The vogue for cutting out the middle man and selling direct to the consumer is gaining momentum. Bass Brewers is the latest manufacturer to join a roll call of brand owners that now includes Amstrad, Daewoo and a host of financial services groups.
Its new scheme, Premium Beers Direct, offers 24-packs of its top beer brands delivered directly to consumers’ doors (MW last week).
Cutting out the middle man is, on the face of it, the ideal way for brand owners to improve margins and collect data about their customers. It is also a way to retain control over products in the face of the growing power of retailers.
There are some market sectors which lend themselves to cutting out the retailer – such as financial services and electrical goods. Indeed, financial services has led the way in developing direct selling operations with The Royal Bank of Scotland’s Direct Line operation, Midland’s First Direct and NatWest launching its own direct insurance venture at Christmas.
But the Bass initiative is an example of how the power of retailers in the grocery field is forcing fmcg manufacturers to look at direct selling. Grocers dominate the suppliers, have powerful own brands, and dictate on prices and shelf space.
Bass – renowned for its new product testing – denies it is looking to bypass retailers through the three test sites in London, Nottingham and Birmingham. “The whole point is for the sales to be incremental, rather than substitutional,” says a spokeswoman. Rather than taking sales away from the supermarkets and off-licences, Bass says it is looking to target people who do not normally buy beer in bulk.
The beer is not sold at a discount to retail prices, and Bass claims the selling point is purely convenience rather than price. The brewer admits that driving to the local supermarket and filling up the car with beer is not so very inconvenient, but says part of the aim of Premium Beers Direct is to target people, including some disabled and elderly people, who do not own cars.
If the company thinks it is going to make a killing selling beer to elderly disabled people without cars, it may be in for a surprise. The supermarkets have targeted car owners precisely because they are people with higher disposable incomes.
One critic from the world of direct marketing says Bass has missed out a crucial stage in selling direct, by not building a database with which to target consumers.
The problem for Bass could be that its offer is too limited. A selection of only eight top beers does not really offer much to consumers. Observers say other grocery goods manufacturers could be better placed to sell direct to the public.
Brand giants, such as Procter & Gamble and Unilever, have a wide enough range of products to make direct selling viable. Heinz has even built a customer database since it took the decision to build its below-the-line spending and appeal directly to consumers in their homes.
Pet owners would be an obvious target for the likes of Pedigree or NÃ©stle wishing to go down the direct selling route – petfood is a regular bulk purchase. If manufacturers can establish a distribution system, they can prove a real threat to retailers. Pedigree, which holds about 60 per cent of the petfood market, has seen retailers increase facings of own-label products in an attempt to undermine manufacturers’ dominance of the market.
Supermarkets view the prospect of more manufacturers going direct with fear. Goods such as petfood and 24-packs of beer are great “traffic builders”, in as much as they draw people into supermarkets. While they make a trip to pick up these products, shoppers will usually combine it with the rest of their weekly shopping, or at least buy a few impulse purchases.
Manufacturers selling their products direct will gravely undermine retailers, and for this reason retailers are looking to see how they can build their own distribution networks and undertake doorstep deliveries themselves.
“The problem for retailers is that they are stuck in their existing infrastructures and direct selling will undermine these structures,” says one observer. “It would be viable for retailers to get involved at the periphery, serving the elderly and the disabled, though they would miss out on impulse purchases. Retailers are looking at home shopping because they don’t want to be left out.”
Rather than fast moving goods, it is consumer durables, such as electrical goods, that are more suitable for direct selling by manufacturers. They are bulky, and have higher margins than tins of beer. Amstrad was the first manufacturer in the UK to develop its own direct selling operation. But the experience of Korean car maker Daewoo has alerted other manufacturers, especially the car companies, to a future without dealers.
Consumer electronics giants are thought to be actively considering tests of direct selling. Already manufacturers such as Escom have set up their own retail networks to bypass retailers. Escom bought the failed Rumbelows chain from Thorn EMI. Panasonic denies that it is planning a direct selling network in the UK, though its parent Matsushita built itself in Japan during the Sixties and Seventies through having local shops exclusively selling its goods.
The coming months will see more manufacturers testing direct selling operations, and retailers – sensing the threat to their relationship with consumers – will try to pre-empt the brand owners’ move with their own direct delivery systems. The situation could make last year’s fight between brand owners and retailers over copycat brands look like nothing more than a little local difficulty.