Morning O's
Is the traditional DTC value prop enough?
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Ralph Waldo Emerson is often misquoted as saying “Build a better mousetrap, and the world will beat a path to your door.”
DTC brands have largely adopted this as their argument for attention: A better product at a better value. But there’s a point in this TikTok video when it hits you: The better mousetrap quote (misquoted or not) is a fallacy. Cheerios are Cheerios, whether they’re called Morning Os, Toasted Os, TasteeOs, Toasted Whole Grain Oat Os, Sprouted Oat Os, or any of the other 11 name variants we counted.
And you have to wonder: How much better would a better Cheerios have to be to really stand a chance at reaching scale? Could it compete on quality alone?
You might argue a TikTok showing 71 boxes of cereal is proof that the market is large enough to support yet another box that contains Better Value Os. Maybe.
It seems more likely, though, that the next wave of upstart CPG brands will follow less of the Bonobos/Warby Parker playbook—where value is the main driver—and more of the Parade/Topicals/OffLimits playbook—where being straight-up different, be it category, product, or brand, is the main driver.
In its 2020 CPG Growth Leaders report released earlier this month, IRI noted that while CPG growth accelerated to 10% YoY in 2020, there’s a strong bifurcation at play: “Large CPG innovation and hyper-targeted small CPGs” are increasing premiums at the top-end of the market, while more value brands and private labels are capturing more of the rest of the market.
On its face, this appears to be a win for DTC brands as more develop retail strategies. But in a highly competitive market (like breakfast cereal, for example) there’s also a dangerous dynamic at play: If the market is truly bifurcating, brands following the traditional DTC playbook risk getting stuck in the middle.
A slightly-better-for-you version of something at not-quite-a-premium price is how the traditional DTC brand could be described. You could also describe this as attempting to blur the lines between value and high end. And based on the IRI insight, it sounds like that approach may end up being an uphill battle.
(It’s worth noting it doesn’t seem to have posed a challenge yet: IRI’s report also noted that extra small brands (those doing less than $100M a year) took market share from large CPG in 2020, though it notes large CPG was more adversely affected by COVID-induced supply chain and distribution issues.)
And our experience suggests that uphill battle may, in fact, show up quickly.
In random conversations with friends outside the DTC and CPG worlds over the last two weeks, we asked about awareness, attitudes and buying decisions around DTC brands, about half were unfamiliar with the term (“I don’t know what that is. But I could give you an answer for OTC brand”) and few said their impressions of quality guided their purchasing decisions.
One quote that summed it up better than any other:
“I buy more specialized stuff directly when Amazon isn’t competitive or doesn’t offer the right stuff.”
Which leads us back to where we started: How much better does it need to be?