Direct To Consumer Benefits

The Lempert Report
February 10, 2023

Since the pandemic, actually, even before the pandemic, there was a lot of movement of food companies to direct to consumer things. We've seen it for razor blades, we see it for even yogurt products, some other food products. And there's an article that was written by Patrick Nycz, he's the president of Newpoint which is a marketing agency all about food. It was published in Forbes, weighing the benefits, both pros and cons of a direct-to-consumer model for food brands. And what's interesting to me is some of the pros and cons, and I'd love to get your reaction. First, direct sales and a higher potential profitability, no question about it. If you can make that connection to a consumer and they keep on coming back, you're gonna make more money rather than going through a retailer or a wholesaler, would you do that? 

Sally: Would I do that as a brand or would I buy a consumer? 

Phil: Both, both. Both, both.  

Sally: Well, I have purchased things. The product that comes to mind first, and I think they are actually in stores now, but initially, Magic Spoon, the cereal that has become very, very popular, was only available on their website. And yes, I would go to a website and buy directly from the maker of this product, particularly if they can offer me a lower price by cutting out the middleman, by not having to take the cost of putting their products in stores. 

Phil: Well, what I've found, and I've also bought certain products, you know, online food products, beverage products, but usually I can't buy one, you know, I have to buy a case or I have to buy six or whatever else. And then most of the time I actually have to pay for shipping. So that for me, you know, keeps me from buying those things. And if I want it, I probably move to Amazon so I can buy one or two of them. The second point that they make is there's controlled growth and increased margins, again, the whole margin aspect, but for a small company, they can grow at a controlled pace. If you go to Kroger, for example, they like your product, and they take it on and you're a small company, you might not be able to afford, you know, the thousands of cases that, that Kroger another retailer might want. 

Phil: So you've got that cost, but again, they point out one of the cons is those smaller transactions, as we've talked about. The fact that you're in control of your marketing, advertising and sales, versus going to a retailer and having to pay slotting allowances. but you know, the reality is that you can start it on your website as you point out with Magic Spoon, and then it can move into retail. And you've got a lot more strength with that retailer. If you can go in and say, okay, here's how many I've sold online. Here's how many we project that you can sell by having people see it, and then, you know, add some sampling to your product if appropriate. But they also point out one downside that it's more challenging and it has potentially more expensive logistics on the back end of it. 

Phil: So, you know, we really gotta weigh if what the product is direct to consumer can be good. I think that some of the most successful ones, like Harry's, for example, with razors, which I do not use, but it's a small product. It's easy. It's a small expensive product. You know, I don't know what it costs, but you buy five razor blades and it could cost you 15 bucks or maybe it's less. Harry's, I don't want to put out your prices there, but it's easier to handle than if you wanna sell a case of breakfast cereal, for example. 

Sally: Yes, a lot less money to ship something, a smaller product like that, you know, shipping costs are really high right now. And I think the other big point is brand awareness. You know, when you get your product in a big retailer store, then you're getting brand awareness. So, these products that do go direct to consumers, you know, I think they've gotta be really, really good at social media and marketing their products. Ssocial media has given us a whole world of inexpensive marketing for products and the ability to purchase things very, very quickly when people see something on there. So, yes, you've got to weigh those different things, but definitely you've got to get your brand out there somehow. 

Phil: And also to your point about social media, you can also put up a video. So it's the video of the founder talking about their story or it's a demo or it's a recipe. So it becomes much more interactive than just being on a shelf as well. So for those of you that are interested in direct to consumer, read this article in Forbes. It's a great read and you can learn a lot.