10/3/2020 Covid-19 To Accelerate Direct-To-Consumer Model For FMCG

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Covid-19 To Accelerate
Direct-To-Consumer Model
For FMCG
Fitch Solutions / Retail & Consumer / Global / Mon 18 May, 2020

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10/3/2020 Covid-19 To Accelerate Direct-To-Consumer Model For FMCG

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• Supply chain disruptions and lockdowns stemming Argentina - Dark Stores And Online
from Covid-19 will accelerate global FMCG player’s Marketplaces To Disrupt Mass
Grocery Retail
DTC.
• We note that DTC has been a popular strategy
European And SSA Market
implemented by FMCG disruptors and in recent years
Opportunities For Greek Food &
had featured as a strategy global FMCG majors we Drink Exporters
starting to engage in.
• Covid-19 has accelerated DTC FMCG offerings and we Overcoming Global Covid
believe that it is a strategy FMCG player will continue Diagnostic Inequality: A Key
to expand in the post-Covid-19 operating environment. Challenge

We outline drivers and potential strategy development

for FMCG DTC. Rising Geopolitical Risks And
Protectionism Will Increasingly
A Supply Chain Re-Think
https://www.fitchsolutions.com/corporates/retail-consumer/covid-19-accelerate-direct-consumer-model-fmcg-18-05-2020?fSWebArticleValidation=true&mkt_tok=eyJpIjoiWldReFpUZzRaamc0TkRRMyIs… 2/11
10/3/2020 Covid-19 To Accelerate Direct-To-Consumer Model For FMCG

The Covid-19 pandemic has shown how fragile supply Impact Agribusiness Trade And
chains can be in face of a global crisis. Fast-moving Investment

consumer goods (FMCG) companies have been faced with

navigating panic buying and stockpiling, which have led to
their products suddenly being cleared from stores and so
logistics bottlenecks in the re-stock. The sudden uptick in Get in touch
demand for online delivery of products has also led to Send us a message and a member of
logistics issues for mass grocery retail (MGR) players and our team will get back to you
so a delay in consumers receiving FMCG products. In
response, we are noting how global FMCG players CONTACT US
(Beiersdorf and Unilever for example) have broken into
and expanded their existing direct-to-consumer (DTC)
strategies, with a speci c focus during the spread of
Covid-19 on basic products, such as personal care items, Want more like this?
cleaning products and staples.
Fitch Connect delivers all the
Covid-19 FMCG Direct-To-Consumer Initiatives research, data, tools and analytics
Covid-19 Direct-To- you need to support informed
Company Country decisions.
Consumer initiative
Heinz to Home Service:
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canned food delivery in
Connect
bundles of 16, launched
Heinz UK in April 2020. Company
planning to add sauces REQUEST A DEMO

and baby food products

to this initiative.

https://www.fitchsolutions.com/corporates/retail-consumer/covid-19-accelerate-direct-consumer-model-fmcg-18-05-2020?fSWebArticleValidation=true&mkt_tok=eyJpIjoiWldReFpUZzRaamc0TkRRMyIs… 3/11
10/3/2020 Covid-19 To Accelerate Direct-To-Consumer Model For FMCG

Covid-19 Direct-To-
Company Country
Consumer initiative
Partnered with delivery
services Zomato and
Swiggy in March 2020
Nivea India
to deliver personal care
products across 100
cities in India.
Partnered with delivery
service Rappi in April
2020 to deliver
Unilever Brazil
household cleaning
products, as well as
personal care products.
Launched its e-
commerce platform
Micocacola.cl delivering
soft drinks, water, juices
Coca-Cola Chile and alcohol directly to
consumers in April
2020. The services also
offers recycling and
re lling.

Source: News sources, Fitch Solutions

FMCG Disruptors Developed DTC And Majors Have
Since Adopted

https://www.fitchsolutions.com/corporates/retail-consumer/covid-19-accelerate-direct-consumer-model-fmcg-18-05-2020?fSWebArticleValidation=true&mkt_tok=eyJpIjoiWldReFpUZzRaamc0TkRRMyIs… 4/11
10/3/2020 Covid-19 To Accelerate Direct-To-Consumer Model For FMCG

We note that the DTC model is not new; it emerged amid a

number of FMCG disruptors, such as the Dollar Shave
Club, a shaving subscription model delivered directly to
consumers acquired by Unilever in 2016. Other
companies have also introduced DTC in the food segment,
for example, Arla Foods, which introduced Baby&Me in
China in 2016, providing organic infant formula following
the baby formula milk scandal. The DTC model has also
been increasingly adopted by alcohol majors, with
sometimes limited success, such as when Diageo
discontinued its luxury e-commerce platform Alexander &
James in 2017.

Many FMCG companies have now pivoted towards

investing in disruptive niche products, which consumers
can get sent directly to their homes. The subscription
model, for example, enables consumers to try new
products, driven by a desire for novelty and has been
mainly targeted to those between 20-39 years of age.

