The retail space is undergoing a historic shift as e-commerce consumes more and more retail dollars each year. This is especially true in the consumer-packaged-goods (CPG) sector, which sells billions of dollars worth of products consumers use every day. The largest CPG companies are now expanding their direct-to-consumer offerings through acquisitions and online subscription services. This blog explores why CPG companies are changing their business models and the impact it’s having on consumers.
Unilever’s acquisition Of Dollar Shave Club
In 2016, CPG giant Unilever bought Dollar Shave Club, a scrappy upstart that built a direct-to-consumer business selling shaving products. Why did Unilever buy a startup that sells razors and other hygiene products? Because after only four years, Dollar Shave Club built a billion-dollar business and seized 60% of online razor sales. The company also built a brand synonymous with convenience and savings. The acquisition gave Unilever a head start over other CPG companies trying to develop a direct-to-consumer model, which would have taken years while competitors continued to steal market share. The acquisition was a cheap and fast way to sustain market leadership. Another benefit of direct-to-consumer is better access to customer data. This cannot be undervalued. Some studies show that retailers are hesitant to share this data; a direct customer relationship lets CPG firms collect customer data to better support demand planning and inventory optimization. It also lets companies see shifts in buyer behavior faster.
Proctor & Gamble’s subscription service
Like other major CPG companies, Proctor & Gamble has long relied on a network of retailers and middlemen to sell their products. The success of Dollar Shave Club convinced P&G to consider new distribution channels and improve the customer experience. While Unilever tried to address that problem through an acquisition, P&G decided to completely rethink the buying experience. In 2016 P&G launched Tide Wash Club, essentially a Dollar Shave Club for its signature Tide Pods and Tide Spin, which the company called the “Uberization of laundry.” This program lets customers use a smartphone app to order rapid delivery of P&G products. P&G followed that program with more acquisitions in 2018. This model allows P&G to react faster to market shifts and new demands.
Colgate’s planned subscription service
Colgate is late to adopt the direct-to-consumer model and is rapidly playing catch up. Earlier this month, media outlets reported that Colgate is close to purchasing a minority stake in Hubble, a New York startup that sells contact lenses online. The startup has grown without traditional advertising, instead focusing its marketing efforts on social media platforms. As part of the acquisition, Hubble would develop a subscription service for Colgate starting with oral care and eventually expanding to other product lines. Colgate reported weak growth last year as startups such as Quip and Goby have created online subscription services for toothbrushes and toothpaste.
The largest CPG companies are seeing their market dominance challenged like never before. Innovation and disruptors to existing business models occur daily via startups rather than traditional market leaders. Smaller upstarts have found new ways to connect with consumers without massive marketing budgets or traditional distribution chains. In addition, pressure from Amazon has led Wal-Mart to demand that CPG companies lower prices and speed up delivery. Customers now enjoy lower prices and more convenient distribution channels for standard household goods, which have made the CPG space more competitive. CPG companies need to adapt to a more digital, consumer-first strategy or risk being left behind.