Are FMCG brands struggling to realise the promise of direct selling?

The promise of more data and better insights into customers is causing more FMCG brands to test direct-to-consumer models but few have found the recipe for success yet.

direct selling
Hellmann’s is working with Quiqup to sell direct to consumers

For the FMCG sector the formula for success used to be relatively simple. As long as companies had good relationships with the major high street retailers, great products, strong brands and marketing that turned heads things worked well.

But the market has become a lot more complex. The rise of ecommerce and new high street players such as the discounters has shaken up the route to market. Their products have been disrupted by nimble startups able to authentically target tight segments. And marketing channels have changed, meaning creating strong brands and high awareness has become more difficult.

And so many in the FMCG sector turned their attention to ecommerce and in particular selling direct to consumers. Here, they thought, was an opportunity to cut out the middle man (retailers) and go direct to their most loyal customers, with the added bonus that it would give access to their own data for the first time.

Unilever has just launched its first major direct-to-consumer trial with its mayonnaise brand Hellmann’s. Partnering with on-demand delivery startup Quiqup, visitors to the Hellmann’s site will be able to order ingredients needed for a recipe and have them delivered in an hour, as long as they live in London.

If we have the opportunity to present our products, talk about our ideas, charm our consumers and get them to buy something at the same time then of course we want to do that.

Aline Santos, Unilever

Aline Santos, Unilever’s senior vice-president of marketing, says the test reflects the growing importance of data and having a direct connection with consumers. And that even though the trial is still in the early stages it is already revealing new insights for the brand.

“Before our products were just on the shelves and we didn’t know who was buying them. Now we know who is buying, who is buying again, who is buying more,” she says.

“The sorts of insights this is giving to us and to Hellmann’s is ideas in terms of size, the flavours they want to launch, the social, economic and age groups they are reaching. It is a plethora of new insights that are unfolding to us that we never had before.”

Driving engagement

Unilever has also bought Dollar Shave Club, which Santos describes as a “huge inspiration”. Here is a business designed for direct-to-consumer relationships and where there are obvious areas for expansion. It wouldn’t be an enormous leap, for example, for Unilever to start selling Dove moisturiser alongside razors.

“More and more the area of marketing and ecommerce is blurring, and if we have the opportunity to present our products, talk about our ideas, charm our consumers and get them to buy something at the same time then of course we want to do that,” she adds.

Yet Santos admits that while she is “sure” this is a new engagement channel she is less clear how big it will be for Unilever or how many sales it could drive.

Procter & Gamble’s chief brand office Marc Pritchard agrees. He believes digital advertising can connect with ecommerce to drive short-term sales. But admits that most of its $3bn in ecommerce sales currently come through the major online retailers such as Amazon and Alibaba.

While it has tested direct-to-consumer activity, such as the Gillette Shave Club and Olay skin advisor, he sees less opportunity in sales than engagement.

“Direct-to-consumer is probably most effective in consumer engagement rather than anything else,” he adds.

Nestlé also wants to make direct-to-consumer its next area of focus. CEO Ulf Mark Schneider, speaking on an investor call recently, said: “[That] is going to be important down the road. To be sure [customers] have the service levels, the communications, and sometimes even the direct transactions that they want.”

Finding solutions that work

But that isn’t to say that going direct-to-consumers is easy. Diageo, the alcohol giant that owns brands including Johnnie Walker and Gordon’s gin, admits that selling directly to consumers has proved tricky. It launched a luxury online retail destination, Alexander & James, five years ago, but shut it down this January because it “wasn’t doing what it needed to do”.

Charles Ireland, Diageo’s general manager for Great Britain, Ireland and France, explains: “In terms of direct to consumer [selling], I think there are consumer goods companies that are doing it quite successfully, but we haven’t quite hit a successful formula yet and we’re continually working on it.”

The issue, he says, is that while people might have more flexibility from a financial perspective, they are generally time poor and therefore don’t want to have to seek out products on dedicated websites. And while he doesn’t rule out success in the future, he stills see it more as a “pot of gold at the end of the rainbow”.

“If we were to find something that worked, it would enable us to get that closer level of connectivity with consumers and a level of relationship that we haven’t quite got at a consumer level at the moment,” he adds.

“It might be a little bit like a pot of gold at the end of the rainbow that you need to keep chasing, and we learn things along the way. We’re keeping ourselves open to the possibility that we might find something, but at the moment we haven’t got anything successful that I can tell you about.”

We haven’t quite hit on a successful [direct-to-consumer] formula yet and we’re continually working on it.

Charles Ireland, Diageo

Ireland has struck on a major issue with going direct-to-consumers – most shoppers see FMCG products as part of a wider shop, meaning they want the convenience of finding everything under one roof and not the hassle of having to visit hundreds of websites to buy each item.

“Most people buy washing powder, alcoholic drinks, shower gel etc at the same time as they do their shopping. Not many people are engaged enough with most FMCG categories to want to go directly to buy their preferred washing powder,” explains Neil Mason, retail category director at analysts Mintel.

“That is especially the case when you factor in delivery hassles – it’s difficult enough scheduling one delivery, let alone multiple deliveries from multiple brands. Easier just to use a retailer where you can consolidate it into one purchase.”

Then there are the logistics involved with going direct-to-consumers. FMCG companies are excellent at developing, positioning and promoting brands but they have much less expertise when it comes to setting up a retail operation.

“Amazon, Alibaba etc are set up to act as direct retailers and have very efficient logistics and distribution networks. Most FMCG giants are built with retail distribution in mind,” Mason adds. “User experience is also at the core of what online retailers do. They’ve had years to refine the user experience and they’ve got millions of customers already in their systems, which makes buying close to friction-free.”

Most FMCG brands are in the early stages of direct-to-consumer offerings. But that promise of more data and a closer relationship with customers means there will be more tests over the next few years. However, brands will have to ensure they are adding value for the shopper and giving them a real reason to visit, and spend money, if it is to become a meaningful business.



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