D2C or C-stores: Where Should CPG Brands Invest More?

As COVID ravages the retail landscape, many CPG brands are turning to innovative channels like direct-to-consumer (D2C) and convenience stores. 

PepsiCo, for example, launched two successful D2C sites within 30 days — Snacks.com and PantryShop.com. 

Image credit: PepsiCo/Snacks.com

It’s a strategic move considering analysts predict D2C sales will comprise 40% of all CPG e-commerce growth by 2021. At the same time, c-stores are expected to capture 4 - 9% of traditional grocery’s declining market share. 

So, which channel is the best bet for CPG brands? D2C or c-store? 

The question is tough to answer, and may depend on your brand’s products, goals, and resources. 

We’re taking a look at six key factors CPG brands should consider when deciding between channels. 

  1. Cost 
  2. Logistics
  3. Reach
  4. Customer retention
  5. Execution and maintenance 
  6. User experience

1. D2C vs C-Store: which one is more expensive?

Image credit: McKinsey

Before we dive into specifics, it’s important to remember that the expense of innovation (in either channel) requires an investment--and one that history suggests will pay off. 

As you can see in the chart above examining the Great Recession, companies that invested in innovation during the crisis came out on top. Not only in the short term were they up 10%, but also in the long-term, where innovators outperformed the market by 30% post-crisis. 

Now, let’s dig into the main costs associated with each channel. With D2C, your main costs are likely to be: 

  • Ecommerce platform development and implementation
  • Marketing and promotions
  • Payment processing
  • Supply chain and inventory management
  • Fulfillment costs including warehousing, packaging, shipping, and last-mile delivery

When investing in the c-store channel, on the other hand, your main costs are likely to include: 

  • Marketing and promotions
  • Supply chain and inventory management, including order replenishment
  • Distribution to store locations
  • Slotting fees (charges for shelf space) and display placement 

The two channels have shared costs along with those unique to each channel. Fulfillment costs, for example, are unique to D2C since you have to get your product all the way to the consumer — as opposed to retail locations. And while both channels include marketing, D2C tends to be more expensive because of high customer acquisition costs

Does this mean D2C is more expensive overall? Sometimes. But it largely depends on your goals and existing infrastructure. If your brand is already active in the grocery channel, for example, investing in c-store will be less costly. 

It also depends on whether you want to develop systems in-house or outsource them. Platform development, for instance, can be very costly to handle in-house. You’d need an entire IT department at your disposal. 

The use of web development services however, makes this a more cost-friendly endeavor. The same can be said for fulfillment, with many brands turning to 3PL (third-party logistics) companies to manage everything from warehousing to last-mile delivery.

Verdict: It depends on your brand’s specific goals, infrastructure and resources. D2C can be cheaper or more expensive than c-store. 

2. Which channel has better logistics?

Image credit: Maarten van den Heuvel on Unsplash

When you’re selling via traditional retail channels like grocery or c-store, your job is essentially done once the products are delivered to the store. The retailer processes payments, handles delivery and store pickups, and manages returns. 

When you’re selling directly to the customer, however, it becomes more complicated. You now have to take on the responsibility of a retailer, and then some. 

Again, the rise of 3PL companies is one reason D2C is now within reach for CPG brands. Working with a 3PL company allows you to focus on your product while they focus on the logistics associated with order fulfillment and last-mile delivery. 

Managing returns is another aspect of logistics that’s unique to the D2C space — and it can be quite a headache. As with fulfillment, this too can be outsourced. Plus, return levels are going to depend on the type of product you’re selling. Clothing, for instance, is returned at very high rates while FMCG items like snacks and candy are very low. 

There are also differences in packaging for each channel. In c-store, where 83% of items are consumed within an hour, you’ll need to package items for individual sale. In the D2C channel, larger package sizes and bundled products are the way to go. 

Verdict: C-store. In general, the logistics of c-store are less complicated for CPG brands to execute. 

