Why Nestle, Unilever And Mondelez Are Going Direct -- And Why Supermarkets Need To Be Afraid

I was having a very interesting talk the other day with a marketing director of a very-well known FMCG when he outlined one of the biggest problems that his brand managers are facing. They are tasked with growth, yet inflation is low and so consumers are very reluctant to pay extra, even if they understand that a brand's ingredients have shot up in price due to the weaker pound following the Brexit vote. Traditionally, brands have the option of either cutting cost or putting up prices to boost margins are deciding to go for a more premium positioning.

Now, however, there seems to be a third way -- selling direct. Take the whole of the sale and all of the data that comes with it. The huge FMCG groups that have put the mega bucks into advertising, agencies and promoting their goods on supermarket shelves are already making their first moves. That's right, folks. The model of paying an agency a gazillion quid to promote their brands either for their own spots or for spots branded by the supermarket are not exactly drawing to a close, but we're finding out what happens when there is a more direct alternative.

Nestlé is saying that 5% of its sales are now direct e-commerce transactions with the public. Unilever is famously working on direct sales through the Dollar Shave Club, L’Oréal has gone public on plans to sell off The Body Shop and consider direct e-commerce sales, and Pernod Ricard has unveiled plans to sell premium drinks direct. Mondelez has gone so far as to say it expects to have a billion dollar direct sales e-commerce by 2020. There are other plans in the pipeline, but these will at least show that this isn't an isolated idea.

I'm actually a part of the Nestlé direct sales drive through being a member of its Nespresso club, and Unilever's Dollar Shave Club is a tempting offer. We're fast becoming a subscription-based society, and so it seems to be make sense that we will happily sign up to a brand's club that sends us coffee, beer, tea, razors, detergent, ready-made meals and so on. 

Lest we forget, this is also happening at a time when brands are perfectly capable of capturing their own data and acting on it. Traditionally, much of what happens in the purchase of an FMCG's products is a mystery to the brand owner. They send a load of products to distributors and off they go to store shelves. Imagine the greater power the FMCGs will have if they get a direct relationship with their customers?

I have a feeling that once FMCGs begin to get a taste of this, they will want more. Just as Nespresso uses a new brand name for its coffee business, I suspect that others may have to follow suit. Supermarkets could easily take retaliatory action if mirror-image goods were being discounted by their manufacturer online. But a beer club, or a tea fan online meeting place, along with a new brand that will send you a bottle of detergent a week to make sure you don't run out? That will probably be a different matter.

The unavoidable truth here is that growth is very difficult for FMCGs right now. Economies are bumping along the bottom, inflation is low and consumers are resistant to price increases. What better way for the FMCGs to seek massive growth than to cut out the middleman on some of their sales?

The middleman -- the supermarkets -- are the ones to who'll lose out here because digital marketing will be required either way. But going direct must surely mean fewer ads bearing a supermarket's name, which have been paid for by FMCGs? It has to mean far less paying a premium for the best shelf space when your own dot-com is doing very nicely, thanks very much.

The drive for growth against a stagnant background will be the big story of the decade ahead. Mark my words. 

1 comment about "Why Nestle, Unilever And Mondelez Are Going Direct -- And Why Supermarkets Need To Be Afraid".
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  1. Joshua Rex from AP, February 22, 2017 at 5:34 p.m.

    Not so sure the subscription model for FMCG will work as they hope it will. Unilever paid way over the odds for DSG - who actually spend more dollars on TV ads than Gillette! So much for the much herladed online strategy. Nespresso is another example where by a significant % of the user base, buy other brand capsules because of the convenience of picking them up during the weekly shop. A much better way for brands to shave costs is to work on eliminating media waste age, which is massive and if you are Unilever et al - the savings are in the billions. 

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