Does the DTC model work for F&B?

Julienne, batonnet, chiffonade – pick your style. But should we cut out the middle man?

We all know the pandemic accelerated the growth of direct-to-consumer (DTC) F&B brands. In 2020, DTC sales grew by almost 45% globally compared to the previous year. Searches for ‘food delivery app’ increased by 86%, and brands scrambled to get their products available online – ready to embrace growing consumer demand.

In spite of supply chain challenges, DTC is still going strong post-pandemic. In the US for example, a 2022 report by PipeCandy estimates that the country’s 60 million DTC users are tied into 225 million subscriptions.

But what are the benefits of bypassing retailers for future-thinking F&B brands?

Get closer to your customers

One of the major benefits of DTC is that it can significantly reduce costs. In turn, this enables you to grow your profit margin – or you can offer that saving to your customers, without being pressed to compromise on quality.

As you build brand loyalty, opportunities for pushing longer term subscriptions create recurring revenue streams for DTC brands And this happens because your customers enjoy the proven benefits of sticking with you: high quality products with hyper-convenience.

With time and dedication, DTC brings around one of the best opportunities any brand can access: getting to really know and understand your customer.

Engaging directly with your people gives you valuable knowledge about what they’re buying, how often, and why – giving you the power to make increasingly data-driven decisions, and provide a highly personalised service.

The cherry on top? Getting direct feedback and input from your customers gives you access to test and tweak your products on the go, giving you the innovative advantage over competition.

DTC works better for some food sectors than others

Benefits aside, DTC isn’t easy – and it isn’t right for everyone. Although DTC companies have fewer logistical steps to get their products from factory to fork, one survey by Inmar found that over 60% of people would refrain from buying produce, meat and/or seafood online.

The same study showed the sweet spot for online F&B was packaged snack foods – like chips, cookies, and candy.

Companies in the fresh and frozen markets have more to consider before making the move to DTC: mainly logistics. Refrigerated delivery vehicles and plastic packaging aren’t a cheap combination, driving up costs for DTC companies, consumers, and the planet.

The complexity of developing the infrastructure needed to deliver seamless food delivery to your customers – with quality and efficiency that can compete with the big players in the industry – is a key barrier to entry for DTC food startups.

And the planet matters, too

As DTC has grown, so too has the focus on sustainability and protecting the planet. A growing number of global consumers are seeking out eco-friendly, low-impact brands.

One 2022 survey, conducted by IPSOS on commission by plant fertiliser company Yara, found that 58% of Europeans think the climate impact is important when buying food and beverages; while 31% said they’re already making sustainable buying choices.

And this is a trend that’s reflected across the globe – as noted by the World Economic Forum, at least 65% of consumers want to make spending choices that enable them to live a healthier and more sustainable life.

With a more environmentally conscious consumer, DTC companies have to take steps to cut their carbon footprint and embrace more sustainable practices, including biodegradable packaging and reducing waste. Logistical opportunities in electric vehicles and more efficient warehouse operations are big carbon-cutting contenders too.

Since its launch 10+ years ago, food delivery app Talabat has dominated online ordering in the UAE – with a 76% market share. The one-stop shop platform lets consumers order and pay for (primarily) fast food, direct to their door.

Other meal delivery companies have chosen a more specific, health conscious consumer. Like Laird Superfood, founded by champion surfer Laird Hamilton, which brings plant-based nutrition to high-performance vegan athletes – following a $51 million funding round in 2015.

And there’s Grubby – a relatively new meal-delivery-service-kid-on-the-block in the UK. Grounded in the understanding that consumers are increasingly concerned with the rising cost of living, while simultaneously searching for food options that don’t hurt the planet, Grubby hit headlines when it added carbon footprint information to its recipes. First launched in 2019, Grubby grew revenues by 425% from 2021-22, serving over 500k meals to a customer base of 35k.

What do these brands have in common? A clear demographic, with specific dietary needs – and a laser focus on that niche. The lesson here is that if your customer has a clear, specific need, DTC might be for you.

Like any good nutritionist will tell you, it’s all about balance.

DTC is a huge opportunity for agile and focused brands across industries. We’re excited to see more innovative F&B startups in the DTC space – because they can fill in gaps in areas where bigger, slower-moving incumbents struggle to meet demand.

But even for those bigger companies, the DTC model presents a potentially lucrative model. It’s a route to access market segments that really want a more personal relationship with the brands they buy from – and the potential for a high speed-to-market and rapid scaling is an attractive prospect for investments and acquisitions.

DTC comes with a unique set of challenges. But through knowledge-sharing and strategic partnerships, those challenges can be transformed into opportunities.

We happen to know about a really good place to gain knowledge, build industry relationships, and catapult your brand into the future. See you at InFlavour 2023?

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