Last week we shared four distribution channels for CPG brands that no longer work as well as they used to: movie theaters, department stores, brick and mortar grocery stores and live sporting events.
Illustrating this change, traditional grocery’s share of U.S. consumption has plummeted from 90% to 44% in the last 30 years, according to the 2019 Future of Food Retailing Report.
That’s crazy!
And it means CPG brands, especially the ones in Foodservice, need to start looking for other ways to reach customers. The distribution channels that worked yesterday aren’t going to work tomorrow.
To that end, here’s four of the best product distribution channels for CPG brands going forward.
1. Direct-to-Consumer (DTC)
Image credit: Kind Snacks
Pepsi. Kind Snacks. Oreo. Colgate. M&M’s.
What do these brands have in common? They’ve all taken the leap into the DTC channel recently — driven largely by changes in consumer behavior during the pandemic.
In May 2020, for example, 16% of adults in the U.S. claimed they ordered groceries online for the first time. And sales of edible, nonperishable and general food products, including CPG offerings, grew from 38% of online grocery subcategories to 76%.
Suddenly, the idea of direct sales, which many brands had been toying around with for years, went from experimental to essential. Especially as supply chain issues exposed vulnerabilities in retail channels and access to consumer data became paramount.
Fortunately, many CPG brands are finding success in the direct-to-consumer channel. Forester, for example, recently conducted an analysis of 29 CPG companies in the DTC space. They rated M&M’s as best-in-class due to product customization, a clear loyalty rewards program, and website interactivity.
Another good example of a strong DTC channel strategy: Kind Snacks.
The better-for-you brand focuses on offering a unique value proposition online — something consumers can’t get in store. And for Kind, this means variety.
In stores, for example, customers may only see a handful of flavors. Online, however, customers have access to a full selection of Kind’s 80+ varieties. In addition, Kind allows online customers to “Build Your Own Box” — a subscription service that lets customers customize and try new products.
“We wanted to give our consumers the opportunity to mix and match all of the products we have without having to buy 12 of just one bar,” says Freddie Roseman, director of e-commerce technology at Kind.
“We really wanted to give our consumers that extra choice. [The subscription box] is one of our highest selling SKUs on our site. That validates all of the efforts and justifies future investments in the program as well.”
Why is DTC a good distribution strategy?
- It eliminates the middleman, reducing the number of intermediaries between your brand and the end-user.
- It gives your brand direct access to consumer data.
- It gives your brand control over the customer experience.
2. Local convenience stores
Image credit: Pixabay
According to research by McKinsey, convenience stores are expected to capture 4 - 9% of traditional grocery’s declining market share. And in a $1.25 trillion dollar market, that’s not chump change.
So why are c-stores expected to pick up the slack? First, the sheer size of the channel means most people have one nearby. In fact, a recent survey by NACS showed that 93% of Americans live within 10 minutes of a convenience storefront.
And as people increasingly turn to e-commerce for the bulk of their grocery shopping, they’re choosing these local c-stores for quick fill-in trips (the ones where you just need to grab a loaf of bread and a jar of peanut butter) instead of making the drive to the grocery store.
CPG brands are also beginning to realize the value the convenience channel offers when it comes to driving product trials. For example, people are much more likely to try a new flavor if they can just grab a 16oz bottle as opposed to an entire 12 pack. Because if they don’t like it, it’s no big deal. Whereas with the 12 pack, they’d still have 11 left to drink.
Case in point: Nestle.
A good example of a CPG brand using c-stores for distribution comes from Nestle and the launch of their premium water product, Acqua Panna. Nestle needed to build brand awareness while also establishing a new distribution system and retail partners.
To accomplish these strategies simultaneously, Nestle partnered with Koupon (yep, that’s us) to launch a targeted convenience store campaign.
So we designed a one-month mobile offer campaign using retailer-owned channels like loyalty apps, text messages, social media feeds, and in-store signage. And we secured national distribution across our network of 45,000 convenience stores.
At the end of the campaign, Acqua Panna sales increased by 7.3%. As a senior account manager at Nestle said, “The Koupon Network and their account relationships were key to securing an additional 1,000 points of distribution for our Acqua Panna’s launch in c-store.”
Why are local convenience stores a good distribution strategy?
- You can reach more consumers due to the enormous size of the channel.
- They get your brand in front of shoppers during quick fill in trips.
- Convenience is an excellent indirect channel for driving product trial.
3. E-commerce marketplaces like Amazon
Image credit: Digital Commerce 360
As you can see in the chart above, consumers spent $2.67 trillion on the top 100 online marketplaces in 2020. And perhaps even more shocking is that marketplace sales account for 62% of all global online retail sales.
