DC Diversification: Direct-to-Consumer Reigns

U.S. supply chains have been on Ozempic for the past two years and that diet leaves room to invest, experiment, and expand in direct-to-consumer (DTC).

DTC is truly demand-driven and not dominated just by the growth in online purchasing. The search for elusive and cost-conscious retail and manufacturing customers is spurring new ideas, backed by operational expansion and investment.

Yet the DTC sector is becoming saturated and will not continue to show the phenomenal growth seen in recent years, according to an Airhouse Research report. Maybe, maybe not. Successful companies are focusing supply chain brainpower on that challenge, so I wouldn’t bet against it.

Here’s one example. I was at a crowded (thankfully) mall recently and walked past Starbucks. Right next door was a Nespresso boutique, with a line out the door, selling pods and machines directly to mall shoppers.

Nespresso’s distribution channels are robust and well developed and include traditional retailers and department stores. Retail boutiques have been operational for a while, but Nespresso has been expanding recently with locations in 84 countries. Its DTC ecommerce online ordering service is global, serviced here in the States by final mile, direct-to-doorstep experts such as CDL. Nespresso, like Walmart and Amazon, will invest in new ideas and build out new ways to maintain and expand sales and market share.

How are the two retail giants expanding customer touchpoints? Both companies are spending millions on roboticized mega fulfillment centers to up the speed and lower the cost of their DTC game.

But how are they trying new DTC ways to expand? Walmart and Amazon are supplementing those roboticized channels and tasking retail locations with distribution and fulfillment responsibilities. The mission? Get an expanded geographic direct-to-consumer pipeline. Walmart does that by leveraging its 10,000-store footprint to serve as mini distribution centers and use location advantage in the DTC war by getting closer to consumers.

Amazon doesn’t have that footprint advantage, even with Whole Foods, so it is going another way. The plan is to set up distribution partnerships with small businesses—think bodegas and neighborhood shops—to compete with Walmart’s closer-to-consumer location advantage. Amazon will soon test this Hub Delivery Partner program in 25 states to ultimately partner with at least 2,500 small businesses by the end of 2023. The goal is to multiply DC channels, compete with the Walmartian location advantage, and get a closer direct-to-consumer connection. Brilliant!

These developments tell me that, despite research to the contrary, DTC sales will continue to grow. What other ways to get closer to customers are just over the horizon?