Grocery suppliers try hand at selling

Some companies test online sales

As online sales rise, food companies are testing the waters of “direct-to-consumer” sales models that cut retailers from the equation.

Food processors have historically relied on distributors and grocery stores, where customers buy their products. But as meal-delivery services and online grocery sales surge, suppliers are testing ways they can sell their own products without the middlemen.

There are several reasons for this, but main reason is consumer data, said Jennifer Bartashus, a food and retail analyst with Bloomberg Intelligence. Retailers have always been privy to behavioral data, including the products customers are likely to buy and at which location and time. Nestle, PepsiCo and other popular brands are pivoting to procure some of that firsthand data with their own e-commerce websites.

The trend has gained steam as shoppers practice social distancing and become more acclimated to buying things online.

Nestle tested the model last year with a website that

sold luxury Kit Kat bars across the U.K. for up to $18 a bar. Perdue Farms set up a website early this year that sells and ships frozen meat and poultry across the U.S. Heinz, PepsiCo and others established their websites as retailers, like Walmart, reported some of their largest online sales gains during the pandemic.

“Now manufacturers are having to look at trends and go, ‘who is controlling our destiny?’,” said Martin Thoma, principal at Thoma Thoma marketing agency in Little Rock. “‘Who is going to influence or shape the future of our brand? Am I going to seed that to my channel partners or go ahead and own that and take control?’”

“A decade ago they had to rely on Walmart and Kroger and Target,” he continued. “Today all these brands are just so much more ready to develop and manage their brand relationships.”

That doesn’t come without hurdles. Typically, products are sent to wholesalers and distributors before reaching store shelves. Removing those components introduces new challenges for manufacturers that want to advertise and interact directly with the consumer. They must consider shipping costs, warehousing, return policies and more, Thoma said.

“There’s a lot more than just getting a website and selling stuff online,” he said.

Some businesses are a better fit than others. Blue Apron and meal-kit businesses are in that space already, but older, bigger companies will have trouble pivoting, Bartashus said.

“I think the food space will look at other sectors to see what has worked and what hasn’t,” she said.

Tyson Foods, which processes about 20% of meat and poultry consumed in the U.S., is looking at ways to enter the space, but details are few.

“We are always working to provide solutions that meet consumer needs and as the consumer evolves we need to evolve with them,” Tyson spokesman Morgan Watchous said in an email. “We are only testing and learning in this space with some of our smaller businesses.”

Meanwhile, Beyond Meat started selling its meatless burgers and bratwursts last week through its own website, offering two-day shipping on all orders. In a news release, the company said this move complements its presence in 26,000 U.S. retail stores.

Manufacturers are responding to consumer demand and the trend will be a challenge for retailers, Thoma said.

“How difficult and cumbersome would it be to go to 40 different manufacturers” for everyday items, Thoma said. During the pandemic, shoppers are visiting e-commerce retailers such as Walmart, Amazon, Home Depot and Lowes. But will customers go to a manufacturer’s website for specialty items, Thoma said, “yeah, why not?”

The move has the potential to upend an industry. Consider the travel agency business model that relied heavily on airline commissions. Airlines decided to sell tickets directly to consumers and eliminated travel agency commissions in the U.S. by the early 2000s, Thoma said.

“It’s not unprecedented at all,” he said.

At this point the shift to direct-to-consumer channels is in the early stages for food companies and not intended to be a major driver of revenue, Bartashus said.

“It’s fascinating to watch and interesting to see how successful they are,” she said. “With everything going on, it’s hard to predict where that will all land.”