With millions of Americans locked down at home during April because of the coronavirus, Gibu Thomas, senior vice president and head of e-commerce at PepsiCo, sensed a shift in the marketplace over how once-reluctant consumers viewed the online space to purchase their groceries.
The convenience and simplicity of online shopping, commonplace in areas such as electronics and toys but slow to gain momentum in food and beverage, had suddenly grown more attractive; sales of PepsiCo's soda, oatmeal, juice, chips and other offerings soared.
So Thomas issued a challenge to his team of technology experts and CPG veterans: combine the deep bench of resources at the CPG giant with the speed and agility of a startup to create a direct-to-consumer platform in 30 days. To quicken the process, the company had to make some tradeoffs. PepsiCo, at least initially, is eschewing some of its popular brands such as Pepsi and Mountain Dew or Starbucks ready-to-drink coffees, though they will likely be added later.
"I didn't actually think [the team] would be able to do it in 30 days, but you know, you have to make it somewhat aspirational," Thomas said. "Amazingly, the team responded and built from the ground up end-to-end capabilities."

Earlier this month, PepsiCo unveiled its first major foray into direct-to-consumer sales with a pair of websites.
At PantryShop.com, consumers can order specialized bundles like the "Rise & Shine" kit with Tropicana juice, Quaker oatmeal and Life cereal, or the "Workout & Recovery" with Gatorade protein bars, Muscle Milk and enhanced electrolyte water Propel. The other site, Snacks.com, houses many of Frito-Lays' brands, including harder-to-find iterations like Ruffles Lime & Jalapeno, Lay’s Lightly Salted and Cheetos Xtra Hot that may not always be in stores but were in demand among consumers looking for nostalgic treats that made them feel good during the pandemic.
PepsiCo had dabbled in direct-to-consumer before, but it was largely centered on brands they were incubating that didn't have broad retail distribution, Thomas said. For the 122-year old company to commit to the platform with its portfolio of iconic drinks and salty snacks, it needed to do more than just give shoppers another way to buy PepsiCo's products. Instead, it needed to give people a reason to come back because it was meaningfully different from the other ways in which they went about purchasing their items.
"The test for direct-to-consumer always is, can you provide a value proposition that really resonates with the consumer, right? Because that's when you get the repeats. That's when you get the sustainable proposition," Thomas said. "We'll continue to invest in it and will continue to iterate and pivot until we find the propositions that consumers find delightful and sticky."
Simplicity for the consumer, but complicated for manufacturer
Consumers using direct-to-consumer services has gradually increased. In 2014, only 1.4% of consumers used direct-to-consumer services once in the prior 12 months to purchase food and drinks, according to Global Data, an analytics and consulting company. The figure steadily climbed to 5.8% in 2018.
For shoppers, the coronavirus has highlighted the convenience and simplicity that comes with a direct-to-consumer model. Consumers can go to a website, chose their favorite products and have them shipped straight to their door, saving a trip to the store. But shipping food and beverages is riddled with challenges. Produce, for example, is easily perishable and something consumers often prefer to pick out themselves. A 12-pack of soda is heavy to ship.
Analysts said snacking items such as cookies, nuts or other small frequent indulgences are ideally positioned to benefit from the direct-to-consumer model. Products replenished regularly, such as water or coffee pods, or items where there is strong brand preference and loyalty, also lend themselves to the platform. Food manufacturers also could use it more often to test new products and get immediate feedback or to offer nuanced flavors, package sizes or ancillary products that aren't in as high demand — much like PepsiCo has done with certain Frito Lay extensions on its Snacks.com site.
"Direct-to-consumer is growing, but it won't become the predominant method of buying food. It's just not the most efficient way of servicing the customer."

Neil Saunders
Managing director, Global Data
Neil Saunders, managing director with Global Data, said direct-to-consumer will be more enticing for CPG companies because it will give them a way to boost their product penetration while having greater control over the supply chain without being as beholden to grocers to display their items. Manufacturers can also sell the products at retail price, rather than at wholesale, and reap the benefits of higher margins.
Saunders said growth in direct-to-consumer sales will "accelerate" because of the ongoing pandemic and the benefits it offers the public to purchase a few items rather than do a full shop at a store or online using a service like Instacart.

Still, he said, the service is not for every company because shipping straight to consumers is complicated and requires the CPG firms to become more intricately involved in extra steps of the delivery process — they can't just ship massive pallets of products to Kroger or Walmart and let them do the rest.
Saunders also noted companies need to implement new business practices as they interact more directly with customers, from how to handle product returns or issues with last-mile delivery services. If a product arrives damaged, for instance, it can reflect negatively on the brand.
"Direct-to-consumer is growing, but it won't become the predominant method of buying food," Saunders said. "It's just not the most efficient way of servicing the customer."
'Grown like a weed'
But the complications doesn't mean direct-to-consumer services lack value for some companies or brands. A handful of big CPGs have moved methodically in transitioning some of their products online.
Nestlé's home delivery business, which includes its Nespresso coffee platform and its ReadyRefresh water and beverage service, has been strong, especially during the pandemic. Unilever's food and refreshment division in the United States uses direct-to-consumer with its T2 tea brand, Maille condiments and its popular Ben & Jerry's ice cream.
Hanneke Faber, president of Unilever's foods and refreshment division, said the consumer goods company started partnering with food delivery operators like Uber Eats and Grubhub and pizza chain Domino's in 2018 to deliver containers of Ben & Jerry's.
"It made much more sense for us to partner with these players who already have huge traffic, know how to convert and have delivery systems in place to actually get it to you in 30 minutes. Our capabilities are in brand development and product development and innovation.That's what we're good at. We're not a delivery company."

