Sounds interesting but what do you mean by going direct?
Well, if you know your Laurel and Hardy it's quite straightforward. When they were running their own wholesale fish business they worked out they could make a lot more money if they caught their own fish, sold them direct to customers, and “eliminated the middleman” along the way. It's not far away from what's happening in the real world. Yes the big wholesalers, national distributors, major supermarkets and online giants still dictate which brands and products are listed and sold. But that's increasingly not going to be the case now that smart, interactive, digital technology technically allows any brand, or producer, to talk to and sell their products direct to anyone they like around the world with minimal cost. Particularly when you factor in how much profit and margin is being taken out of the supply chain with all the listing, promotional and so called in-store and distributor marketing fees. Yes, they have been the route to market ever since we had high streets, shops, pubs and restaurants, but does that mean they have to be in the future? Why can't producers just do what they like and sell direct to consumers or their customers?
So, what's stopping them?
Nothing. Only the fact the vast majority of traditional retailers and distributors are not going to take kindly to brands, producers and manufacturers just doing what they like. That's not the way it works. Those aren't the rules of the game. But we live in disruptive times and behind the scenes things are starting to change. Big brands are starting to quietly look at how far they can push those traditional rules, so that they own more of their own supply chain, get direct contact with their consumers, learn more about them, and crucially make better financial returns.
So what are the drinks brands up to?
Well, if you are a bit behind on the news this summer you might have missed what could turn out to be one of the most important drinks industry deals. Not that you would have realised it. Pernod Ricard's acquisition of Uvinum, the Spanish global e-commerce site for wine and drinks, was carried out with the minimum of fanfare, but the long term ramifications could be far reaching. It might only have been a minimum outlay, but one of the world's biggest drinks players buying up a specialist e-commerce drinks retailer is a clear statement of intent. Not that you will find too many Pernod Ricard executives talking about it. They don't want to rustle the feathers of the big retailers and distributors they currently rely on to sell their household brands. But over the last three to four years e-commerce has been the fastest growing part of Pernod Ricard's business. Up 20% in 2016, it has done deals with the likes of Amazon to find discreet ways to go direct to consumers.
Interesting. What else has been going on?
As far back as 2013 Pernod Ricard introduced its own e-commerce site, Sipstor, which it used to sell exclusive, limited editions of its favourite brands, such as Havana Club and Absolut Vodka, as well as run marketing campaigns and, no doubt, build up a nice database of digitally savvy customers. In 2016 it followed that up with a dedicated site for Malibu rum where you couldn't buy the drink, but get your hands on exclusive offers you could spend in-store, alongside unique point of sale materials and branded clothing. Diageo is looking to do the same with its own brand specific websites, so that it too can connect with and build direct relationships with customers. When they are not hosting standalone websites big drinks brands are investing millions in creating shareable videos and content online and building a digital community that way.
Why are we talking about this now?
It's a combination of factors. The biggest being technology and the fact smartphones now give brands, big or small, direct access to all of us at the point of purchase. It means the line between offline and online retailing is becoming irrelevant. It's also what consumers increasingly want. They are seeking out ever personalised offers, experiences and looking for products and brands they can relate to. Often the smaller the better. Here's a killer line from Liza Landsman, who was president of Wal-Mart's Jet.com until earlier this year: “The day of the pure play [retail] is dead. Consumers want that choice — they don't want companies' operational complexity thrust upon them, pushing them only one way to do business.” Instead they are following and interacting with their favourite brands in their millions on social media. Why not take that onto the next level, getting the ultimate brand experience and buying exclusive products direct from them?
Brands and producers are also increasingly being pushed out of their normal routes to market by the enormous rise in own label. There is also demand from innovative restaurants, bars, and wine merchants looking to create their own unique offers, and get more margin at the same time, by cutting out their own middlemen and going direct to producers and brands.
Smaller, start-up, disruptive brands are already basing their entire business models on going direct to consumers. It's another reason why so many big grocery brands are looking so seriously at DTC. Particularly in functional categories where consumers have jumped at the chance to buy direct for an easy option. Like the Dollar Shave Club (now part of Unilever) or Harry's Razors, Bonobos for clothes or Simba and Caspers for that must-have new mattress. Brands that have used the colossal power of platforms such as Amazon, Facebook and Instagram to grow fast and connect directly with their customers. At minimal cost. They've created a large social media following and been able to use social media ads to switch them over to paid customers. These are often cluttered categories, like razors, that are boring to shop for, but have capitalised on how good other customers say their product is and how easy it is to buy. We might not like it, but the average consumer sees buying an average, daily varietal wine equally as complicated - and unexciting. The opportunity to offer them an easy way to order Prosecco, Pinot Grigio or Sauvignon Blanc online, that can be delivered to their door is an open goal just waiting for the right DTC player to take.