In our monthly “SKU View” series, Food Entrepreneur is tapping the expertise of mentors at SKU, a consumer products accelerator based in Austin, Texas, to deliver timely insights on issues that affect early-stage food and beverage brands.
AUSTIN, TEXAS — The direct-to-consumer model offers notable competitive advantages over traditional retail. Digitally native brands have access to data, direct relationships with shoppers, and flexibility to innovate and iterate product offerings. Still, there are drawbacks and challenges to consider, said Mike Hornigold, executive vice president of e-commerce at Accelerate360, an omnichannel distribution, data and media company.
Mr. Hornigold oversees the newly formed e-commerce organization at Accelerate360, leading the development of marketplace and direct-to-consumer platforms and growth of pure-play and omnichannel retail relationships, including Amazon, Boxed, Walmart.com and Kroger.com.
Prior to joining the company, Mr. Hornigold was chief growth officer at Belnick LLC, a private equity-owned e-commerce furniture company, where he led a $350 million sales organization. His earlier career spans nearly two decades at the Coca-Cola Co., where he held the role of group director of e-commerce and digital shopper marketing for more than six years.
Here, he shares how emerging brands can conquer e-commerce.
Food Entrepreneur: Why are so many consumer brands launching exclusively direct-to-consumer first?
Mike Hornigold: Today, launching exclusively direct-to-consumer (DTC), at least as a short-term channel strategy, is more of the norm. I think this trend is driven by a wide variety of factors, but two of the main drivers for this trend that I see are it allows for a brand to grow, develop and pivot if needed without retail influence, and a DTC site is now seen as table stakes by both consumers and retailers.
First, let’s look at launching a brand in retail. While the sell-in process is long, tedious and expensive, what really stands out to me is you only get one shot. If you are lucky enough to get on-shelf there is a ton of pressure to meet the retailer’s minimum weekly sales thresholds, and if you don’t meet them your brand could be out in a matter of weeks or months. Oh, and by the way, you are never getting another opportunity with that retailer, so your brand may be done before it ever got started.
Now let’s flip it around with launching exclusively via DTC. You have this great idea, you get the item built, you develop your site, and you start selling. Early on you catch consumer feedback that your item is missing a critical option or something isn’t working just right. You can take this feedback, make the appropriate adjustments to the product, and keep selling. You aren’t dead in the water. You use this as an opportunity to refine or pivot and push forward. There is a developmental runway that is granted when launching exclusively as a DTC brand.
When a consumer learns about a brand nowadays, more often than not, they are going to go to the DTC site to learn more about the brand. What’s their story? Why should I buy? How is it different? What are other consumers saying? Does the brand look real/professional? Similarly, retailers will go to the brand’s DTC site to get the same information. Is this a brand that my shoppers will want? What are consumers saying about the product? Does it fit not only my sales strategy but does the brand align with our corporate mission? Does the brand have both a strong brand and marketing proposition?
In the end launching exclusively via DTC allows the brand owner to control their own destiny.
What are the benefits of direct-to-consumer versus brick-and-mortar retail?
Mr. Hornigold: When you dig a little deeper on DTC, I think there are three main benefits for a brand versus traditional brick-and-mortar.
Data. Data is king, and brands can’t let an intermediary know their customer better than themselves. By going DTC, brands know all of the details about their consumer and can develop deep “one-on-one” relationships. In brick-and-mortar this data comes at a premium that many new brands can’t afford, or it is simply not available at all to them. Consumer data can help identify what is working and isn’t working in the brand’s DNA, what product improvements that need to be made or new product opportunities, it can allow for personalized marketing communications, and it can become a powerful tool when selling the brand into retailers. Another benefit of owning the customer data is the multiple effect on the valuation of the company. Brands that own the customer data will consistently achieve higher overall multiples than brands that don’t.
Expanded product assortment/product testing. When selling in to a retailer, brands will have to focus mainly on their top 1, 2 or 3 sellers at most. Anything deeper than that will typically have to come in later selling cycles. With a DTC platform, brands can list the entire product assortment, while also testing new products/flavors/categories. This gives a brand a ton of flexibility to try new things and maximize total portfolio sales.
Stickiness/brand loyalty. I love the concept of stickiness, and DTC is one of the perfect mechanisms to drive brand stickiness/brand loyalty. Via DTC brands have a number of levers to pull to increase brand stickiness, including auto-replenishment, personalized communications, product exclusives or sneak peaks, and feedback forums.
What are some challenges or disadvantages of DTC?
Mr. Hornigold: Margins. What used to be an advantage of enhanced margins is moving in the direction of at least neutral to retail. It costs a lot of money to get eyeballs to sites, and Meta, Google and Apple are all about generating ad revenue to target the eyeballs on their platforms. Add to that cookie apocalypse, and it adds up to brands having to spend a lot of dollars to get consumers to their platforms and to ultimately convert.
The other major challenge to selling DTC is that you are taking on all of the costs of managing the business. You have essentially become your own retailer, and therefore all of the responsibilities that a retailer has are now yours.
Obviously, this includes marketing/customer acquisition towards the top, but you also have to manage supply chain, logistics and order fulfillment. You will only be able to manage the business out of your garage for so long, before you need to get warehouse space or utilize a third-party logistics provider for dropshipping your products, which adds a whole other layer of labor and management. Customer service also becomes a critical role within a DTC business where with omnichannel retailers, they will take on many of the customer service responsibilities.
