How to move from direct-to-consumer (D2C) to retail

The direct-to-consumer (D2C) business model gained momentum during the pandemic, and in CPG, D2C-native brands were in a comfortable position to cater to evolving consumer needs and shopping habits. Now, many are looking to adopt a hybrid strategy to drive more growth and revenue. 

This article covers some of the reasons D2C businesses opt to expand into retail markets, what the process involves, and best practices that improve the chance of success and staying power. 

Why expand from D2C to retail?

For some D2C brands, expanding into retail is simply a matter of diversifying revenue streams in the face of increased competition and rising digital advertising costs. But there are other reasons, too, and the most obvious one is reach.

Getting products on retailer shelves instantly opens a D2C brand to new customers and new brand awareness.

Tapping into the distribution channel of Target creates instant scale and exposure with less advertising investment. Brick-and-mortar retail expansion can give a D2C brand access to markets or demographics that may not be easily reached through digital channels, and to customers who prefer to shop in physical stores. 

Having a presence in physical retail stores can also enhance a brand's visibility through in-store displays and promotions, and some consumers are more likely to trust and purchase from the brands they see in stores.

Additionally, adopting an omnichannel strategy allows CPG brands to seamlessly offer customers multiple touch-points for purchasing products and cater to different shopping habits and preferences. Modern consumers expect that flexibility. 

Any or all of these reasons may convince a thriving D2C brand to consider a hybrid retail model as an efficient way to scale. But it's a big step, with unique hurdles to overcome — especially for brands used to handling their entire supply chain under one digital roof. 

Adopting an omnichannel strategy allows CPG brands to seamlessly offer customers multiple touch-points for purchasing products and cater to different shopping habits and preferences. Modern consumers expect that flexibility. 

How to become a retail supplier

Expanding from DTC to a hybrid or retail-only CPG model requires aligning many aspects of the business model and supply chain with the expectations and contractual requirements of retailers. This takes research, planning, and adaptability.

Most retailers have strict criteria and requirements for prospective suppliers to ensure the quality and consistency of products their customers expect. This guide: ‘How to become a Target supplier‘, provides retailer-specific steps and considerations for working with top global brands, including step-by-step application processes. Suppliers will encounter many of these same expectations from any retail partner. Here are three to plan for: 

• Product quality standards and certifications. Suppliers must understand the retailer’s specific standards for things like product quality, certifications and insurance, and ingredients labeling. As part of the set-up process, the supplier will likely need to provide detailed information about ingredients, sourcing, packaging, and all related certifications.

• Supply chain readiness. Can the supplier comply with the retailer’s requirements for electronic data interchange (EDI) for document transmissions and shipment labeling? They’ll also need the proper supply chain management systems in place to ensure timely delivery, and a potential retail partner may want to see that the supplier has real-time visibility and control of inventory and distribution.

• A track record of success. Retail brands want to know a supplier has momentum. They will want proof of sales velocity and incremental growth in the form of data from DTC and e-commerce sales. Be sure to include geographic sales data to prove viability in diverse markets.

Prospective retail suppliers will need the proper supply chain management systems in place to ensure timely delivery, and a potential retail partner may want to see that the supplier has real-time visibility and control of inventory and distribution.

Prepare for a new data paradigm when expanding from DTC to retail

Data analysis can get more complicated when suppliers go from DTC to retail hybrid.

All sales, inventory, and marketing inputs will no longer be immediately accessible. What’s more, if suppliers work with multiple retailers, each retailer will have their own system for tracking, sharing, and organizing data. Accessing that information can mean logging into multiple retailer portals, downloading spreadsheets, and manually consolidating and standardizing data before the supplier can extract meaningful insight. That takes time and resources, and it inserts delays in the analytical workflow. 

CPG suppliers planning to build out a retail data infrastructure in-house must be prepared to spend a significant amount of time and money to make it workable. 

Alternatively, consider using a data software solution to keep track of where product is distributed and selling at all times.

Retail expansion: pitfalls to avoid

There are a lot of changes when a CPG supplier expands from DTC to a retail hybrid model. Managing inventory, fulfillment, and logistics for both channels adds complexity and costs, and managing the supply chain for both channels simultaneously can increase the risk of stock-outs and overstocking. 

Planning and preparation, however, can help suppliers avoid the biggest risks. Here are a few ways to avoid key pitfalls:

1. Be strategic about product mix and distribution strategy. Every placement will involve an investment in slotting fees, pay-to-stay fees, and costs associated with overstock and waste. What’s more, product assortments that miss the mark in a retail setting can threaten relationships with retail partners, so suppliers will want to carefully curate product assortment and market presence from the get-go. This will require timely data and effective analysis. 