Hanneke Faber
President, Unilever's foods and refreshment division
When consumers order a pizza or purchase Chinese food, they can add on the ice cream and the driver can pick up a container at a designated location. The business has "grown like a weed," Faber said, with significant growth since March.
"It made much more sense for us to partner with these players who already have huge traffic, know how to convert and have delivery systems in place to actually get it to you in 30 minutes," she said. "Our capabilities are in brand development and product development and innovation.That's what we're good at. We're not a delivery company."
At Mondelez International, Glen Walter, president of North America, called direct-to-consumer "an interesting opportunity" and another way for the snacking giant to connect with shoppers. It can use the platform to increase awareness for a brand that isn't as widely distributed such as premium cookie maker Tate's Bake Shop or personalize an already popular offering.
Consumers can create a custom mix of Mondelez's Sour Patch Kids by color and package size or personalize it with their name on it. Iconic cookie brand Oreo allows consumers to purchase personalized gift boxes for special occasions like birthdays, graduations or weddings. Currently, only "a handful" of its brands are participating in direct-to-consumer, Walter told Food Dive.
"The way we look at direct-to-consumer would be more of a way in which we're activating brands versus a significant channel" for sales, he said.
Erin Lash, a director of consumer equity research at Morningstar, said while direct-to-consumer could prove advantageous in some categories, CPGs will be reluctant to fully commit to the space because they are too dependent on retailers and don't want to damage that relationship. Food manufacturers are dependent on supermarkets when they want to pass through price increases, gain better shelf space or make room for new products they want to bring to market.
"It might make those conversations more difficult," she said.
Howard Dorman, a partner and practice leader for the food and beverage sector at Mazars who represents several food distributors, told Food Dive while a growing number of smaller upstart brands would embrace direct-to-consumer because it might be hard to get on retail shelves, especially in the current coronavirus environment, he was skeptical the platform was going to become more prevalent anytime soon among larger CPG brands.
"If you can go online and order it, ... what you have done, you've cut out retailers, you've cut out slotting fees, you've cut out costs. That could be a game changer," Dorman said. "That's constriction in the marketplace and I don't think we're ready for that to happen yet."
First time for everything
This hasn't stopped scores of small brands or companies that don't have a major presence from dabbling in the space, in some cases out of sheer necessity.
As food and beverage manufacturers grapple with a shutdown in foodservice and disruptions in retail, businesses have turned to direct-to-consumer, many for the first time, as a way to generate revenue, move inventory and keep workers employed. Ocean Spray introduced Atoka, a line of herbalist crafted, plant-based functional beverages, available only through its direct-to-consumer online site, the cranberry cooperative's first foray into the delivery space.
Hundreds of craft beer purveyors have turned to shipping their novel, cleverly named brews to consumers as their revenue-generating brewpubs and taprooms have been forced to close their doors.

At Russian River in California, Natalie Cilurzo, co-owner and president, said "desperate times" have forced the company to ship its ales and barrel-aged beers to consumers for the first time in its history despite the logistical challenges. Cilurzo said the once-a-week exercise is very labor intensive and expensive, and at times during the pandemic, supply chain bottlenecks have slowed the delivery of cans, bottles and boxes to ship the beers in.
"We don’t have a department handling beer sales. This is not something we were interested in doing on a regular basis, but things change, right? We’re really not set up to do this," she said. "This is not an Amazon fulfillment center.”
When United Sodas introduced its line of better-for-you premium drinks earlier this month, founder and CEO Marisa Zupan bypassed retail and launched directly to the consumer in order to better understand her audience and have more control cultivating its relationship with shoppers — a connection that gets lost when a store is added to the mix.
"We wanted to have that relationship ourselves," Zupan said. "Being a brand that's launched in 2020, to have your own distribution channel and to own your customer relationship is very important and smart."
Before the coronavirus forced restaurants and other foodservice outlets to close, East Coast distributor Baldor Specialty Food depended on these establishments for nearly 90% of its revenue. As the pandemic worsened in March, executives gradually rolled out direct-to-consumer delivery starting in New York City before expanding the service to Philadelphia and Washington, D.C. two months later. Further expansion is being considered.
With hospitals, retailers and some restaurants still open, many of Baldor's 300 trucks were already on the road. At the same time, with consumers stuck at home or reluctant to leave, the 29-year old company saw an untapped market for its fruits, cheeses, pastries and meats, among other products.
To make orders usually delivered in bulk more compatible for a consumer at home, Baldor and its suppliers reduce their size. Crushed tomatoes that usually came in a dozen 32-ounce square containers are now sold individually, while proteins like chicken or beef typically available in 10-pound or 20-pound cases come in smaller packs.
Direct-to-consumer "has been a big step for the company," Bill Hodge, general manager of Baldor Specialty Food in Washington, DC., who uses the home delivery service himself, told Food Dive. "When you're in the middle of that change, it's challenging and it took a lot of people to make it happen, but when you look back at it now and you realize the synergies that you have, it seems very logical."
If a growing number of businesses decide to sell more of their brands online, what is now a sparsely populated space when the number of brands being sold are taken into account could quickly expand. The impetus will be on food manufacturers to entice the consumer with a reason to not only shop direct-to-consumer, but to choose their site over the other ones available.
"We're not going to become a complete direct-to-consumer society. It just isn't going to work like that," Saunders said. "You can't sell every single product via direct-to-consumer because what consumers don't want is to have 300 different odd places that they go to buy all the products that they need. ... The idea of having to visit tens, if not hundreds of different sites and have all these kind of different arrangements, is nowhere near as convenient as just going to the supermarket."