3. What about reach?

Image credit: PepsiCo/Snacks.com

At first glance, D2C seems to win this one hands down. After all, the potential of a worldwide audience is the one of biggest advantages the internet has to offer. 

But the key word here is potential. When it comes to actual reach, it’s more of a mixed bag. You can’t just pop up a website, for example, and reach a million customers the next day. You need savvy digital marketing and the right kind of product(s). 

Plus, you need to do it all on your own, without piggybacking on retailers. Whether it’s foot traffic, website traffic, store circulars or mobile coupons, retailers get your product in front of customers. And they do it while they’re actively shopping. 

This has really been the crux of the issue for CPG brands considering a move into the D2C space. Is it possible to reach enough customers on your own? 

As we’re learning from Pepsi, it may depend on how you frame your D2C platform. Pepsi’s ventures, for example, are framed entirely around the customer’s needs, almost like a retailer. On Snacks.com consumers can buy a wide array of Pepsi’s snack products, from Flamin’ Hot Cheetos to Bare Baked Apple Chips. 

Likewise, on PantryShop.com, Pepsi has grouped all sorts of pantry staples into customer-centric categories like workout and recovery, rise and shine, and family favorites. 

When you think about it, this makes complete sense; it’s how people already shop for grocery items. It would be way too much work to go to Tropicana.com to buy juice, QuakerOats.com for oatmeal, and so on. Only the most ardent brand loyalists would go to such lengths. 

Of course, most CPG brands don’t have a huge portfolio of products like Pepsi. In that case, you may reach more customers by leveraging the sheer size of the c-store channel. 

With over 150,000 locations, c-stores are everywhere. For perspective, there are only 40,000 grocery stores in the entire country--including everything from specialty stores to conventional supermarkets to warehouse clubs. 

Granted, the size and fragmented nature of the c-store channel can be difficult to navigate. But that’s where a good partnership comes in handy. 

Here at Koupon, we connect brands with our growing network of over 45,000 c-stores. 

Last year, for example, we partnered with a major confection brand that wanted to run a channel-wide promotion. We secured 29 retailer brands for the campaign and managed its execution across 38,000 stores. This involved: 

  • Ensuring the campaign met the brand’s vision and goals.
  • Integrating Koupon’s mobile-offer technology with retailer-owned channels like mobile apps, SMS and email.
  • Managing fulfillment and ensuring the campaign stayed on budget.

At the end of the campaign, the confection brand sold 300,000 incremental units. This was an increase of 42% over the previous quarter and 29% year-over-year. Plus, they achieved national reach with 38,000 participating c-store locations. 

Verdict: A combination of both. The best way to reach the most consumers is to invest in both channels simultaneously. 

4. Which channel offers better customer retention?

Image credit: Forbes

Improving customer retention and churn rate has long been a thorn in the side of CPG brands. After all, without direct customer interaction (or its corresponding data) it’s largely left to chance. 

And considering the well-known benefits of customer retention vs acquisition, this puts CPG brands at a huge disadvantage. Fortunately, both the D2C and c-store channels offer a better way forward.

In fact, one of the biggest reasons CPG brands are getting into D2C is access to first-party data. Instead of relying on retailers for customer information (which is often incomplete and stale), D2C provides direct, immediate access. For many brands, this alone is worth the leap. 

According to Shopify, your D2C platform should retain the following customer data points: 

  • Customer lifetime value (LTV) 
  • Order history and average order value (AOV) 
  • Shipping preferences 
  • Phone number 
  • Birthday or personal milestones 
  • Items abandoned in cart 
  • Who buys from you most often
  • Who spends the most and what motivates them

Once your brand has access to this data, the key is using it to build loyalty programs and personalized offers that keep customers coming back. 

Brands can leverage data in the c-store channel as well, where customer retention is now a top priority. Many chains are revamping their loyalty programs with personalized rewards and enrollment is up 42% over last year, with 63% of consumers saying they belong to a c-store loyalty program. 

This happens to be one area where Koupon shines (if we do say so ourselves). Our analytics program dives deep into shopper behavior, stitching together retailer loyalty data, payment information, and coupon redemptions. 

