to-consumer (D2C) capabilities.

Perfect Timing Doesn’t Exist

It’s probably best to state the obvious: there’s no such thing as perfect timing. That being said, it’s important to understand the main factors that prevent established CPG brands from incorporating D2C into their channel distribution strategies.

It’s a Channel Conflict

At a young age, you’re taught to never bite the hand that feeds you, and channel partners control the vast majority of an established CPG brand’s diet. Based on that logic, it seems prudent to wait before trying to balance wholesale and direct distribution. The question, though, is how long before all that waiting creates a competitive disadvantage? The fear of channel conflict has disabled even the most experienced CPG professionals for years, but with the right multichannel distribution strategy, it’s possible to alleviate that conflict.

It’s Not Profitable

There’s no denying the fact that it’s enormously unprofitable for established CPG brands to take their current retail price pack architecture direct to consumer. The problem is that many established CPG brands believe that success in one channel guarantees success in all other channels without having to make any changes. The sheer nature of selling online necessitates additional layers of costs that can hurt CPG unit economics, with the biggest stemming from logistical differences. To overcome those margin constraints, brands must consider adjusting their retail price pack architecture and embracing logistical challenges as opportunities to further enhance the customer experience.

There’s No Time Like the Present

As the popular Chinese proverb states, “The best time to plant a tree was 20 years ago. The second-best time is now.” While there is no perfect timing, the outbreak of COVID-19 has once again brought to light the myriad benefits of established CPG brands incorporating D2C into their channel distribution strategies.

Access to First-Party Data

Within traditional models, retailers have controlled the last mile interaction and transaction with consumers. Because of that, CPG brands have lacked the deep understanding of consumer behaviors and preferences that are paramount to successfully selling D2C online. Access to first-party data allows brands to better understand who is buying their products, so they can offer a personalized end-to-end shopping experience. For instance, this data can be used by your marketing team to launch personalized communication strategies for niche customer segments or by product developers who are responsible for creating new product innovations.

Stock Your Own Shelf

It was maddening to see empty shelves in stores across the country, especially when certain geographical areas were seemingly overstocked in those same out-of-stock SKUs. The easiest fix for brands is to always stock your own D2C digital shelf. While retail partners will still own the majority share of total sales, controlling a single point of distribution allows your brand to always have available product when your loyal customers need it the most.

Case Study: Frito-Lay Launches Two D2C Websites

With more and more consumers turning online for their food and beverage needs during the COVID-19 pandemic, PepsiCo wanted to provide shoppers with an alternative for quick and easy access to its trusted and beloved brands. On May 11, the company launched two new D2C websites, PantryShop.com and Snacks.com. Let’s take a deeper dive into how the one of the most established CPG brands is incorporating D2C into its channel distribution strategy.

Do These D2C Sites Create Channel Conflict?

The simple answer is yes, as there will be a conflict of interest anytime you are competing against your channel partners. In PepsiCo’s case, it’s at an immaterial level and the company made efforts to minimize effects.

How Did PepsiCo Combat Profitability Challenges?

On PantryShop.com, PepsiCo is offering specialized bundles, or “pantry kits,” that have been thoughtfully curated and range from $29.95 to $49.95, with free standard shipping on all orders. On Snacks.com, shoppers can create “snack packs” of their favorite Frito-Lay products. Standard shipping is free, but there is a $15 order minimum.

Why Did PepsiCo Launch These D2C Websites Now?

PepsiCo understands that more shoppers are turning to online grocery shopping because of the COVID-19 outbreak, so it’s a smart move to capitalize on this market tailwind. Both sites were developed from concept to execution in less than 30 days. It is interesting to note, though, that PepsiCo’s Frito-Lay division has been sitting on the Snacks.com domain since 1997.

Do They Utilize Customer Data?

The pantry kits that are available on Pantry.com were carefully curated based on customer purchasing data. By analyzing this data, PepsiCo was able to identify products that are frequently bought together and group them into bundles designed to meet consumers needs during the pandemic. Bundles include Workout & Recovery, Rise & Shine and Family Favorites. Snacks.com also leverages customer purchasing data, and PepsiCo intends to use that data to determine the additional products that will be added to the site in the coming months.

Was This to Improve National Inventory Position?

Yes. According to PepsiCo’s Head of eCommerce, these D2C sites “offer shoppers another alternative for easy and fast access to products they love” during uncertain times.

Conclusion

Though the adoption of D2C in the CPG industry hasn’t yet gotten to “hurricane level,” 2020 is shaping up to be a very active storm season. The coronavirus pandemic forced many consumers online, but empty digital shelves are forcing CPG brands such as PepsiCo to accelerate their D2C plans. As this trend evolves and strengthens, it will be crucial for established CPG brands to embrace this way of business and appeal to consumers while maintaining existing channel partnerships. As the old J. Schall Consulting proverb states, “The best time for CPG brands to launch a D2C website was five years ago. The second-best time is now.”