Direct-to-Consumer – Greener on the Other Side of the Fence?

But that’s easier said than done. The number of successful web stores owned by individual food manufacturers is limited. Those that do generate some volume typically sell western products in eastern markets or focus on ‘emotional’ product categories with premium pricing, like Clooney-endorsed coffee or nostalgic motherland staples for expats. Selling mainstream products into western European markets at supermarket prices is a whole different ballgame.

Previous attempts show that dealing directly with the consumer is a costly exercise. And why wouldn’t it? Just taking the supermarket out of the equation does not replace the work it does. Who will keep stock? Who will cross-dock the different products (as consumers typically are not willing to log in for a single jar of peanut butter)? And who will deliver the goods close to or at the consumer’s home?

And these are just the logistical challenges. Despite their economies of scale and decades of fine-tuning, supermarkets easily spend up to 15% of revenue on their logistics operations and last-mile solutions. These costs are unavoidable, even when bypassing the supermarket.

If it looks like a duck…

Surely direct-to-consumer sales eliminate the food retailers' marketing costs, right? Although theoretically speaking that would save another 10% of revenues, in practice it will be pretty expensive to generate the traffic to the manufacturer’s individual online store that’s needed instead. Joining forces with other producers in a brand shop seems like a better idea, as the combined offering will likely be broad enough to attract consumers’ interest. Parties like Shobr and INS are setting up online platforms that enable consumers to buy directly from a plethora of brand manufacturers.

Once more brands join these direct-to-consumer platforms, competition for the best product positioning heats up again (this time on a virtual rather than a physical shelf), and with that, the platform owner can start negotiating too. At that stage, these platforms are starting to look a whole lot like… supermarkets! Only the ownership has changed.

It comes as no surprise that renowned A-brand players have announced that they are cooperating with these direct-to-consumer platforms: the initial investments are relatively low, it allows the company to keep abreast of the latest developments in this space, and it’s an interesting bargaining chip for negotiations with established food retailers. But whether these direct-to-consumer platforms in time will indeed provide food produces with a cheaper and more efficient route-to-market to the European consumer remains to be seen. Given the economies of scale existing food retailers have in sourcing, logistics, and generating traffic, it will be an uphill battle, that’s for sure.