This gives CPG brands a complete picture of how often a consumer shops and what they buy, quantifying things like brand loyalty, trip frequency, and the long term impact of promotions. Our mobile-offer technology can then target shoppers and deliver personalized offers in real time. 

Another consideration when it comes to customer retention is convenience. According to the American Marketing Association, convenience is replacing long-standing drivers of brand loyalty. The bottom line? To keep customers coming back, your product needs to be the easiest to buy. People are becoming less and less willing to go out of their way to buy a particular brand. 

Verdict: A combination of both. Investing in both D2C and c-store provides access to data while ensuring your product is everywhere your customers are shopping. 

5. D2C or C-store, which channel is generally easier to execute or maintain?

Image credit: Oreo

The answer to this largely depends on your existing infrastructure. Execution in the c-store channel, for example, is going to resemble that of grocery. The main difference will be delivery frequency since c-stores are smaller by nature. 

So if your brand is already knee deep in retail, making the transition into c-store will be relatively easy. The most difficult part of the c-store channel, compared to grocery, is the sheer number of locations. And the fact that many stores are single operators. 

This can be mitigated, however, by working with a partner like Koupon. We can connect you with our network of over 45,000 c-stores and help make it a seamless transition. 

On the other hand, if your brand is already selling heavily online via third parties such as Amazon, the transition to D2C won’t be too much of a leap. 

You’ll need to create your own platform but thanks to the proliferation of web development services like Shopify, Wix, WooCommerce, and more, there’s no need to do this in-house. 

Another factor in D2C execution is creating a value proposition that isn’t already offered in retail locations. In other words, giving customers a reason to buy your product directly instead of just adding to their cart while shopping elsewhere. 

One way to do this is by creating premium products or unique varieties that aren’t available in-store. The first time Oreo went D2C, for example, they let customers design their own Oreo packaging and stamp it with a personal message, leading to packages with marriage proposals, wedding announcements, and birthday wishes. Today, customers can use OreoiD to create customized cookies, gifts, and more.  

Verdict: C-store. In general, the c-store channel will be easier for most CPG brands to execute as it resembles traditional grocery. 

6. Which one creates the best consumer experience?

Image credit: Nestle 

At the risk of sounding like a broken record, it depends… Both D2C and c-store offer unique benefits when it comes to customer experience. 

The biggest factor with D2C is that you control the entire experience from beginning-to-end. From the first moment of customer interaction to the package landing on their doorstep. Of course, this means you have no one to blame but yourself when things go wrong! But at least you’ll know about them in real time and can offer solutions. 

Many brands didn’t fully realize the value of controlling the experience until the pandemic disrupted normal supply chains in regard to mitigating risk. 

When it comes to c-stores though, the biggest advantage is the in-store shopping experience. And when people are buying groceries and other FMCG items, they still like to peruse their options, comparing prices and freshness. Brick and mortar locations, like c-stores, innately deliver a better experience in this area. 

Even if customers prefer to shop online, retailers with brick and mortar locations are still in a better position. Customers can compare items online, often with the option for curbside pickup or same-day delivery. 

Another factor to consider when it comes to customer experience is personalization. D2C brands can offer product bundles, subscription packages, personalized offers, and customizable items. On Snacks.com, for instance, customers can build their own variety pack. In the c-store channel, brands can use personalized offers and rewards to improve customer experience. 

Verdict: C-store. It’s hard to beat the shopping experience that retailers offer, especially when you add in same-day pickup and delivery.


These six considerations provide a great guide for your CPG brand regarding investments into D2C and c-store. Each brand will have different answers, yet there is one thing we all can agree on: COVID is changing the retail landscape and CPG brands must adapt to remain relevant. 


CPG brands don’t always have to limit their investments exclusively to D2C or c-store. They’re two different channels with unique benefits. Oftentimes, a mix of both is the best solution. 


Interested in learning more on how Koupon can connect your brand with its network of c-store retailers?