5 Things You Need to Know When Moving from DTC to Retail
Ready to become an omnichannel brand? Learn how data can help you avoid common pitfalls in the retail business.
With increased competition and rising advertising costs squeezing the direct-to-consumer (DTC) channel, DTC-native brands are launching into retail to diversify their revenue streams. It’s a great opportunity to achieve scale and profitability, but most CPG brands will face a frustrating challenge along the way: retailer data is much more difficult to collect, understand, and use than data from DTC.
In this article, we’ll lay out the five main pitfalls of the transition to retail and how data can help you overcome them before they halt your channel expansion, including:
- Why promotions aren’t as simple as they seem – and how to manage them
- The granular insights you need to determine the best stores for your product
- How to compare baselines and lift for an integrated, data-informed approach to sales
What you need to know
Brands moving into retail face substantial risks in the form of high costs, long-term bets, and a more complicated supply chain. While every brand has to learn through experience to some degree, there are some common problems that can be avoided.
Let’s look into the causes and solutions to each of these common pitfalls, so you can rush through the growing pains of the retail channel.
1. It’s harder to analyze data – by orders of magnitude
When you’ve built a direct-to-consumer brand, you’re used to having sales, customer, and supply chain data at your fingertips since sales, marketing, and fulfillment happen in-house or with close partners. Though data analysis isn’t always easy, you generally have access to the inputs you need.
With retail, your product is carried by potentially thousands of retail locations – and each retailer has a different system for tracking, sharing, and organizing their data. Brands have to regularly log into data platforms from multiple different retailer partners, download dozens of spreadsheets, and then attempt to consolidate this data before getting any meaningful insight. Without an immediate and complete picture of your supply chain and product locations, it’s easy to miss important details and metrics that would have helped you make better decisions, like which retailer to prioritize for new product shipments, or which region to prioritize for marketing spend.
For example, Jordan Buckner at Tea Squares was selling to a distributor for over a year before he realized there were a large number of product returns. Because managing the data is so complicated in distributor partnerships, it took Jordan going through the chargeback data line by line to discover that his distributor had returned 30% of the product sold. This was eating up almost his entire profit margin. Stories like this are all too common.
If you’re going to build out a data collection, organization, and analysis structure yourself, be prepared to spend a significant amount of time and money to make it workable. Alternatively, you can use a data collaboration platform like Crisp to keep track of where your product is distributed and sold at all times.
2. Promotions are necessary, but you have to do them right
Retailers strongly encourage brands to invest in trade spend that will help products move off the shelves. This includes coupons, temporary price reductions, co-advertising, or buying ad placements on retailer apps.
CPG brands are often surprised to learn that these promotions don’t usually bring in new customers (but they do eat at your margins). In fact, our partners at Promomash, a leading trade promotion management platform, estimate that 70% of all promotions fail. Tracking the actual sales lift and profitability of your promotions is necessary to determine if they’re actually helping or hurting you. Here’s how you can get that information:
- Track chargebacks as a percentage of overall sales over time
- Use sales lift to measure which type of promotions perform best
- Communicate with distributors frequently about any issues or changes
Usually, CPG companies address trade promotions reactively: they do what the retailers ask for, then wonder what could have been different. But when you’re in control of your data and are creating your own goals, you can proactively let retailers know what type of promotions will work best for your brand.
To help brands do this, Crisp recently partnered with Promomash to integrate promotion plan and actual sales data all in one place, giving you real-time visibility to plan, execute, and measure more successful promotions.
CPG brands are often surprised to learn that promotions don’t usually bring in new customers (but they do eat at your margins). In fact, 70% of all promotions fail.
3. Be picky about placement
When your product sales live entirely online, channels that don’t sell as well might not impact your bottom line, because a single inventory location can service endless channels and marketplaces. But when planning your expansion into retail, more isn’t necessarily better. Products that don’t sell will cost you more, and ultimately hurt your relationships with retail partners. Costs you take on with retail include slotting/listing fees, pay-to-stay fees, display placement, and costs associated with overstock and waste.
This means you need to understand your sales by market to expand strategically into stores where you know you’ll succeed. Here’s how:
- Track sales performance by store, retailer, region to understand where you’re strong.
- Avoid out-of-stocks, voids, and poor product placement so that you’re in a strong position to advocate for expansion.
- Identify opportunities to expand to locations that fit best for your brand based on past sales.
When you track placement effectiveness, you’re able to lean into what’s working for your brand and product(s). By focusing on where you can do well, and not wasting time and money where you won’t, you’re able to use your resources wisely to avoid waste while selling as much as you can – and build trust and credibility with your retail buyer.
4. Don’t “set it and forget it”
Tracking and driving your product velocity is possibly the most beneficial thing you can do to be successful with your retail strategy.
If you’ve secured a distributor or retailer, that’s a big win – but your work isn’t done. In reality, this is just the beginning when it comes to retail. When you continue to track sales velocity at each store, you can control your sales strategy and skyrocket profitability.
Tracking velocity can help you with:
- Product assortment strategy for the most “bang for your buck” sales
- Informing new product development
- Ensuring successful promotions, trade spend and demos
- Informing priorities for marketing and ad spend
- Understanding your baseline and the effectiveness of merchandising tactics
Tracking velocity, put most simply, lets you know where all the money is at any given moment. Getting this right will give you nearly as much control as you’re used to with DTC.
5. Know how to avoid out-of-stocks
Keeping track of inventory and supply chain data is all-important. It helps retail brands avoid issues like:
- Unnecessary sales slow-downs
- Buyers not being able to find your product and buying something else instead
- Fines from distributors or retailers who have certain service level requirements
- Incorrect growth forecasting for products in a given market, which can cause problems with operations and manufacturing
- Spoilage (and the costs that come with it)
Dan Capraun, Senior Manager of Strategy and Planning at NotCo, says that one of the biggest pitfalls when launching a retail CPG brand is managing the weeks of supply necessary for each distribution center. When this goes wrong, sales are lost for both the brand and the distributor, and customers go to the competition instead.
“Crisp’s Inventory Dashboard has helped us circumvent out-of-stock issues across the network, which translates to additional sales across our distribution channels.”– Dan Capraun, Director of Strategy and Planning, NotCo
The key to solving this issue is data. You can choose to track manually in spreadsheets, create your own systems and maintain them, or use a platform like Crisp for instant visibility into fill rates, weeks of supply, voids, and aging inventory.
Crisp helps CPG brands ace the transition to retail
Your greatest line of defense against the most common retail pitfalls is access to accurate, real-time data that helps you outsmart the operational complexities of the retail model.
At Crisp, we automate the flow of data from all of your retailers into one cohesive dashboard, so you don’t have to comb through mountains of raw data and maintain a system yourself.
Crisp also turns your data into practical insights, making it easy to understand where your product performs best, see how your promotions are doing, avoid out-of-stocks, and more. You can also track long-term trends at a glance as you manage a product across thousands of locations.
Ready to discover how Crisp can help you unlock retail success? Book a demo with Crisp today.
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- Access to Crisp free for 75 days
- Free data strategy consultation
- 20% off list price for Crisp
- learn more about this offer here