Is it time for CPG brands to go Direct?

A regular morning for us could start with Colgate brush and toothpaste, Red label tea, Lux soap, Head & Shoulders Shampoo, Maybelline beauty (or Gillette grooming) products, Kellogg's cereal, Amul milk and then zip zap zoom to office. Our interaction with these Consumer Packaged Goods (CPG) or Fast Moving Consumer Goods (FMCG) continues throughout the day. These are high frequency, low cost purchases for a consumer and were traditionally associated with lot of loyalty as a Colgate using household did not easily switch to Pepsodent. Gone are those days, however, as not just big television-ad brands but smaller private label brands from retailers have been substituting our regular CPG companions at home.

There have been discussions if these CPG brands should sell directly to consumers, bypassing the distribution network comprising of Wholesaler-> Distributor-> Retailer (your kiranawala or the likes of Walmart, Big Bazaar). The adoption of e-commerce by consumers in the last few years is a great driver but the benefits to CPG brand need to be evaluated. I conducted a quick dipstick survey (of urban educated consumers of various age groups) to understand if there is any existing adoption to buying directly from CPG brands.

Survey findings indicated more adoption to buying directly from FMCG brands in Gen Y (born between 1980-1994) as compared to Gen Z (born between 1995-2010) and even less in Gen X (born between 1960-1979). However, both Gen Y and Z are buying more of the small, online-only FMCG brands from online retailers like Amazon instead of the individual brand websites.

So does it make sense for FMCG brand to sell directly to consumers?

Big FMCG players like Procter and Gamble (Gillette, Tide, Pampers), ITC (Kitchens of India Ready to eat food)

• Why- For consumer data insights (like buying behaviour, preferences, etc.) to help in New Product Development and managing Product Lifecycles; testing new products and markets, customer engagement to retain loyalty
• When- Losing market share to private label of retailers, retailer discounts putting pressure on margins
• Where- Online/ Mobile, Social, Shop-in-shop, Pop-up stores
• How- Subscription Model (like shaving, diapers monthly supplies), IoT-based (like Tide button attached to your washing machine which when pressed creates an online order for Tide)

Small, Newer FMCG players like Dollar Shaving Club (US), Birchbox (US), The Man Company (India), Being Juliet, Peebuddy (India)

• Why- Market entry or market penetration- less costly than investing in distribution network
• When- New products, no shelf space given by retailers due to their high bargaining power, niche products
• Where- Online/ Mobile, Social, Pop-up stores
• How- Referral schemes (for acquiring customers through word-of-mouth), Subscription Model (like shaving, diapers monthly supplies)

I believe that the timing is right for brands to try reaching customers directly in India as FMCG is the next big growth category in online retail and one-third of the FMCG sales in India is influenced by digital mediums (Google-Bain study)  Although it will be a fraction of total sales for the big brands but the consumer insights will be the gold mine to dig for on this path. And for the thriving small FMCG players, these wouldn't have existed without the direct channels.


(The opinions expressed in the blog are personal)