Do you still remember Rocket Internet founder Oliver Samwer's provocative statement from 2013? Samwer said: 80 percent of offline retailers will not survive. Unthinkable at the time and dismissed by many as a pipe dream. Today, about a decade later, an increasingly harsh wind is blowing in the face of brick-and-mortar retail. Declining productivity per unit area, a gradual customer migration to the net, declining consumer confidence, the Corona crisis, supply chain bottlenecks, shortages of raw materials, price increases on the part of manufacturers and explosive increases in energy costs - these are all causing the plus in the contribution margin calculation to melt away like Alpine glaciers in the summer sun.
Increasing direct sales through digitalisation
In addition, another significant threat has emerged in recent years with the spread of digitalisation: direct sales from the producer/brand to the end customer (D2C). This has created further competition for traditional retail outlets.
While in the food sector, long-established brands with a corporate structure are finding it rather difficult, start-ups with new products in niche markets particularly are using direct sales via their own online shops and social media channels to address the end customer. This is mainly for two reasons:
- On the one hand, to circumvent the listing thresholds of retail trade and the resulting costs, including the risk of failure of new product launches, which tends to be high in on-site stores. Only 1% of all new products escape delisting in the first year.
- On the other hand, for the efficient access to the customer and the direct interaction without an intermediary who wants their share of the margin.
The fact that such models can be successful and become big is shown by many national and international examples, and by the increasing use of influencers, who are also increasingly making inroads into the beverage sector. Meanwhile, they are no longer available purely as online D2C brands, but now also through classic retail channels.
What makes D2C so successful?
The interaction and the knowledge of the customer and their needs. A direct customer relationship makes it possible to recognise trends earlier and to continue to be relevant through better satisfaction of their needs and better products.
What can traditional brick-and-mortar retail learn from successful D2C brands?
Know your customers, their needs and align your actions accordingly! Retail is not an end in itself. Only those retailers who satisfy the needs of their customers in the best possible way through a targeted offer and better service will escape substitutability and the discount war.
Dr. Matthias Schu is a leading e-food expert in the DACH region. Since 2020, he has been teaching as a lecturer for e-commerce and retail at the Lucerne University of Applied Sciences and Arts. Further information: HERE