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The real reason packers should go all in on D2C
Prime Future 001: the weekly newsletter highlighting trends in animal protein
Hypothesis: Direct to Consumer (D2C) business models will be a high growth sales channel for all meat & poultry companies within 5 years.
And to capitalize on the D2C trend, packers must get serious about building capability…soon.
For those who might say this market is still too small for packers to pay attention yet, remember the Innovator’s Dilemma. Quick summary:
“Established companies see the early trends of new markets, they are just not structured or incentivized to act on them. Leaders at established companies must focus on market share and profitability of today’s largest customers & segments….not tomorrow’s.”
Given that D2C isn’t going to be the largest segment overnight, why should packers focus there?
There are 2 obvious reasons:
If COVID has taught us anything, its that a large segment of consumers are comfortable ordering online and want more ways to secure access to protein.
As more companies seek to build brands and move closer to the consumer in order to increase margin, D2C presents an obvious opportunity.
There’s a less obvious reason though, one that could impact the packer’s ability to serve their entire customer portfolio.
The real reason packers should invest in D2C is to capture the broader benefit of drastically increased visibility into consumer behavior.
To illustrate this point, here’s a case study from the insurance industry.
Back in the day insurance carriers built out the agent distribution system, so products and processes were built for selling through the distribution system. The carriers receive data related to policies sold. Now, many carriers are trying to figure out how to layer digital into the customer experience but its….clunky.
Contrast this with Lemonade, the homeowners insurance startup with a digital first experience for buyers that’s grown from $0 to $100M revenue in 3 years. As a digital first experience, shoppers not only buy their policy online, they also file claims online, most of which are settled with incredible speed.
So what? In its few years in existence, Lemonade has captured data about buyer behavior that provides them better insight to their buyer than the mega companies who have been in existence for decades.
Take <insert 100+ yr old insurance company>. That company captures data about buyers who purchased a policy. That’s it.
Meanwhile Lemonade is able to understand exactly how buyers moved through every inch of the buying process, such as:
What options did they consider? Did they select one before going back to select another?
Which options did the buyer take the most time to select?
How far did the buyer get in the process before dropping out entirely?
And that’s just the tip of the iceberg.
This treasure trove of data informs Lemonade’s understanding of their target customer including buying behavior, which then informs Lemonade’s ability to improve the customer experience through better processes AND better products. The power of a shortened feedback loop.
Now let’s do the meat industry. Packers get point of sale data from retailers that tells them what a customer bought…that’s it. Meanwhile <name the digital first D2C company> understands the buyer’s behavior at a granular level, including which cuts a customer almost bought but didn’t, which cuts a customer bought once but never repeated, etc, etc, etc.
Think about how a packer could build a compelling competitive advantage in terms of marketing and product development not just in their D2C channel, but across retail and foodservice as well. Unlocking the power of a shortened feedback loop could power innovation and growth across the entire customer portfolio.
The packers are dabbling with their 2 primary options:
Supply a growing D2C customer
Build their own D2C platform
(I have a hypothesis on a 3rd path but let’s save that for another day.)
Recently we’ve seen Cargill hiring a few ecommerce roles, JBS’ investment in Wild Fork, and Perdue standing up their own ecommerce website. Good starting points. But the time for dabbling is gone.
It’s time to go all in, to drive a new era of innovation in the entire meat category through investment in the shortened feedback loops of D2C sales channels.
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The New Normal in Food, highlights some interesting potential trends around restaurants and consumer behavior as the world finds its new normal.
Pre-COVID each of the major proteins sold roughly ~50% into retail, ~50% into foodservice. That's obviously been flipped on its head and shifted towards more like 85/15.
Where consumer behavior goes from here will drive where processors go from here.
What's your bet?