Covid-19 Has Led To Greater e-Commerce Demand And

So More ‘Direct To Consumer Potential’

The Covid-19 pandemic has accelerated the adoption of

DTC and FMCG companies are seeking to re-engage with
consumers and ensure brand loyalty. In uncertain times,
we note that many consumers have gone back to well-
known brands and staples. We also note how increasing
older consumer base, which goes beyond those

https://www.fitchsolutions.com/corporates/retail-consumer/covid-19-accelerate-direct-consumer-model-fmcg-18-05-2020?fSWebArticleValidation=true&mkt_tok=eyJpIjoiWldReFpUZzRaamc0TkRRMyIs… 5/11
10/3/2020 Covid-19 To Accelerate Direct-To-Consumer Model For FMCG

traditionally targeted, (20-39 year olds) are adapting to e-

commerce.

Consumers’ desire to shield themselves from infection

and lockdowns associated with stemming the spread of
Covid-19 has led to increased demand for purchases
online. We speci cally highlight the pensionable age
group (65+), which has historically not been a key e-
Commerce target group, but is the age group being listed
as highly vulnerable to Covid-19 infection and death from
the disease. We believe that during this period of Covid-
19, the pensionable consumer will have embraced e-
Commerce.

Will FMCG DTC Strategy Continue And Expand After

Covid-19?

We believe demand for e-Commerce and so DTC models

will continue to increase even when the risk from Covid-
19 recedes. As such, we believe that ‘direct to consumer’
strategies implemented by global FMCG players during
Covid-19 will be expanded. We note two drivers for this
trend beyond the Covid-19 outbreak and a likely ‘next
step’ strategy for the FMCG sector:

Post Covid-19 Drivers:

Engaging With A Traditional Consumer Via A New

Channel: Older generations (generation X, baby boomers

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10/3/2020 Covid-19 To Accelerate Direct-To-Consumer Model For FMCG

and the silent generation) remain key and loyal consumers

to traditional FMCG offerings. Those aged 40 and over
grew up in the period of mass-market brands and have
remained more loyal to these brands than consumers
within the millennial and generation Z groups (which are
more open to embracing new brands, especially smaller
independent brands). As noted above, Covid-19 has led to
greater engagement in e-commerce by generation X and
especially baby boomers and the silent generation (listed
as at high risk from Covid-19).

As these new consumer groups have become more

familiar with e-Commerce during Covid-19 we believe it is
increasingly likely that they will remain engaged with this
form of retail in the post-Covid-19 period. FMCG
companies will be able to reach these traditional
consumers via MGR delivery and e-Commerce third
parties, but we believe that ‘direct to consumer’ will offer
them another opportunity to engage with a consumer
base which has shown lifetime loyalty to their products.

A Direct Link To Consumers: Global FMCG companies

have traditionally sold their products via third parties
(MGR and bricks and mortar retail) and have developed
strong relationships with their retail partner. In recent
years, however, we have noted disputes erupting between
retailers and suppliers and also legislation which we
believe will lead to a longer term catalyst to major FMCG
player’s ‘direct to consumer strategies’.

https://www.fitchsolutions.com/corporates/retail-consumer/covid-19-accelerate-direct-consumer-model-fmcg-18-05-2020?fSWebArticleValidation=true&mkt_tok=eyJpIjoiWldReFpUZzRaamc0TkRRMyIs… 7/11
10/3/2020 Covid-19 To Accelerate Direct-To-Consumer Model For FMCG

A well publicised dispute between FMCG suppliers and

MGR emerged in 2016, when due to a sharp devaluation
in pound sterling Unilever sort to raise the price of it
products, but UK MGR major Tesco refused to pass on the
price increase to consumers and so ran short of Unilever
products on its shelves for a couple of week before the
dispute was resolved.

In terms of legislation that will drive FMCG majors' DTC

strategy we highlight Argentina’s a new 'supermarket
shelf law', which was introduced in March 2020. The law
limiting the same supplier products being displayed on
more than 30% of shelf space, with a minimum shelf space
now guaranteed for small companies, this minimum
reaches up to 50% in locations within stores, such as next
to cashiers. The law will directly impact global FMCG
players, which typically have multiple brands across
product segments. A DTC approach would however
navigate this supply risk.

Post-Covid-19 Strategies:

We have previously highlighted the growing traction

sustainability, as a topic, has had for consumers and have
noted how global FMCG players have developed
sustainability strategies. We believe that there is the
potential for a crossover between FMCG companies’
sustainability strategies and DTC offerings, speci cally
within re lling and recycling. If FMCG players are going to

https://www.fitchsolutions.com/corporates/retail-consumer/covid-19-accelerate-direct-consumer-model-fmcg-18-05-2020?fSWebArticleValidation=true&mkt_tok=eyJpIjoiWldReFpUZzRaamc0TkRRMyIs… 8/11
10/3/2020 Covid-19 To Accelerate Direct-To-Consumer Model For FMCG

create their own logistic networks to reach consumers,

they can develop, not only delivery (of goods), but
potentially collection (storage containers of re lling or
packaging for recycling). We highlight that Coca-Cola in
Chile is already trialing such a strategy (see table above).

This report from Fitch Solutions Country Risk & Industry Research is a
product of Fitch Solutions Group Ltd, UK Company registration number
08789939 ('FSG'). FSG is an af liate of Fitch Ratings Inc. ('Fitch Ratings'). FSG
is solely responsible for the content of this report, without any input from
Fitch Ratings. Copyright © 2020 Fitch Solutions Group Limited. © Fitch
Solutions Group Limited All rights reserved. 30 North Colonnade, London
E14 5GN, UK.

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