Retail detour: How brands large and small are going beyond retail shelves to sell to consumers
After more than 200 years in business, New York City’s iconic Fulton Fish Market decided the time was right to make its fresh seafood available to customers nationwide.
Traditionally, this would mean a push into grocery chains, specialty stores and other retail locations. But the iconic seafood market, which represents 26 fishing outfits bringing in more than a million pounds of seafood each day, was thoroughly disillusioned with the traditional supply chain: Paying numerous middlemen to deliver product to retailers that, at least in Fulton’s experience, often didn’t know how to properly handle fresh snapper, drum, oysters and monkfish.
So Fulton decided to go straight to the consumer. Earlier this month, it set up shop.fultonfishmarket.com, an online bazaar offering selections straight from the Fulton docks in the Bronx. Customers make their selections and receive their shipment, which comes in a box lined with airtight, biodegradable insulation, as soon as the next day.
“Once you put a product into a retail market, you lose control of it,” Cyndi Metallo, VP of product for the online market, told Food Dive. “Going direct to consumer ensures freshness.”
Frustrated by things like slow sales, space restrictions, poor handling and a high bar to access, food companies of all sizes are coming to the same realization as Fulton Fish Market: Maybe retailers aren’t necessary after all.
At a time of advanced digital advertising, and with consumers eager to try new products and new buying experiences, there’s never been a better time to go direct-to-consumer. But given their traditional roles as suppliers — not sellers — can manufacturers turn a profit on their own?
Food companies have a long history of selling directly to consumers. Mail-order services like Harry & David have built loyal followings over the years, and well-known brands like Honeybaked Ham have found success with subscriptions and online sales. But overwhelmingly, manufacturers have relied on retailers to sell products and build brand awareness.
With the success of Dollar Shave Club, Bonobos, Blue Apron and Nature Box, companies are seeing new opportunities to move beyond retail shelves and sell directly to consumers. Doing so holds many advantages, including higher margins, increased sales efficiency and a more intimate brand experience. And with advances in digital marketing through social media and search engine advertising, companies can zero in on the consumers most likely to buy their products.
This is especially enticing for startup and lesser-known brands, which often struggle to break into retail and create sales velocity. Barb Stuckey, president of Mattson, a firm that works with food companies on product development, said many of the smaller companies she’s working with aren’t even looking at selling to retail.
“You can hit niche consumers so well with digital advertising, it may not make sense to go through a traditional retailer,” she told Food Dive.
For those like Fulton Fish Market, selling highly perishable goods, and for others with product packaging or an overall concept that doesn’t fit neatly into the typical supply chain, direct-to-consumer e-commerce can be the most efficient sales outlet. In addition to ensuring fresher product, Metallo said selling direct to consumers means that Fulton Fish isn’t wasting inventory.
“We buy fish specific for those orders,” she said. “We don’t buy 2,000 pounds of salmon and try to sell it until it’s gone or spoiled. If I have an order for 20 pounds of salmon and 400 pounds of tuna, that’s what we go and get in the market that day.”
Consumer trends bode well for emerging brands, which have watched legacy CPG companies lose share over the past few years. Between 2011 and 2015, according to IRI data, large companies have dropped more than $18 billion in sales.
Ross Davisson, vice president of business with CircleUp, a technology firm that invests in many startup food companies, said he’s seen interest grow in niche brands, particularly in the natural and organic space. Going the direct-to-consumer route can be a challenge, though.
“Once you put a product into a retail market, you lose control of it. Going direct to consumer ensures freshness.”
VP of product for Fulton Fish Market's e-commerce site
“If someone comes in and says they want to launch a new product direct-to-consumer, our first question is, ‘How will you get noticed?’” Davisson told Food Dive. “'How are you going to break through the noise?'”
The upfront cost of going direct-to-consumer are considerable. In addition to pricey digital advertising, manufacturers also must shoulder the storage and distribution costs typically performed by a retailer. If they don’t produce high sales volume right away, they can quickly find themselves fighting for their lives.
The companies and products that do well with direct-to-consumer sales, said Davisson, are those able to tap into a vibrant online community and those whose product wouldn’t otherwise appear in retail stores. He pointed to Imperfect Produce, which offers fruits and vegetables that don’t meet supermarket standards but are still fresh and flavorful, and to RXBAR, which offers all-natural energy bars that appeal to the paleo diet community and sells bars by the box and by subscription.
“If you have a strong online community that you can tap into, I think that increases your chance of success,” said Davisson.