2. Retailers typically want suppliers to be aggressive about product promotions, but those promotions won’t always pay off in terms of customer acquisition. Be sure to track the revenue and profit impact of promotions and be assertive about sharing preferences with retailers. Suppliers know best what promotions pay off for their brands, and they need to advocate for what works best.

3. In the brick-and-mortar retail world, products that don’t sell cost more than in  DTC, and they can impact retail relationships. Successfully avoiding stock-outs and overstocks requires tracking sales performance by store, retailer, and region to understand where sales are strong, and allocating inventory accordingly. Brands that are smart about product placement, monitor and address voids, and minimize out-of-stocks can also advocate for retail expansion.

4. Compliance with each retail partner’s documentation requirements gets more complex as suppliers grow. Every shipment notice, shipping label, and invoice will need to be tailored to the requirements of each retail partner, and those specs may change frequently. Setting up automated, integrated workflows and working with third-party experts can reduce the costs of EDI compliance and backend integrations while ensuring good standing as a supplier of choice.

In the brick-and-mortar retail world, products that don’t sell cost more than in DTC, and they can impact retail relationships. Successfully avoiding stock-outs and overstocks requires tracking sales performance by store, retailer, and region to understand where sales are strong, and allocating inventory accordingly.

After retail expansion: ensuring omnichannel sales success

What are the key ingredients for a successful expansion from DTC to retail? What sets the winners apart? Here’s a checklist.

• Leverage ‘daily data’ for decision-making.  In DTC, suppliers have the luxury of immediate access to data to track everything from ad spend to sales trends. In tracking retail sales, they lose that direct access and may choose to rely on syndicated reports by companies like Nielsen or SPINS to spot trends. The problem is, that those reports may take weeks to arrive, which is far too late to adequately respond to threats and opportunities. Fortunately most major retailers today share sales and inventory data daily through portals for suppliers. The challenge for suppliers is to extract and harmonize the data to make it immediately actionable and, just as important, to provide a way to track and optimize sales performance, which is essential to any successful retail strategy. Learn more about the power of daily data.
• Enrich reporting across channels. Newly-hybrid CPG suppliers enter a new world of sales and inventory data that may now encompass not only online and in-store, but also pick-up and delivery. Having consolidated, omnichannel data across retailers and across channels provides a huge advantage, as will having sophisticated reporting systems. 

• Streamline master data. In addition to ingesting and consolidating daily data sets from retailers, CPG suppliers need to understand that data holistically to make strategic decisions. Data sources frequently have diverse data formatting, naming, and organizational conventions that must be reconciled to make data actionable for analysts and decision-makers. Collecting and organizing data to align with internal business standards is known as master data management (MDM), and as suppliers grow beyond their DTC roots, it becomes an essential component of any analytical framework.

DTC-to-retail success stories

Many DTC-native CPG brands have expanded to retail over the last decade, and the most successful have several things in common. They all have great products, of course, but they also did their retailer homework, planned ahead to avoid pitfalls, focused from the beginning on data-driven decision-making, and they didn’t build everything from scratch.

For the popular digital-gone-hybrid vitamin brand Ritual, that meant avoiding the costs and distraction of building in-house retail data pipelines. Instead, they relied on Crisp for a seamless integration with their existing Snowflake platform, ensuring a smooth flow of daily data and the richest possible analytical capabilities. This strategy helped them successfully partner with Whole Foods and Target stores nationwide.

Similarly, when sustainable DTC lawn care brand Sunday decided to launch at Lowes, they were committed to staying engaged with consumers across channels and to understanding the interplay between in-store and online shopping experiences. 

To bring those two sides of the business together, the Sunday team looked to Crisp dashboards for daily sales and inventory snapshots, trends, and decision-making while using Snowflake for additional analytical insights, such as how sales patterns tie back to weather data.

CPG brands have enough to think about when they go hybrid without reinventing the wheel. Getting data flowing smoothly from the beginning and having visibility across channels sets DTC businesses up for success in retail.

CPG brands have enough to think about when they go hybrid without reinventing the wheel. Getting data flowing smoothly from the beginning and having visibility across channels sets DTC businesses up for success in retail.

Ready to expand your DTC business into retail? Crisp can help.

Having accurate, centralized real-time data is a key hedge against some of the most common challenges DTC brands face when they take the retail plunge. From accessing daily data to optimizing your reporting, to staying EDI-compliant and more, Crisp can help you unlock retail success from day one. Learn more about a compCrisp retail data solution here.