2020 dramatically changed the retail landscape - especially for food and beverage brands. As we all looked to practice social distancing and sheltering at home, consumers’ shopping behaviors changed suddenly, drastically, and permanently. We are opting for contactless shopping experiences, buying groceries online more than ever, and if we are going in-store, we’re not browsing for new products. Did you know: online grocery sales have grown by nearly 53 percent year over year in 2020?
In this new disrupted retail environment, it’s become increasingly important for food and beverage brands to have a strong, well-developed go-to-market strategy to ensure they are choosing the right channel to sell their products in. Is it better to go for a brand to sell at natural retailers, which takes relatively longer but more market share, or online, a fast-moving channel that is capturing more and more market share?
The answer to this question depends on your business objectives. Do you want to launch quickly, so you can be first-to-market? Do you want to have high revenue or high profit? Do you want to learn about your consumers quickly and iterate your product based on their feedback?
Amazon Seller Central
|Amazon Seller Central||Amazon Vendor Central|
|The Basics||Manufacturer-led portal to sell your products to Amazon customers||
||Amazon-controlled retail pricing and promotions|
|Logistics||Fulfilled by Merchant (FBM) or Fulfilled by Amazon (FBA)||Fulfilled by Amazon (FBA)|
|Cost Structure||15% commission plus FBA costs||Wholesale pricing (mandatory 7-18% for marketing co-op + damage allowance)|
Over the past several years, Amazon has proven that it is the future of retail. Amazon’s customer-first business model and positive user experience have led to almost 95 million Americans holding a Prime Membership. According to a study by Statista, Amazon was responsible for 45% of the United States’ e-commerce spending in 2019. Amazon is also the first place online shoppers visit to look for a product that they want to buy. That’s a long way of saying that there’s an excellent chance that your brand’s target audience will be on Amazon.
Amazon has a keyword-driven algorithm, which means that your copy is essential. Amazon offers a great way to showcase how your brand and products differ from competitors and what sets you apart. It’s also a great way to build brand recognition and attract new consumers who are already looking for a product just like yours.
- Fulfillment by Amazon makes logistics and shipping simple
- There are lots of ecosystem partners to help you, from running your Amazon digital marketing to optimizing your product listing
- Huge market share
Direct to Consumer (DTC)
Direct to Consumer Summary
|Pricing||At your discretion, along with promotions|
|Logistics||Self-fulfill or work with a third-party fulfillment company|
|Cost Structure||Low marketplace fees (Shopify is 2.9% + $0.30)|
Many new and emerging CPG brands choose to go with the direct-to-consumer (DTC) option when they first go to market. By building their own e-commerce enabled website (Shopify being the most common platform), brands are able to iterate quickly on product pricing, positioning, and brand communications. This rich consumer data can help you make better business decisions and smarter marketing decisions.
- Complete ownership of the consumer relationship and data
- Test and learn quickly with consumer research
- Strong storytelling capability on the website and social media
- High set-up costs (website, social media, email automation)
- More external partners to manage (customer service, fulfillment, warehousing)
- Likely high customer acquisition costs through digital marketing, particularly with Facebook’s recent iOS 14 changes
So, when does it make sense to go DTC? When you’ve got the funding to pay for digital marketing or you’re ready to get scrappy and creative to let consumers know about your brand! (Of course, you also have to consider your product category and if the value to weight ratio works for shipping your products.)
National Natural Retailer Summary
|Logistics||Delivered of FOB (Free on Board - distributor/retailer picks up)|
Now it’s time to talk about partnering with a brick-and-mortar natural retailer. This could be your local natural food co-op, a several-store regional chain, or a national chain like Whole Foods.
Natural Retailer strengths:
- Most scalable option, with ~80% of food and beverage still being sold in stores
- Once you are selling direct to 20+ stores in a region, you’ll have to on-board a distributor like UNFI or KeHe to grow.
- Strong external partners (ie, brokers and fractional CSO/CMOs) to help you build your business
Natural Retailer downsides:
- Very long timelines to get your product on-shelf: 6-12 months
- Requires strong sales and marketing support, from promotions to an online community, to have your products be bought once they’re on-shelf
- Small brands have a difficult time getting any sales data (either velocity or consumer demographic information)
Comparing these Channels
To help you compare and contrast these sales channels, here’s an analysis that looks at how well each channel fits potential business objectives (each row).
||National Natural Retailers||Amazon||Direct to Consumer|
|Speed to Market||-||✓||✓✓|
|Cost to launch||-||✓||-|
|Barriers to entry||-||✓||✓✓|
|Potential to outsource management||✓||✓✓||✓✓|
|Size of prize||✓✓||✓✓||✓|
Take your time considering which channel is the right choice for your brand and your product! Your go-to-market strategy will determine how you deploy your most precious resources (time and money), so it’s important that you understand how well each channel fits your business objectives. This decision is critical to your brand’s success.