DTC, Revisited
We can’t quite put our finger on when it happened exactly, but the tone around DTC shifted a few months ago.
It’s been curious to watch: What once was billed as an unfair advantage—especially for CPG brands—is now, almost, considered anything but.
Why?
Q3 is all but over (two weeks left in the quarter and no major holidays to spike consumer spend), so perhaps the answer is in front of us. YoY DTC CPG revenue will slow again this quarter, all but flatlining at 3% growth. Buried in that data, though, is a more concerning sign—and one that may be responsible for the shift in tone.
New customer acquisition in Q3 is projected to end down 16% YoY and down nearly 7% QoQ.
Compare that to last year, when new customer acquisition was up in Q3 40% YoY and overall DTC CPG revenue was growing 74% YoY.
If you subscribe to the belief that your Holiday sales season is only as good as your ability to generate a healthy customer file in the 90 or so days preceding it, you start to see where the negativity is coming from.
And if you’ve got a pulse on those numbers, perhaps it’s reasonable to start questioning where it went wrong. A tone shift almost seems natural. Maybe even needed.
From our viewpoint, though, a hard 180-degree turn on the viability of DTC—especially for CPG—skips the important questions and doesn’t leave room for exploring more deeply.
“It never could have worked,” isn’t helpful. But “Why is this channel working for the customers who are buying here?” is.
As we wrote in July when we recapped Q2’s numbers:
But there’s one question that’s worth posing: Is DTC likely to become a loyalty channel for CPG brands?
While DTC businesses are facing headwinds right now, it could be argued that many of those headwinds have always existed—and that cheap advertising artificially elevated the ceiling for new customer acquisition (remember all the “arbitrage” talk a few months ago?).
This question about DTC’s role, it seems, is worth asking, because it fundamentally changes everything from growth plans to merchandising decisions to product R&D.
If you can stop for a moment and figure out what the utility is that your customer sees in the channel—and not just your brand or product— you may be able to build a better overall channel mix to your business.