Why Food and Beverage Companies Are Adopting the D2C Model

Posted on January 18th, 2021
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Why Food and Beverage Companies Are Adopting the D2C Model

It may be the global pandemic that led major F&B players to take on the exciting D2C model. However, numerous additional gains of this emerging business framework have resulted in these companies hitting the ball out of the park! In other words, they readily developed intelligent and innovative methods within the direct-to-consumer system that prospective D2C players can learn from.


The online shopping wave triggered by fear of physical stores and need for social distancing, forced consumers to purchase via their devices. However, most of the time, they were unaware of the actual sellers. Likewise, companies who were responsible for providing the products, felt out of touch with the end consumer. A large marketplace plus several middlemen can do that.

Soon, the more sensitive F&B brands detected this gap and jumped towards the D2C opportunity. Today, we can safely acknowledge that D2C is an emerging trend in the food and beverage industry.


D2C Model in Food and Beverage


Many established players in the food and beverage sector began facing intense competition from native brands and retailer brands. Another reason to go the direct-to-consumer way.


Or one could do what Amazon did!


Amazon bought out Whole Foods, an American multinational grocery chain in 2017. Whole Foods has an ever growing millennial consumer base that stems from the growing adoption in numerous demographic segments. Driven by an improved e-commerce experience, Whole Foods has accentuated how pivotal it is for established players to build a D2C channel for retail. The company has inspired many emerging D2C brands, such as Dirtylemon, a beverage player in the retail space that’s a fully online brand.

Other primary players in the global food and beverage industry including Kraft Heinz, Coca-Cola, Pepsi and Mars are also enhancing their efforts to build a successful direct-to-consumer strategy.


As per the reports published by Statista, in 2021, the e-commerce market will experience growth by 18% in overall sales and will reach 22% by 2023.


The share of online sales was relatively low in 2016, due to leading players like Nestle, PepsiCo, and Mars recording 10% of total revenue through direct-to-consumer offerings. But by 2025, the online sales are expected to reach 15-20%, which is ten times more than 2016, accelerating the adoption of online retail of food and beverages. To reduce the sluggish fulfilments, the food and beverage brands need to evolve with the trend and leverage an omnichannel strategy.

As many F&B enterprises have experienced, the direct-to-consumer model brings significant benefits to brands, especially startups. These include better control over profit margins, efficient response to dynamic consumer needs, increased customer engagement and loyalty, and offering a more personalized experience for customers. Such benefits could lead to ‘directly selling to consumers’ the new normal in the near future.


Food and beverage brands who are looking to move towards D2C, should begin building smoother relationships with retailers and investing in fruitful partnerships. With increased efforts to improve logistics and customer experience, the D2C model could become the ideal choice for these brands.


Soulfull: An Emerging Indian D2C Food Brand


Soulfull, a Bangalore-based brand, is focused on reviving the use of traditional Indian grains like ragi, bajra and jowar with its healthy snacks and breakfast cereal products range. After launching as a D2C brand in April, 2020 , the company successfully launched eight new products in a span of six months, delivering 800 products daily. The brand has also leveraged an omnichannel approach, driving their production and delivery at a pumped up rate.

With constantly changing customer trends, Health Food and Organic Products have become major buzzwords in the D2C landscape. The number of health-conscious individuals in India was recorded at 90 million in 2018 and is expected to reach 130 million by 2022 (Redseer).


This has successfully driven the advent of health products startups like Epigamia, AADAR, Nahmya foods, Storia, and Forbidden Foods in just a few months. The growth has been highest in the immunity booster food market, compelling Indian brands to offer more wellness products in the form of healthy snacks, immunity shots and ayurvedic supplements.

For Soulful, the digital transformation journey during the pandemic was a big challenge. The brand was heavily relying on offline general and modern retail stores and had to shift completely to a D2C model in April. As challenging as it might be, the company recorded a 4-fold growth in D2C sales within 6 months.


According to Prashath Parameshwaran, the managing director of Kottaram Agro Foods, the parent company of Soulful, the brand previously earned 7-8% revenue through online marketplaces. After the pandemic, they recorded about 30% sales through their online channels, including the hyperlocal deliveries, while their native website contributed 25% of revenue.

Soulful was founded in 2011 as a packaged food processing company, which later envisioned reviving the focus on traditional Indian grains by combining them with healthy snacks, ready-to-cook meals, smoothies, and premixes.


The company raised USD 5.3 million from Aavishkaar Bharat Fund with additional support from major research firms and government entities to promote millets as a national smart food grain. Further, the startup has witnessed about 200% revenue growth via D2C channels during the pandemic by combining the traditional stores with its D2C online platform.


Growth of Organic Food Startups in India


Due to the change in dietary preferences, organic food and healthy snack food brands are emerging rapidly, in the food and beverage sector.


Many leading brands in the personal care and food sector have experienced significant growth in sales during the pandemic, including the D2C meat delivery brand Licious and Delhi-based dairy products brand Country Delight.

The increased online sales have encouraged startups and internet-based brands to come up with innovative strategies to develop their D2C model in a better way.


Shauravi Malik, the co-founder of Slurrp Farm in India, stated that the Covid-19 pandemic has built a strengthened ecosystem for logistics and warehousing, enhancing the whole D2C chain. Starting as an internet-first brand, Slurrp Farm is a 4-year-old venture that sells millet-based pancake mixes, ragi breakfast cereals, and healthy snacks for kids and adults. Online marketing has brought down the cost of business for the company, but for a brand to ensure long-term success, it has to be in an offline channel as well. Therefore, the brand has its official website and also sells through more than a hundred stores across the country.

According to experts, despite the surge in the popularity of these D2C brands, there are several challenges as well, since aspiration purchases happen through offline marketplaces for middle-class Indians. Therefore, once these D2C brands achieve a certain consumer base, it is recommended that they consider opening physical stores. Even for online brands, a significant footfall is necessary to achieve the desired number of sales and revenue.

For brands to effectively spread their reach among wider sectors of the audience, they should also eliminate the traditional targeting methods based on age and socioeconomic factors. Brands that offer nutrition and healthcare products are able to cut across demographics like age and gender and successfully target health-conscious individuals. This process highlights the importance of need-based targeting while using a D2C model.


Conclusion


Looking at the lucrative benefits offered by the D2C model, the tendency of brands shifting towards this model is completely justified! Added to which, the dynamism and eternal relevance of the F&B sector, is sure to keep the future of F&B D2C bright.


With better logistics, high-quality products and refined customer experiences, D2C food brands could easily scale and achieve growth in less time. Another promoting factor is the health-conscious consumer who will not only push the D2C wave but also purify it with a nutritious demand!

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Best Practices

Posted on:
January 18th, 2021