Considering the Direct-to-Consumer (DTC) Model for Your Food Brands?
The DTC business model has seen a meteoric rise in popularity in the realm of the food and beverage industry. Before the Covid-19 pandemic, companies were already shifting toward selling more products directly to end users, thereby skipping the step of selling their wares to retail stores, foodservice businesses, and other intermediary parties to communicate with end users on a more personal level. Nonetheless, when the COVID-19 epidemic struck, people became more interested in getting delivered food goods, which further contributed to the DTC for brands and business growth.
As a marketing agency specializing in the food and beverage industry, Our NewPoint team helps food and beverage companies leverage the DTC business model, putting us at the cutting edge of marketing and sales techniques.
Moving Towards a DTC for Brands Model
There is a good reason why DTC marketing has become so common for food manufacturers. For various reasons, most food manufacturers ultimately achieve better results when employing the DTC approach. The following are some things to think about.
- Direct sales and higher potential profitability: Selling directly to consumers means that brands can now convert their target audience into a deal, rather than relying on a third party—retailer or foodservice—to resell products to the consumer. This is a significant advantage over the traditional model of depending on a retailer or foodservice to resell products to consumers. According to our experience in the sector, DTC food brand websites often see higher conversion rates than other sites of a similar nature. In addition, the DTC approach typically results in higher profits due to the fact that it incurs lesser costs overall and offers the opportunity to charge more for a product’s increased level of usability.
- Steady expansion with increasing profit margins: DTC sales enable steady expansion of a brand’s market share in a number of different ways. The vast majority of larger chain stores and foodservice providers will require a substantial first purchase to get the product on the shelf and fill the distribution pipeline. This can be an expensive initial expenditure, especially when considering the fees associated with conducting business with most shops. In addition, doing business with significant retailers typically requires payment of slotting fees for featured product advertisements and participation in temporary price reduction (TPR) schemes. These “pay to play” methods eat away at the already low margins that the majority of developing food firms are working with.
- Less extensive transactions: This ties up with the previous point because retailers typically purchase thousands of things simultaneously, whereas consumers may only buy one or two items with each transaction. These smaller transactions aren’t always negative, but you need to ensure that your marketing budget and sales estimate consider them nonetheless.
- Marketing, advertising, and sales control: When working with retail establishments, brands place a significant emphasis on increasing brand awareness and driving trial with potentially pricey advertising programs such as TPRs, feature ads, and shopper marketing. However, there is no assurance that the money spent on advertising will result in a sale. When firms transition to DTC sales, their marketing and advertising strategies must be updated. In addition, companies will have to devote a more significant portion of their time to increasing the amount of web traffic and conversions, which can be a steep learning curve for newer companies. On the other hand, marketing DTC for brands provides complete control over the marketing and sales process. Using search and conversion rate analytics, brands can better manage their sales by increasing or decreasing their spending on digital advertising, depending on the availability of their products.
- Customer data and upcoming innovations: When food companies sell their products directly to end users, they can collect more information about their customers. These companies can then use this information to understand their clientele better and create better products to meet their needs. For instance, brands can examine the in-person behavior of customers to learn which items and categories of content are most enticing to those customers. They can then utilize this knowledge to develop more original products and advertise those products more successfully.
- When companies sell their products or services directly to consumers, they have the potential to reach a larger audience. Brands can now sell their wares to customers anywhere in the world so long as they have access to the internet. Before, sales were restricted to customers who shopped at traditional stores and restaurants. That might represent millions of new potential clients for a company, depending on how extensive their operation is and how much money they spend.
- More difficult—and potentially expensive—logistics: Handling logistics can get expensive quickly, especially for food firms that supply products to consumers individually. This makes for a particularly tough logistical situation. Also, if a brand is compelled to handle returns, this will result in an increase in the logistical costs incurred. As a result, it’s essential to have a strategy to reduce expenses while simultaneously increasing the level of convenience provided to customers. The DTC cold-chain industry has seen several recent innovations. But, businesses must be prepared for increased costs and additional logistical hurdles if a product line is not shelf-stable and needs a distribution network that involves refrigeration or freezing.
- A reduction in the number of prospects for partnership: The developed relationships are beneficial in many ways than merely achieving additional sales. The ability to navigate industry trends, provide recommendations, and inform development as a brand’s business grows and expands is something that may be lost if the model is switched to a DTC model exclusively. Retail and foodservice partners can provide this assistance.
Should a Food Company Pursue Advertising for their DTC for Brands?
This is very dependent on the product, the audience that it is intended for, and the present climate of sales and marketing. Take, for instance, the case when the consumers who make up a brand’s target demographics commonly make online purchases. If this is the case, a brand does not need to worry about logistical issues and is not reliant on retail relationships; the DTC model could be an excellent method to enhance performance at the bottom of the financial statement.
If this is not the case, a company must carefully examine the data and determine whether the benefits discussed here are sufficient to balance the potential negatives.
Considering DTC for your food brand?
Is your food and beverage brand interested in exploring DTC for brands in thier company’s portfolio? NewPoint Marketing has the team, tools, and insights needed to grow your food and beverage brand. Contact us for more information today!