Why Unilever is Smart to Graze on the Potential of Direct to Consumer

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It’s been a choppy couple of years at Unilever. Following Kraft-Heinz’s failed hostile bid was a blocked relocation to Holland, the unexpected departure of chief executive Paul Polman, and a share price yet to recover to 2017 levels. The FMCG giant is perhaps in need of a bit of good news.

When it announced yesterday its acquisition of Graze, the Dove-to-Marmite maker’s share price barely jittered. It was, after all, the fourth such acquisition in a matter of months. M&A activity is just another day at Unilever. But the move is more significant than first appears. It represents a harbinger: the recalibration of how FMCG brands reach consumers.

It was new boss Alan Jope’s first acquisition since stepping up, and he looks to be playing his predecessor’s hand well. Graze, like Unilever’s last significant buy, Dollar Shave Club, utilises direct-to-consumer (D2C) sales in a way not previously witnessed by multinationals.

D2C is nothing new. The difference is that, historically, one would associate D2C with SMEs — those with marketing budget constraints; personable small firms cutting out the middleman, offering a niche range of specific products or services. What is new, is established brands seeing it as a potential growth channel.

To some extent, D2C as we know it today is a hangover from direct mail, reborn for the digital age. That’s not to say Unilever’s foray is misguided — quite the opposite. Unilever is somewhat late to the party, having watched smaller operations try, test and succeed in recent years. The D2C tail is wagging the marketing dog, and other brands should follow suit.

D2C reflects the challenging environment in which FMCG brands now exist — a reaction to the new reality of consumer expectations, an antidote to the ailing high street. Brands that sell directly to consumers do more than simply cut out the middleman or woman, be it Amazon, John Lewis and everything in between. They keep more of the profit on each item when margins are tight. They cut back negotiations. They reduce their exposure to fragile retailers and gain more control over price and distribution.

The above has mostly always been true of D2C brands. Personalisation has always been the name of the game regarding marketing, even in the direct mail days. Labour intense market research to find your audience ruled the day, but even so, was infamously plagued with colossal wastage.

The digital age has clearly ameliorated this rather large travail. Social media allows the smallest minnow to have the reach of a global firm, without the overheads. Direct to consumer increases direct interaction with end consumers, giving brands a far better idea about the needs, wants and expectations of their audience. Cutting out any intermediaries allows a brand to control the customer experience from start-to-finish, adapting and tailoring messaging as required.

Where consumers are and what they want has changed. Some of the savviest D2C brands today were born on social media — Graze and Dollar Shave Club are both exemplars. But items once found exclusively in retail parks have joined the march. One is as likely to be served an Instagram ad for a mattress-in-a-box named Casper as a razorblade on subscription.

But social is not without its limitations. Facebook has stopped brands using third party data for customer profiles, insisting they utilise its campaign modeling tools instead. Likewise, organic reach is virtually nothing.

That is not to negate social media’s potential. Social platforms facilitate conversations between brand and audience, allowing even startups to reach huge numbers of people very quickly and scale without retail partners.

It is this opening up of new markets and creation of new revenue channels that FMCG giants are gunning for. If Unilever can apply learnings from the Graze model to even a few of its other brands, Jope will be on the right track. D2C is about to become the norm. It goes without saying that competition for space will increase. Best start planning now.

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