Trial or sampling has a limited role online. In order to sell profitably, larger-size packs are more the norm for online with a higher price point to cover the cost of shipping. If a brand does decide to sell a single unit, oftentimes, the suggested retail price needed to cover all of the costs throws the competitive pricing equation out of whack.
As a brand is getting started, they don’t have enough volume to be able to negotiate competitive shipping rates, so brands need to either build the shipping costs into their total cost of goods, charge shipping or provide free shipping above a certain order threshold. No matter which path is chosen nothing can beat Amazon’s or Walmart’s shipping rates.
What are some do’s and don’ts of developing a winning online retail strategy?
Mr. Hornigold: Do have at least a two-prong online strategy. I typically think of this in terms of the brand’s own DTC platform and one other online retailer, usually Amazon. This allows the brand to take advantage of all of the benefits of DTC previously outlined, and it gives the consumer another potential outlet of which to buy, especially a brand that they may be unfamiliar with. It also allows a consumer to look at reviews off of a brand’s own site, which have a tendency to be in the 5-star range.
Do focus on the basics. In order to be successful, every DTC site must have great imagery with a balance of brand and lifestyle images. When done well, great imagery tells the story of the brand, and it allows the consumer to project themselves on the brand. For product listings include at least six to seven images of the brands, including one or two images of the brand’s features and benefits. Next layer in clear product descriptions that give all of the details of the brand, including product weights, dimensions, UPC code, country of origin, ingredients, etc…. Lastly, ensure that all of the stock-keeping units have ratings and reviews that are sortable by star rating and newest to oldest.
Do prioritize search engine optimization and meta-tagging right from the start. If you don’t have this muscle, find an agency that can get you started. By really focusing on SEO, you will ensure that your brand is seen when the consumer begins their shopping journey on any of the search engines. Now it does take time for search engines to pick up your site, but once it does, and if you stay on top of it, you can definitely beat your competition over the long-haul.
Do be mobile first. For our own sites that we are managing today typically over 75% of our traffic is mobile. However, when it comes to designing the site most brands or agencies start desktop first. It’s easy to do it this way as the brand typically wants to see the total experience, but what is missed is that most consumers may only experience the site on their mobile.
Do leverage Shopify themes versus building a site from scratch. This will simplify and speed up the build process and ensure you have an optimally built site that consumers can navigate easily, and it will help improve search results based on their algorithms.
Don’t overlook the checkout process. None of the work you have done will matter if you have a crappy checkout process. Really focus on simplifying the checkout process, leverage fast checkout options like Paypal, Apple Pay, Shop Pay and Google Pay. Test checkout numerous times with friends, family and co-workers with a wide variety of scenarios (e.g., one-item checkout, auto-replenishment, multiple items, bill to one address/ship to another, etc…). Your goal is to avoid cart abandonment at all costs. Test, test, and test again.
Don't overlook privacy policies and ADA (Americans with Disabilities Act of 1990) compliance. This is a really simple thing to overlook that could become a huge headache for a new brand. While every site should have clear privacy policies and be ADA compliant, unfortunately there are trolls out there that literally just scan sites for compliance and then sue the brand for being out of compliance. This could be a costly overlook for a brand just launching. The good news is that there are simple plug-ins available to ensure customers can opt-out of tracking features and ensure the site is ADA compliant.
Don't forget about customer service. Beyond a poor checkout process, nothing will ensure a customer never comes back to a DTC site than awful customer service. When done well, customer service can turn a bad experience into a lifelong ambassador for the brand. When done poorly, it can turn into a brand’s worst nightmare. Make sure all customer service inquiries are responded to quickly. Empower the customer service team to go above and beyond to make the situation right. Capture the themes from the calls and put those into the FAQs of the site or the individual brands.
Don't spread yourself too thin. As you are getting started, focus on your DTC platform and then preferably one but no more than two other retailers. Listing a brand on a website is not a set-it-and-forget-it situation. You have to keep up with the inventory, product content, order replenishment, customer service issues, etc.… The more retailers you open the more issues you create for yourself, which distracts you from focusing on and growing the brand. As your brand grows, you can begin to branch out to other retailers.
A lot of brands don’t want to sell their products on Amazon. What are the drawbacks of not creating your own Amazon store?
Mr. Hornigold: Eyeballs. The No. 1 answer is that Amazon gets more eyeballs in one day than a brand may get in several years. You have to fish where the fish are. Now just because there are a lot of eyeballs on the site, it doesn’t mean your brand will be found. You have to follow the steps to success on Amazon (content, ratings and reviews) to be seen and sold.
Trust. I’ve found myself several times stumbling on a new brand and checking out their site, and then have popped over to Amazon to buy it. The reason for this behavior is that I trust Amazon to make the situation right if there is an issue. This is often to the detriment of the brand as Amazon is always willing to put the customer first no matter what the cost to the brand.Fulfillment by Amazon. You need to manage inventory at Amazon really well, so you don’t get hit with storage fees, but when you do it right, you can take advantage of Amazon’s great shipping rates and shipping promise with delivery in many cities in just a few hours.