DTC Is Nowhere Near Over, And Here’s How These Consumer Brands Are Playing It Smart

Food & Drink

Digitally native consumer brands touting flashy 3D rendered product images and interactive Instagram posts seemed to enjoy a great party during the peak of the pandemic when shoppers flocked to purchase online. Then Apple’s
AAPL
iOS 14 update in 2021 that restricted advertisers’ usage of consumer data, coupled with high logistic costs, supply chain constraints and later, the rising threat of inflation, suddenly took hold of their growth momentum, making many believe the direct-to-consumer (DTC) model isn’t sustainable for CPG.

There were even canaries in the coal mine before, Kiva Dickinson, Managing Partner of Selva Ventures noted me via email, as DTC darlings such as Casper already struggled in the public markets after amassing significant private capital at a high valuation. The underlying truth is physical stores will remain the biggest pull for the consumer, accounting for 72% of U.S. retail sales by 2024, Forrester estimated, and their margins are still much more favorable than DTC.

“While you do need to pay a retailer margin on every sale, that margin is usually much less than the upfront fixed cost of acquiring a customer [online],” Dickinson explained to me, “your fulfillment costs are often much lower to a retailer than if you ship by UPS to a consumer’s home.”

However, that doesn’t mean the DTC party is over. Consumer-focused investors and players believe the channel will continue generating revenue, and more importantly, serve as proof-of-validation for startups aiming to enter retail. Insider Intelligence forecasted e-commerce sales for digitally native brands will increase from $38.22 billion in 2022 to $51.69 billion in 2024.

Particularly, brands that focus on educating and entertaining their consumers with creative content rather than transactional marketing are more likely to excel, Dickinson said. “MUDWTR’s ‘Trends with Benefits’ newsletter and Mid-Day Squares‘ radically transparent social presence both strike me as great examples of how brands will succeed with content-driven DTC marketing going forward.”

But there could be a slowdown in funding DTC brands moving forward, Dickinson warned. “The idea of DTC brands being inherently interesting will disappear, and so the giant funding rounds that we saw so frequently in the last five to 10 years will be much less common,” he said. “We will still see DTC first brands attract investor capital, but they will do so if they can prove the differentiation of their products and long-term efficiency of their business models.”

Going Beyond Digital & Maximizing Consumer Touchpoints

Aside from producing creative content online, delivering unique selling propositions are key to building a viral brand to begin with, according to Katie Wilson who co-launched gut health-focused snacks company BelliWelli over a year ago, alongside her husband Nick Wilson. The product was initially sold through several Facebook groups for people with gut problems under its previous name IBSimple, and has since evolved to become one of the fastest growing DTC consumer brands in the U.S.

The gluten-free, dairy-free, and certified low-FODMAP snack bars manufacturer has even seen a 30% jump in sales during June this year after teaming up with RuPaul’s Drag Race winner Willow Pill in a campaign earlier that aimed to destigmatize IBS that affects 70% of the U.S. population. Already six figures in revenue as of April 2022, Wilson attributes BelliWelli’s success to engaging with their audiences beyond digital.

“It’s easy to get caught up in fancy tools, SaaS platforms, etc. that make customer engagement and retention better or easier,” Wilson noted, but running an effective brand actually requires interacting with customers almost everywhere — “on the freeway when they are driving to work” for example, manifested by the company’s recent “Hot Girls Have IBS” billboards in Los Angeles, has helped it achieve more than one million likes on TikTok.

“There is no replacement for calling a customer on the phone or leaving them a voice note on Instagram, sending an email, or even sending them an old-fashioned card,” Wilson added. “We do these things for customers because we view customers like our friends: we talk about lives, and relate over things, like gut issues.”

BelliWelli’s buzzy online presence, bolstered by an enthusiastic group of shoppers with similar gut health challenges, later pushed the brand into 200 retail locations, while preparing for its upcoming launch in Sprouts in October.

“DTC still serves an important purpose in creating communities, which in turn, drive retail velocities and growth. I’m confident that we wouldn’t have the fan base we do today without DTC,” Wilson continued. “[While BelliWelli] is continuing to explore out-of-the-box partnerships, like Delta Sky Clubs and flavors through celebrity collaborations, we’re on track to triple growth this year.”

Building Fans On TikTok, Not Followers

As TikTok becomes a hotbed for food startups like BelliWelli to target and engage with likeminded consumers, partially driven by the increasing customer acquisition costs on Meta, it’s also attracting more sophisticated content creators to partner with these brands to drive their online presence.

Early-stage companies, such as UK-based junk-free cereal producer Crispy Fantasy, are jumping on the bandwagon by hiring TikTok creators as their first employees, but warn that getting lost in video trends for short-term vitality, as well as monotonously collecting followers instead of engaging fans could still tame customer conversions.

“To survive in the long term, we can’t just rely on paid customers and followers, so we’ve decided to invest from day one on organic content,” Raphaël Nahoum, Crispy Fantasy’s cofounder, said, stressing how the brand has garnered 3.3 million organic views, nearly 70,000 followers that helped grow its sales fourfold in less than 72 hours only a few months after the company’s initial launch.

To achieve these results, Nahoum explained: “We focus on telling a good story and ensure the five-second hook at the start of each TikTok is engaging… we want to build die-hard fans, who relate to our brand, are aware of our ups and downs, support us in our mission to be a European challenger to a cereal duopoly, and most importantly, love our products.”

“DTC is clearly not dead; it simply has evolved,” he added. “It was a no-brainer for us to invest heavily since day one on this platform, and it’s already paying off.”

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