D2C Distribution Model Creates New Challenges for CPG Manufacturers

The explosive growth of e-commerce provides greater opportunities for manufacturers to sell more to consumers and increase profitability. However, the pivot to online, direct-to-consumer (D2C) distribution can be especially challenging for consumer-packaged goods (CPG) manufacturers, who have traditionally followed a more linear, manufacturer-to-retail-store supply chain model. These manufacturers are often limited by sales channel partnerships with retail stores, forcing them to sell products and drive revenue through in-store sales.

Despite the challenge, CPG manufacturers are increasingly leveraging a mix of online resellers, unique D2C distribution model offerings and strategic acquisitions to ease the transition and take advantage of this new e-commerce era.

Internet Retailer’s Findings Reveal Need for E-commerce Sales

Released earlier this month, Internet Retailer highlighted the latest e-commerce trends in a new report, 2019 Online Consumer Packaged Goods Report, which dives into key facts on e-commerce growth and the issues faced by CPG manufacturers.

According to Internet Retailer’s recent story, “How e-commerce is changing the packaged goods market,” some key findings from the report include:

  • Online U.S. CPG sales rose by 35.4% in 2018
  • The overall U.S. CPG market is valued at $815 billion
  • Online sales for the U.S. totaled $58.6 billion last year – accounting for 11% of total U.S. CPG sales but 64% of the growth

With the e-commerce industry bringing in more sales growth, the report suggests CPG manufacturers must find creative ways to adapt their strategies without damaging store partnerships.

CPG Manufacturers Embrace Online Sales

Despite limitations, the report states manufacturers are growing online sales in several different ways:

  • Embracing online retailers/selling product mix elsewhere: CPG manufacturers can turn to online services such as Peapod or Amazon to gain more exposure with customers searching for their products. These digital marketplaces offer CPG manufacturers the ability to sell and ship products more quickly.
  • Get creative with selling new products: Big name manufacturers such as Coca-Cola and Mondelez International are creatively engaging in D2C distribution model operations with selective selling. They can offer products not available in stores to websites that sell exclusive/personalized merchandise, enticing customers to shop online. This tactic allows manufacturers to preserve positive relationships and maintain shelf space with store retailers while expanding online sales.
  • Acquisition of web-only brands: Some companies make major acquisitions for web-only retailers to leverage D2C operations. In May 2019, Edgewell acquired D2C shaving brand Harry’s in a $1.37 billion deal and Unilever made a similar deal in 2016 with the $1 billion acquisition of Dollar Shave Club. Thanks to acquisitions like these, manufacturers gain access to established D2C operations, providing consumers with more plentiful and efficient options to buy their CPG products.

CPG Manufacturers Leverage Parcel Shipping Technology to Quickly Shift to a D2C Distribution Model

Although CPG manufacturers face unique challenges when it comes to meeting shipping demands in the world of e-commerce, there are solutions to help them efficiently shift to online D2C fulfillment and mitigate the cost impact that accompanies high volumes of small parcel shipments. For example, a Transportation Management System (TMS) for parcel shipping can streamline and optimize parcel carrier procurement, fulfillment operations and customer service for CPG manufacturers. And with the ability to easily integrate the software into large planning systems, CPG manufacturers can quickly create a “one-touch” shipping ecosystem to meet both their freight and parcel logistics needs while controlling costs across the board.

To discover how Logistyx can help manage the e-commerce fulfillment process, learn more about our multi-carrier shipping technology.