“Face reality as it is, not as it was or as you wish it to be” – Jack Welch

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Over the last 7 years, we:

• Worked on multiple global DTC projects (strategy, M&A, turnaround) for the top 50 largest FMCG companies

• Met 30+ FMCG DTC CEOs with company's revenue ranging from $10m to $250m p.a.

The below are our first-hand learnings enriched as usual with extensive research. The overall is summarized in five key messages. Enjoy the read

1) DTC: From hype to deception

We extensively covered in the below publication last year the 'why' & the 'what' behind the above assertion

Few updated charts to bring the most recent perspective:

• Generally, DTC has been going through three phases over the last 15 years & we have entered since 2021 into the deception phase

• Specifically, the majority of (FMCG) DTC IPOs failed to create any shareholder value

• FMCG DTC M&A reached a new bottom in 2023 & in Q1 2024 with Strategics that have completely stopped acquiring DTC assets

• Most DTC initiatives (build, acquire) of the world largest FMCG companies failed (with some acquirers offloading now those assets: UL/ Nestle with DSC & Freshly)

• Multiple reasons explain the above

• Specifically, the overreliance of DTC businesses on digital marketing & CPM/ digital impressions steady increase played an important role

2) Too Few (Lackluster) Success Cases

(Relative) FMCG DTC success cases exist but are rare. Profitability is often lackluster even for scale-ups assets (cf. Hims and Charlotte Tilburry). Retail expansion can step-change performance dynamics if very specific conditions are met (cf. Harry's). Oddity (a DTC pure-play), for now, stands out (both top-line CAGR & profitability wise) but the jury is still out whether current metrics can be sustained

3) A large unrealized value (~$100bn assets value on hands) behind DTC for both financial & strategic investors (DTC initiatives with low right-to-win, underperforming DTC acquisitions, unaddressed DTC organic opportunities)

4) About the difficulty to get DTC right or 13 sins killing a DTC business

Based on our experience, we listed 13 'sins' killing DTC businesses, all illustrated with 'real' verbatim

The below is a non-exhaustive list and not all DTC companies suffer naturally from all of those traits

Here are the 13 sins (all detailed in the two below charts):

i) The wrong where-to-play

ii) My brand is forever unique

iii) The illusion of consumer-centricity

iv) We are a Data company

v) The digital media addiction

vi) The discount addiction

vii) The performance marketing religion

viii) 'The DTC myopia' or the extreme opposite 'the retail FOMO' with nothing in-between

ix) We are a Tech company

x) The 'jumping around' syndrome

xi) The 'budget version 42' syndrome

xii) Leave us alone

xiii) I have to know it all

5) Achieving the full value of DTC assets require a rigorous omnichannel, consumer-centric &, financial approach. Our approach has a successful track record in a wide range of context (categories, geographies, growth acceleration/ turnaround)

Considering all of the above (the rarity of success cases, the difficulty to succeed & the high unrealized value behind DTC), the key question is: how to turnaround a DTC business & achieve the full value of DTC assets?

Here is our perspective:

i) First it is important to keep in mind that objectively only a minority of businesses can develop a right-to-win (large, profitable) as a DTC pure-play

ii) The question is often to 'right-size DTC' to maximize omnichannel absolute profit (what is its role, for which consumer segments, with which value propositions) which requires an omnichannel lens (ie. it is hard to have a DTC strategy without determining an overarching omnichannel strategy)

iii) Generally, without a granular understanding of current & potential consumers (unmet needs, barriers, drivers, triggers, omnichannel/ 4Ps preferences on the holistic consumer job to be done, purchase intent & willingness to pay, omnichannel CLTV), it is impossible to solve the problem, hence the need to complete bespoke quantitative & qualitative consumer research

iv) Specifically, mastering the art of demand curve & strategic segmentation are both critical considering the high cost of the channel (ie. determining the exact consumer segment that has both the purchase intent & the willingness to pay the price point that maximizes absolute profit for a DTC business)

v) From there, a granular understanding of those target consumers path-to-purchase/ consumer journey is crucial to determine the highest ROI tactics to recruit them. Successful companies recruit consumers through different channels (not only digital marketing) leveraging gate-keepers (persons of influence that can drive the right recommendations to the target consumers) & partners (that have the same target consumers & with whom they can engage into a value exchange, ie. cross-promotion...). The objective is to identify the most effective Point Of Market Entries (POMEs) strategy

Here below is our 3-phases/ 10-steps approach that we have developed over the years with our Clients:

Bringing it all together:

• Most DTC businesses failed & (relative) success cases exist but are rare

• The FMCG industry has currently a high value at stake behind DTC assets (>~$100bn)

• Few large FMCG brands today that could leverage DTC, are not & are leaving material value on the table

• Strategy and execution at many DTC companies have significant room for improvement but it requires an omnichannel, consumer-centric & financially rigorous turnaround approach

As Jack Welch put it: “Face reality as it is, not as it was or as you wish it to be”

Still exciting times for DTC in the FMCG industry

Get in touch:

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About the Firm:

Frederic Fernandez & Associates (FFA) is a global bespoke Strategy Consulting Firm exclusively focused on Organic Growth (Zero-Based-Growth® approach), Digital GTM (Ecommerce 2.0®, DTC & Ecoystems and EB2B) and M&A serving the world largest FMCG companies. Its purpose is to help its clients win today while renewing their competitive advantages to win tomorrow. 14 out of the top world 20 largest FMCG companies are repeat Clients.

The Firm's team intervenes all across the globe and across all FMCG categories. To know more about the Firm, please visit our websites:

www.fredericfernandezassociates.com

www.exponentialfmcg.com

No FFA employees own any stocks or financial instruments of any FMCG companies or companies mentioned in the above article. All the above information are public information