The Q4 calls were light on enthusiasm about D2C, in a stark contrast to Q3. In the previous round of earnings calls, direct-to-consumer sales won the day for many companies, even as the pandemic caused blockages in other channels. Coca-Cola, PepsiCo, Colgate-Palmolive, Kellogg’s, and Procter & Gamble were just some of the CPG companies touting their D2C successes. Now, even as each of these companies discussed their eCommerce performance with analysts and investors, none specified in which channels those sales occurred.
For example, in the third quarter, Procter & Gamble Vice Chairman Jon Moeller said, “[D2C] allows us to get closer to consumers … to have an even better understanding of their needs and their habits, including their purchase habits, and that all can be very complementary and important in the broader context. So, you will see us continue to increase our D2C presence.”
On the Q4 call, however, even when asked directly about online sales, Moeller declined to specify channels, giving no information about how sales were performing on D2C channels versus third parties such as Amazon. Instead, he said, “our market share in eCommerce is broadly defined … we were in a very nice place that we aim to be in, which is, we want to be channel-agnostic, serve shoppers wherever they choose to shop and be able to do that … in a way that’s neutral to accretive to share margin return. I think we’re very well-positioned. It requires work every day; [it’s a] very volatile space. We keep our eye on the consumer and [on] serving them with superior offerings.”
It is unclear why D2C sales were absent across the board from these CPG giants’ conversations, but it is possible that it comes down to maintaining relationships with traditional retailers. As consumers worldwide are beginning to receive vaccinations, the future of the brick-and-mortar store is more hopeful than it has been in previous quarters, perhaps challenging the “pandenomics” of previous months. These large CPG companies built their brands via established retailers, and the vast majority of their sales continue to come from third-party sellers, whether that’s brick-and-mortar or online.
While some allowance may have been made for these companies to bypass those channels at the height of the pandemic, when there was no clear way out, the situation may be changing as consumers return to stores and supply chains build back up. By selling directly to consumers and bypassing other channels, these CPG giants risk depriving third-party sellers of a large portion of their sales. Now that the possibility of business-as-usual has come back into view, CPG companies may be putting their relationships with other retailers in jeopardy if they continue to with their mid-pandemic D2C push.
On a more positive note, it is also possible that these companies are placing renewed faith in third-party retailers in this period of looking ahead to a post-pandemic future. D2C commerce can be incredibly difficult, requiring constant innovation. As a McKinsey & Company report from November stated, “the vast majority of consumer brands are used to selling through intermediaries, including retailers, online marketplaces and specialized distributors. Their experience with direct consumer relationships and eCommerce is limited … just 60 percent of consumer goods companies, at best, feel even moderately prepared to capture eCommerce growth opportunities.”
Indeed, running a D2C platform effectively enough to make a profit, the report states, is tough. “Consumer brands need to be able to adapt their ways of working to rapidly changing customer preferences. Building out an agile operating model enables small, cross-functional teams to work in short sprints to iterate on products and services based on customer outcomes.” This real-time adaptation that D2C requires can be highly costly. If third-party retailers are returning to their earlier strength, there is no great need for CPG giants to invest resources in keeping up with the ever-changing D2C marketplace.
Of course, these forays into the D2C world may provide major CPG companies with the tools they need to succeed across online channels. Paul Palmieri, co-founder and CEO at eCommerce optimization platform Tradeswell, points out in Digital Commerce 360, “If CPGs took a page out of the [D2C] playbook and used search [engine marketing] and social [media marketing] for top-line growth, it would significantly diversify their spending.” He added that CPGs should also mimic D2Cs in terms of keeping track of consumer behavior with up-to-the-minute immediacy, closely watching profit margins and taking a riskier approach to innovation.
“What [major CPG manufacturers] are missin is the same technology that D2C brands need — a transparent view and command of their entire value chain,” said Palmieri. Even if D2C does not play the major role in CPG giants’ 2021 strategy as it did in mid-2020, these companies will likely take the lessons learned from their D2C platforms into their eCommerce futures.