A new buying relationship
Selling directly to consumers isn’t just for companies looking to establish a foothold or sell niche products. Large manufacturers like General Mills, Tyson and Kellogg are also utilizing direct e-commerce channels and using their considerable resources to open standalone stores, restaurants and other outlets.
For CPG companies and established brands, direct-to-consumer channels offer a way to move beyond stagnant shelf sales and spur consumer interest. Nestle recently revealed that e-commerce makes up 5% of its sales, and direct-to-consumer offerings are a growing focus. Mondelez International, meanwhile, has used e-commerce channels to sell limited-edition products like special gift tins of Oreos, which the company offered last holiday season.
For Mondelez, which owns several billion-dollar snack brands, this effort was part of a campaign to sell $1 billion worth of products via direct-to-consumer e-commerce by 2020. Last week, the company announced a 35% increase in e-commerce sales last year over the previous year.
In contrast to efforts by startups and small companies, established brands are using direct-to-consumer sales to build brand awareness and boost retail sales of their products. Doing this effectively, though, doesn’t just mean putting up retail products for sale online. According to Stuckey, large companies like Mondelez are creating items specially for e-commerce sale.
“It’s about figuring out what consumers who buy direct want, and then creating a new offering to meet that demand,” said Stuckey.
Kellogg-owned Bear Naked sells many flavor-forward granolas like maple pecan and cacao and cashew butter, but even these choices weren’t fully satisfying the adventurous tastes of its customers. According to Chris Tutor, vice president of strategy with Bear Naked, the company saw growing demand for “taste exploration” among granola eaters.
Rather than come out with more flavor varieties, Bear Naked created a custom granola service that would sell direct to consumers. Launched last year as a standalone website, the service lets consumers choose from more than 60 ingredients, including chocolate and coffee, as well as eye-catchers like pale ale, olives and jalapenos. Once visitors have built their custom blend, Bear Naked mixes and packages everything and ships it directly. Price tag: $9.99.
Aside from higher margins, the service also delivers key insights to Bear Naked about the ingredients and combinations its customers are looking for. It’s discovered, for instance, that coffee is wildly popular, and that visitors like what Tutor called “sweet heat” flavor combinations that incorporate jalapenos, chipotle oil and green chilis.
“Consumers are spending minutes with us instead of seconds or in passing. That’s a massive benefit.”
vice president of strategy, Bear Naked
Bear Naked has also found that the service engages consumers much longer than any shelf product or advertisement could.
“Consumers are spending minutes with us instead of seconds or in passing,” Tutor told Food Dive. “That’s a massive benefit.”
Going the restaurant route
Brands are also bringing their products directly to consumers through innovative restaurant concepts and pop-up stores. Yogurt maker Chobani operates two Mediterranean-themed cafes in New York, and will open a third in Houston co-located with a Wal-Mart later this year. The cafes feature salads, breakfast bowls and hummus platters in addition to numerous dishes that incorporate Chobani yogurt.
Darren Tristano, president of research and consulting firm Technomic, noted that branded restaurants like Nestle’s Toll House Café have been around for some time. Newer entrants from the likes of Chobani and Pepsi, which recently opened a premium soda and cocktail bar in New York called Kola House, are seeking to elevate their brand in the eyes of consumers. The concepts also serve as helpful test kitchens for companies to sample and tweak new product offerings.
“It’s a continuous focus group,” Tristano told Food Dive. “It gives these companies opportunities to make changes quickly and see what works.”
Amy’s Drive-Thru, a vegan fast-food restaurant owned by manufacturer Amy’s Kitchen, features some freshly made versions of the same dishes found in the company’s frozen packaged lines, like burritos and organic mac and cheese. Opened last year in Rohnert Park, just north of San Francisco, the location also features plenty of dishes unique to the restaurant — like "The Amy," a vegetarian burger that went through more than 1,000 taste tests before getting the green light.
"We knew there was a market for a restaurant where parents could take their kids for a fast meal that they could feel good about," Andy and Rachel Berliner, founders of Amy's Kitchen, said in an email to Food Dive.
Could manufacturers eventually wrest control of the buying experience from retailers? Not likely, sources say, though they expect continued growth and evolution through e-commerce channels. More than anything, Davisson said, direct-to-consumer offers a unique connection between consumers and brands — one in which direct feedback spurs innovation that could actually benefit retailers.
“What direct-to-consumer really offers is a new buying relationship with consumers,” he said.
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