So not only do you need a DTC presence online, but your brand also needs to be available on popular marketplaces, which are basically the digital equivalent of retail stores. And the most popular marketplace in the U.S. is Amazon, obviously.
But there’s a surprising number of competitors nipping at Amazon’s heels all of a sudden. Retailers like Walmart, Target and CVS, for example, have all invested heavily in the online marketplace space, adding subscription services to compete with Amazon Prime.
Walmart’s recent launch of Walmart+, offers perks like same-day shipping and prescription discounts with a $98 a year price point. And Target’s same-day program via Shipt is essentially the same.
So which one should CPG brands choose? All of them — or as many as possible.
After all, you want to be where your shoppers are. You wouldn’t sell your product in only one grocery store, would you?
That said, you don’t need to be on every single marketplace out there.
No need to be on all e-commerce marketplaces
You can focus on the leading platforms and learn how to use them effectively. On Amazon, for example, you’ll want to carefully consider your pricing because the platform’s price matching system automatically matches lower prices on identical items, even from resellers. Many brands get around this by offering unique package sizes or bundles on Amazon that aren’t available at other retail outlets.
You should also consider your target audience and where they’re shopping. Are there niche marketplaces that are a good fit for your brand? Perhaps one of the major platforms is a better fit for your type of product than another? Let that guide your priorities and go from there.
Take Kind Snacks and Thrive Market, for example. While Thrive Market is certainly not one of the biggest marketplaces out there, it has a strong following in the healthy/better-for-you food niche. Since those are Kind’s core customers, it makes sense for the brand to have a presence in that marketplace.
Why are e-commerce marketplaces a good distribution strategy?
- They allow your brand to reach a national (or even global) audience using an established platform.
- It’s where many customers are already shopping.
4. Online grocery service providers like Instacart
Image credit: Instacart
According to Natalie Williams, omni product development leader at NielsenIQ, “In a year of monumental online sales, few impacted the CPG industry’s growth more than Instacart.”
And she has a point. The grocery delivery platform grew CPG sales by more than $15 billion in 2020, catapulted by the pandemic and the shift to online grocery.
In fact, Instacart reported a 74% surge in customers in April 2020, exploding from 200,000 to 350,000 practically overnight. And with customer demand quadrupling during lockdowns, Instacart had to hire 300,000 more shoppers just to keep up.
As the dust begins to settle in 2021, Instacart has amassed over 500 retailers on its platform, ranging from traditional grocery to convenience stores to warehouse clubs. Even retailers who run their own e-commerce business are still partnering with Instacart.
Why? To reach shoppers who would otherwise not buy from their retailer-branded sites, preferring instead to stick with the familiar Instacart experience across channels and retailers.
Plus, Instacart’s unique, cross-channel customer base is more affluent and spends more online than buyers from any other e-commerce retailer, according to NielsenIQ’s e-commerce data.
Tools for CPG brands on Instacart:
As for CPG brands, marketers now have a bit more control over how products appear on the platform and when they show up in search. For example, in early May 2021, Instacart rolled out a new feature called “Product Library” which lets brands edit product descriptions and add or change images.
Plus, Instacart launched a self-serve advertising platform for brands to promote products in search results. Major brands like Procter & Gamble, Unilever, and PepsiCo have already begun using the service as part of their marketing mix, with total sales up 200% among brands running ads on the platform.
Considering Instacart data shows 70% of conversions from search come from the first row of results, it’s not surprising that search ads are so effective. Brands need to be in the top row in order to succeed on the platform, plain and simple.
Why are online grocery service providers like Instacart a good distribution strategy?
- You can sell products at a higher price to a cross-channel, affluent customer base.
- You can reach Instacart’s 9.6 million active users, many of whom choose the platform over retailer-branded sites.
Conclusion
CPG brands need to be where their customers are. And they’re not where they used to be.
That means it’s time for brands to rethink their distribution strategy and consider different channels — from wholesalers and distributors to direct channels like DTC and indirect channels like convenience, e-commerce marketplaces, and online grocery platforms.
But with so many types of distribution channels out there, it’s important to remember there isn’t just one right distribution channel anymore. Instead, business models that incorporate a variety of distribution methods to sell products in large quantities will most likely prevail.
Marketing a CPG brand? See how Koupon helps brands like yours increase revenue.
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Here’s how Koupon gets results for CPG brands in c-stores:
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- We help brands secure new distribution across our network using digital promotion campaigns proven to drive product trials and awareness.
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The bottom line? We connect brands and retailers, helping everyone reach more customers and drive sales. Get in touch with our sales team to learn more!
