Direct-to-consumer business models continue to thrive

Post-Covid express market, Delivery man wearing mask holding package

According to a new Capgemini Research Institute report, What Matters to Today’s Consumer, published at the beginning of 2022, nearly half (41%) of shoppers surveyed in the past six months have ordered directly from brands, rather than third-party retailers. An even higher percentage of shoppers (52%) say they are open to buying directly from brands in the future. Gen Z shoppers, followed by Millennials, are the most likely to order direct from brands.  For those who have bought directly from brands, almost two thirds (60%) cite a better buying experience as a reason for purchasing directly, and 59% cite access to brand loyalty programs.

Capgemini’s findings may come as no surprise during an era which has seen e-commerce rise dramatically. Following the rapid digitisation and growing popularity of online marketplaces, it has been suggested that the direct-to-consumer (D2C) business model is poised to dominate the market in 2022.

A D2C business model can be defined as a vertical business model that eliminates intermediaries. Its objective is to make a company independent in the commercialisation of a product or service regarding the final customer. In contrast, a traditional retail business model has intermediaries like wholesalers and third-party retailers, making the supply chain lengthier. Since the beginning of COVID-19, many big brands had to take on a D2C strategy to navigate the pandemic. According to Ilya Katsov, head of data science at Grid Dynamics, makers of apparel and snacks invested into D2C strategies throughout 2021. These strategies included algorithms for inventory optimization in real time, connecting checkout to the warehouse and models for special offers that efficiently fill shipping boxes for greater cost efficiency.

In reference to the research’s findings, global head of consumer goods and retail at Capgemini Tim Bridges said: “Younger consumers’ willingness to go straight to brands when purchasing goods presents a real opportunity for consumer product companies. This enables them to collect consumer data and helps create a more mature direct-to-consumer channel. Being data-powered enables the consumer product and retail organizations to translate supply and demand trends into intelligent decisions on where best to stock their products, customize products and services, and enhance customer experience.”

According to global technology and innovation consultancy MJV Technology and Innovation, there are many tangible benefits to implementing a D2C business model. These include:

  • Cost reduction: When multiple steps between the seller and the customer is eliminated, costs can be lowered.
  • Data intelligence: Sellers with their own sales channel allows access to refined data, allowing the seller to create its own performance indicators for marketing and sales purposes.
  • Segmentation: Digital strategies are powered by data, which generates insights into customers. This makes it possible to create clusters according to the criteria that is most pertinent to the seller’s company.

Statista reported that since the COVID pandemic more than half of manufacturing businesses in the UK have seen their D2C revenue grow or remain steady. Similarly, in the UAE, D2C channels produced $1bn in sales in 2021, and the U.S D2C e-commerce market is expected to grow to $175bn by 2023. Companies such as Nike have begun aggressively adopting D2C methods in anticipation for the continued popularity of e-commerce. Recently the company has projected that digital will account for 50% of its sports apparel business by 2025.

Logistics companies are still very willing to tap into the potential of D2C. For example, GEODIS MyParcel announced it had expanded its D2C intercontinental delivery service to Canada at the beginning of 2022. Around the same time, Seko Logistics announced it has launched an e-commerce business unit to grow its international cross-border shipping, global fulfilment, heavyweight last-mile, returns and re-commerce solutions.

According to Supply & Demand Chain Executive, new types of e-commerce have also pushed relatively new forms of supply chains like micro fulfilment. A study by LogisticsIQ revealed that the micro-fulfilment centres market is projected to be worth $36bn by 2020. Micro-fulfilment solutions have been utilised in the cold chain sector, where automation has been used to employ goods-to-person and goods-to-robot picking. According to an article published by Refrigerated and Frozen Foods, the cost and lead times to implement micro-fulfilment solutions have been dropping steadily. They can be installed in back rooms of active grocery stores or give new life to abandoned retail space such as shopping malls and be used to fulfil orders from “dark stores.”

The RetailTimes reported that Capgemini’s research points to the increasing significance of fulfilment and delivery. With convenience remaining a key priority for customers, delivery and fulfilment continue to transform from a cost centre to a growth driver for many organisations. This is especially true for groceries shoppers across all age groups, where 42% percent of shoppers say that delivery and fulfilment are the most important service attributes. Moving forward, the fallout of the e-commerce boom is expected to continue to accelerate the shift to a D2C business model for many brands.

Although it is unlikely online shopping will completely replace in-person shopping, D2C has been highlighted as a business model that will continue to expand its reach, as demonstrated by logistics companies increasingly willing to enter the space.

Source: Transport Intelligence, 27th January 2022

Author: Nia Hudson