Kellogg’s Advises CPGs to Begin Direct-to-Consumer Sales

By Pat Lenius

Store-based consumer packaged goods companies need to incorporate online direct-to-consumer (D2C) sales strategies to retain their competitive edge, says the senior director of  eCommerce for the Kellogg Company.

“It is our duty to ensure that we make D2C great,” said Chris Perry, adding that CPGs needs a value proposition that will make this effort worthy of being one of the pillars of their brand strategy.

He presented his rationale in a workshop at the Path to Purchase Summit recently in Schaumburg, Ill. The annual summit, produced by EnsembleIQ, is an official event of the Path to Purchase Institute.

D2C models have already been launched or are being planned for launch this year by 44 percent of CPG companies, according to Perry, who joined Kellogg’s in September 2017 to empower brands to catalyze eCommerce as their number-one competitive advantage and path to long-term growth and market leadership.

Kellogg’s operates a D2C eCommerce website for Bear Naked, maker of granola, granola bars and ready-to-eat cereal. Last year, Bear Naked was purchased by Kashi Company, a subsidiary of Kellogg’s. By clicking on BearNaked, consumers can customize their granola mixes that will be packed in 11-ounce canisters and shipped free of charge to any of the 48 contiguous states.

Perry said a lot of companies are talk about how to do D2C eCommerce, but not so many discuss why. In his presentation, he listed the “right reasons” for a CPG brand to consider direct-to consumer eCommerce: Long-term growth; test and learn; build capability; innovate and launch platform; data ownership in a world of increasing, but elusive, data.

A key selling point to moving a manufacturer into D2C eCommerce is the opportunity to “own the data,” Perry asserted. “A few people own most of your data. You need to find those insights. Data ownership and capability will set you up to survive and thrive.”

He noted there are also “wrong” reasons to enter the eCommerce arena: Short-term growth, “me too,” “everyone else is doing it, “my boss told me to do it.”

He said eCommerce will be delivering 50 percent of CPG growth through 2025. Brick-and-mortar stores are not totally dead, but there are lots of changes within the major retailers. “No matter how big you are, you can still fall,” he said.

He pointed to the steady rise in store closings (excluding grocery stores and restaurants) from 2013 to 2018, adding that closings have been outpacing openings since 2014. The gap widened even more in 2017, according the ICSC Research Team and PNC Real Estate Research.

Merger and acquisition activity has hit a fever pitch and large CPGs will either merge or integrate and acquire retailers. As brands and retailers launch an online marketplace, how should the CPG company respond? Perry shared five strategic moves:

  • Status Quo: Maintain your current go-to-market model with no notable response to marketplace dynamics.
  • Fold ‘Em: Sell out or exit the market due to unwillingness or inability to continue and/or respond effectively to marketplace dynamics. There is no shame in quitting while you’re ahead, Perry said. If new leadership succeeds you, they will have the same four alternative responses to choose from for long-term success.
  • Join Forces: Partner with and sell through existing eCommerce retailers and marketplace platforms.
  • Play the Game: Launch your own “me too” eCommerce D2C model directly in competition with existing eCommerce retailers.
  • Change the Game: Like David vs. Goliath, improve your odds by launching a truly differentiated eCommerce D2C value proposition.

Perry recommended two of the strategic responses: Join forces and/or Change the game.

Kellogg’s “joins forces” with its retailer partners and offers its brands and products for sale online in eCommerce through their eCommerce websites and marketplaces, Perry told CPGmatters in an interview after his presentation.
“With test-and-learn initiatives like Bear Naked Custom-Made Granola, Kellogg’s is ‘changing the game’ by testing unique value propositions and best-in-class brand experiences that Kellogg uniquely can offer to its consumers,” he said.

Within 24 hours of placing their order on the Bear Naked site, consumers receive a confirmation email that enables them to track progress of the shipment. Orders are usually delivered within three to four business days. The company promises 100 percent satisfaction or a full refund of the purchase price.

Perry shared some of the pros and cons of the various strategies:

  • Even with great luck, the “status quo” strategy will inevitably make your organization uncompetitive and unprepared for the future, leading to your downfall.
  • “Playing the game” by launching a “me-too” eCommerce model that directly competes with existing eCommerce retailers can be risky. Although it may be good for long-term leadership, battling competitors on their terms within their preferred model may lead to some losses.
  • “Joining forces” by partnering with existing eCommerce retailers and marketplace platforms is good for short-term growth and capability-building, but the downside is that it requires conformity to others’ models with increasingly limited control.
  • When you “change the game” and launch a disruptive model on your own terms, that is optimal for long-term leadership, competitive advantage and “challenger brand ‘out-maneuverability,’” Perry said.

When determining whether D2C is right for your brand, Perry advised marketers to ask themselves several questions:

  • Will this solve an actual consumer insight-driven problem?
  • Will this be better or different than the status quo?
  • Is it strategic to our business and/or brands?
  • How will we measure success?
  • Is what we plan to do scalable across our business? Can we expand it?
  • Will this be sustainable after the initial launch? Will it still look good six months from now?

“Even if you are not the person launching the actual program, you have to treat it like a long-term investment,” Perry said. “Be the voice of reason in your organization.”

He discussed five elements to the value equation for brands that are becoming retailers through their launch of eCommerce initiatives:

  • Expertise: This can be done with educational content, customer reviews, consultations, customer service.
  • Solutions: Offer an exclusive assortment. Make it a destination-worthy trip. Customize your offering or provide free gifts with purchase.
  • Convenience: How fast is the shopping order receipt experience? Invite customers to subscribe and save or offer home delivery. Provide technology solutions. Encourage customers to use their favorite device to place an order.
  • Price: This is part of the value equation. Price will always matter, but it does not have to matter as much as other considerations. It’s not just how much I paid for something, it’s how I feel after buying it. Offer the option of opening some type of contract account that qualifies for special pricing.
  • Brandless: Provide a single price point, but streamline the value chain. Educate your customers on mark-ups. Don’t compare prices but look for ways to be really different. Introduce a rewards or loyalty program. Focus on customer service or tie-in with a social cause.

His final words of advice: “Customer service and delight drives loyalty. You need to be the leader. Don’t let your competitor sign up first.”

                                                                        April 2018