Major Food Manufacturers Switch Gears and Sell D2C: Should You?
Just this past week, Beyond Meat announced that they are opening up a new avenue for selling their products, and if you read our title you probably know exactly what direction they’re going in. That’s right, instead of relying on grocery stores or online grocery delivery sites, this controversial CPG company has established its own e-commerce site to begin selling its meatless products direct to consumers. Curious why they’re pivoting? Wondering if you should too? We’ve got the skinny on why Beyond and other food manufacturers have begun to take a cue from their customers, skip the grocery lines, and find a more efficient way of safely feeding their foodies through D2C sales.
The D2C Breakdown
In the wake of COVID-19, the way that the food industry operated was utterly decimated. In a matter of weeks, manufacturers, suppliers and grocery stores had to quickly come up with a plan to pivot during a global pandemic where safe food handling practices and food distribution went beyond the familiar guidelines and entered unknown territory. With restaurant dining rooms closing by the thousands, grocery stores (both physical and digital) became the lifeline for feeding consumers. And as we all witnessed (and personally experienced), it was absolute chaos. As the dust began to settle,some food manufacturers saw the opportunity to skip the typical wholesale to retail step in grocery store distribution and explore new possibilities by trying their hand at increasing their profit margins through D2C sales.
If you’re new to manufacturing, direct to consumer sales are exactly as they sound. It is selling a product (in this case your food products) directly to consumers by means of an e-commerce site. On a much smaller scale, you might be familiar with food businesses participating in local farmer’s markets and other pop-op opportunities that allow them to take home 100% of their profit. Anytime you are able to get your products directly in front of a consumer and skip the “middle man”, this is direct to consumer sales. Which leads us right into the benefits of trying out D2C for yourself.
Benefits of the D2C Sales Model
As we mentioned earlier, D2C gives the manufacturer the ability to cut out the middle man and increase their profit margins. We should have said middlemen. There’s a whole lot more than the grocery store that you skip when selling directly to the consumer, namely: distributors, wholesalers and retail partners. This allows the manufacturer to go from making pennies on the dollar per product/per palette sold and achieve the profit they were hoping to make from the start.
While getting your product on a retail shelf is an exciting process that is great for exposure, there are hefty prices to pay in order to get there. Managing supply chain logistics can be costly and time consuming, removing you from the needs of your direct audience. Direct to consumer sales gives the manufacturer the opportunity to re-engage with the needs and traits of their customer base. By interacting directly with the customer, the manufacturer then has more control over the narrative as well as the ebb and flow of supply and demand. In short, the less hands the product passes through to get to the consumer, the greater the profit margin and connection with the customer becomes.
Until now, direct to consumer sales were not the optimal avenue for large manufacturers to explore, but with the ever-changing climate of the food industry due to COVID-19, the lines have become blurred and manufacturers (both large and small) have begun to reap the benefits of connecting closer with their target audiences.
The Consumer Connection
There has never been a time in the history of the food industry where it was more important to understand the consumer and communicate with them more closely. Because COVID-19 has completely changed the way food is supplied, customers have also begun to make unique demands — especially those centered around their health. Getting on the same level with the consumer allows the manufacturer to control the brand narrative and closely build that narrative around the customer needs. For example, now more than ever, consumers are looking for products that positively impact their immune systems. D2C sales keeps the control in the hands of the manufacturer to easily expand their brand and offer more options through a well-branded website and closely monitored supply channels.
Due to the rapid changes that manufacturers have had to make during the pandemic, the FDA has released guidelines around how and when to change product packaging and nutrition labels to reflect these changes. If you are expanding your line and offering more options through a D2C model, it’s important to utilize efficient methods to change your nutrition facts panels to keep your customers updated. Just like it might be inefficient to utilize suppliers, wholesalers, and retailers at this moment, food labs are also a long tail route that can inhibit a manufacturer from reaching the consumer in an expedient manner. The current state of the industry requires a level of efficiency that requires manufacturers to take things into their own hands. And manufacturers like Beyond are beginning to reap those benefits.
Another great consideration in opting for food manufacturers considering a D2C model is the consumer outcry for contactless-everything during the pandemic. Consumers aren’t only concerned about improving their immune systems, but also safe-guarding their families by reducing the number of touch points their food goes through to reach their table. For this reason, many consumers have opted to shop locally for their produce or even grow their own during this time. Because a D2C model skips the distribution, wholesaler and retailer steps, the food manufacturers have the ability to reduce the exposure of the food product before it reaches their customer, which has now become paramount in the eyes of consumers everywhere.
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