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Direct-to-consumer models will shape future of beverage industry: Rabobank
Saturday, 26 December, 2020, 08 : 00 AM [IST]
Our Bureau, Mumbai
Covid-19 painfully exposed gaps in the traditional beverage route-to-market models, and the lack of attention and investment in e-commerce. Typically, beverage companies outsourced the strategic space to retail partners and start-ups. However, as Covid-19 has given this a sense of urgency, several companies are experimenting with direct-to-consumer (DTC) models, as they seek to recover lost strategic space.

The standard e-commerce approach chosen by beverage companies – working with existing online retail platforms – offered an easy and quick way to diversify channel coverage without harming existing retail relationships. This traditional approach gave retail partners a disproportionate power in the evolving arrangement, creating a significant and long-term dependency on the retailer, with reduced levers of control to drive market share. “Brand owners also missed the opportunity to build big data regarding the consumer, which is the future of marketing and product development. This means abdicating access to the consumer and insight into their purchasing patterns to retailers, which will ultimately leave them in a vulnerable position,” points out Sudip Sinha, senior analyst – beverages at Rabobank.

Codiv-19 accelerated the digitalisation trend, adding a sense of urgency. A few large food & beverage brands are already working on building an e-commerce model suited to their portfolios and growth agendas. Vertical integration – with full ownership of the production, marketing, and fulfilment stack – is the chief characteristic of these emerging e-commerce models. “The emerging DTC business model will support beverage companies in building direct connections with consumers. It is a strategic action to build next-generation business models that rely heavily on high frequency and deep consumer data to support product development, marketing, and communication,” says Sinha.

DTC models have a long gestation period and high initial cost of customer acquisition. Under the circumstances, however, the community commerce model offers a promising solution, as it offers scalability and lower customer acquisition cost, and it allows companies to transform their existing competitive moats into next-generation digital competitive advantages.

Companies have spent decades building and nurturing their traditional distribution ecosystem, which underpins their brand success. Creating an alternative route-to-market model eschews the traditional wholesaler-distributor infrastructure, which is still an important competitive moat for most large beverage brands in the current environment – one that they still need in order to remain relevant. Therefore, an alternative approach that helps pivot the traditional distribution ecosystem into the modern gig economy, and also includes the new DTC business model, could underpin a long-term strategic advantage without sacrificing current competitiveness.
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