e are seeing the global emergence of disruptive challenger brands with business models based on a direct-to-consumer proposition. Beauty Pie is one example, a D2C member club for cosmetics. Beauty Pie sources cosmetic products from the same manufacturers as the brands and offers them to club members at lower prices than the prestige brands. So how can FMCG brands fully capitalise on the potential of direct-to-consumer sales? I believe they need to master two things: more responsive manufacturing and logisticsa digital connection with end-consumers. More responsive manufacturing and logistics Why do direct-to-consumer sales require greater responsiveness than traditional retailers selling products through stores? The store retail model results in large amounts of stock being held throughout the supply chain, for example in the warehouses and the shelves of the retailer’s stores. The direct-to-consumer model tends to be much leaner, with limited stock held in the e-commerce fulfilment centres where customer orders are picked and packed. This low stock model is more efficient but also requires manufacturers to be more responsive to the online retailer’s needs, since there is much less safety stock held in the supply chain. We can see how things might evolve in this space by looking at the US. Procter and Gamble is currently implementing a strategy of shifting production into a smaller number of “mega factories” located closer to where its US end-consumers live, shortening the lead times between the factories and the big e-commerce fulfilment centres. This builds on a collaboration with Amazon started in 2013, where the two companies have operated co-located facilities with Amazon team members working inside P&G’s warehouses to ship products directly to consumers. The growth of e-commerce and the need for more responsive supply chains is a key reason I believe we’ll see FMCG manufacturing and warehousing shifting closer to the big e-commerce fulfilment hubs. Direct connections to end-consumers Direct-to-consumer also means that brands need to invest in maintaining a 1:1 relationship with their end-consumers. We are already seeing this happen in a few different ways and these look set to grow in the future. Several FMCG brands have set up websites to sell directly to end-consumers. By bypassing the retailer completely, this option allows the brand to maintain a direct connection by setting themselves up as a competitor to the retailer. Clearly this presents risk of conflict for established FMCG brands, who see the majority of their sales through traditional retailers. This probably explains why many of the direct-to-consumer websites, such as PepsiCo and Kraft Heinz, are currently priced at a premium to prices in retailers such as Walmart. Another option is for the FMCG brands to find ways to connect with end-consumers without selling directly. PepsiCo is one brand leading the way here, setting up a cash-back loyalty program in 2019. Customers earn rewards when they buy a specially marked PepsiCo drink and Frito-Lay snack together. The customer scans codes on the packet and under the bottle cap with their phone to accumulate cash rewards deposited in a Paypal or Venmo account. A less aggressive option is for brands to connect directly with consumers in partnership with the retailer. Amazon has led the way in this regard, now pulling in over 5 per cent of its total retail sales from media sales. Much of this income comes from the FMCG brands who pay to access consumers who are making a purchase decision on Amazon’s website. Globally the drinks brands are pioneering how FMCG companies can connect digitally with end-consumers. Many drinks brands are using personalised digital coupons to drive trial of their product. The coupons are issued through digital channels such as Facebook and Twitter and are redeemed in the retailer redemption partner. I believe the years ahead will see increasing opportunities for FMCG brands to grow direct-to-consumer sales and engagement. But to fully capitalise on this global trend, it will be critical for FMCG leaders to master new capabilities, in particular building more responsive manufacturing and logistics and developing a direct digital connection with end-consumers. This story appears in the April 2021 issue of Inside FMCG.