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Going Direct

15 November 2019

Entrepreneurial British manufacturers are expected to benefit from a massive £13bn boost as they increasingly cut out retailers and wholesalers and sell their products direct to consumers in one of the biggest shake-ups the industry has seen in generations, according to a new Barclays Corporate Banking Manufacturing report.

Direct to consumer – A growing trend?

Entrepreneurial British manufacturers are expected to benefit from a massive £13bn boost as they increasingly cut out retailers and wholesalers and sell their products direct to consumers in one of the biggest shake-ups the industry has seen in generations, according to a new Barclays Corporate Banking Manufacturing report, Going Direct.

The traditional model of selling goods via wholesalers and retailers is under pressure like never before, as companies embrace technology to sell and distribute their own goods via social media and the internet.

Nearly three out of four companies now sell direct to consumers (73%) and over the last five years, (DTC) sales have soared by 55%. DTC now accounts for 16% of all manufacturing sales in the UK, an in-depth industry survey of 500 manufacturing companies found.

Manufacturers who have invested in a DTC sales strategy said they had benefited from increased revenue (45%), growth in their customer base (38%) and increased speed to market (32%).

Sportswear giant Nike became the latest big brand to launch their own direct sales channel last year, ‘Nike Direct’, whereas start-ups such as Eve Mattresses and Harrys razors began as DTC brands and have now expanded into selling into shops.

Opportunity for UK manufacturers

The value of goods sold through DTC is forecast to continue to expand rapidly as both well-established global brands and start-ups invest in the potential around selling direct to customers.

Economic modelling commissioned by Barclays, which analysed current growth rates, customer demand and investment in DTC channels, estimates that value of the DTC market will boom to £13bn by 2025. Beyond the manufacturing sector, DTC activity could also provide a much-needed boost to the wider UK economy by up to £32.5bn in the next five years.

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  • Key takeaways

    The UK manufacturing sector could add £13.3bn of revenue through greater investment and more effective business strategies to support Direct to Consumer (DTC) sales, a 15% growth over the coming five years. Using the DTC approach would also create 31,400 new jobs

    • Even if DTC continues on its current growth trajectory, sales through this approach could help the manufacturing industry grow by 12% by 2025 
    • Three quarters (73%) of UK manufacturers are now selling some or all of the products they manufacture direct to end-user consumers – compared to 56% five years ago 
    • Over half (55%) of survey respondents have noted an increase in direct to consumer (D2C) sales volumes during this period 
    • Selling directly to customers provides opportunities to own the end-to-end brand experience and build closer relationships, as well as offering greater control of products. When asked about the benefits that their company has experienced, manufacturers identified revenue growth (45%), access to a broader customer base (38%) and improved speed to market (32%) 
    • More than three quarters (77%) of all manufacturers plan to invest in the next year and 74% have already increased capital expenditure over the last 12 months 
    • The most common challenges identified by those using DTC include: building brand loyalty (41%), increased responsibility for every touchpoint within the supply chain (32%), managing customer interactions and differentiating the product offering (31%) 
    • In order to be ready to sell directly to consumers, businesses have already made – or say they will have to make – changes to their workforces. Over one third (36%) envisage training or upskilling. Another third (34%) expect to employ people with a different skill set and 32% anticipate hiring more people.
  • Regional Insights

    Potential job creation and regional economic gain

    Shifting a business culture from a technical, B2B focus to a consumer-facing model requirs a whole new set of skills. Indeed, around a third of our survey respondents highlighted the need to either hire new staff (32%), access new skills (34%) or up-skill their existing workforce (36%) in order to implement DTC successfully.

    Adopting a DTC strategy does, therefore, offer economic opportunities in terms of job creation, with our survey results showing a clear potential boost for regional economies through an ability to reach a broader market. Around a quarter of businesses (24%) using DTC also recognise that increased employee productivity and satisfaction are potential benefits of the approach, with 18% suggesting that adopting a DTC strategy has increased applications for jobs, perhaps through a growth in opportunities and awareness.

    Delivering customer benefits, but at what cost? Nor is it just businesses and employees that stand to reap the benefits of DTC. Our respondents who sell using DTC suggested a number of advantages for customers, which includes an abiity to lower prices (26%), the the speed to market (32%) and opportunities for product personalisation (28%).

  • Case study

    Mornflake, a natural step?

    Investing in a DTC distribution strategy has delivered independent family oat miller Mornflake with a new route to consumers, and is also helping drive the firm’s future direction.

    DTC has given us a direct relationship with the consumer, which means we can tap into them more easily for feedback and suggestions about products.” “This might feel like a natural thing to do, but it is important to know your market, know your competitors, identify ways to differentiate yourselves and then target the right customers with the right products.

    Cheshire-based Mornflake has been milling oats in the same family since 1675, making it Britain’s fourth oldest company. The business has been passed down 15 generations, milling and marketing oats, oatbran and muesli to more than 80 countries around the world. But the brand is also a perfect example of how new routes to market can help a business evolve to reach new customers.

    Mornflake is currently stocked in all major supermarkets, through health food stores such as Planet Organic and Wholefoods, and is distributed through wholesalers as well as online channels, including Amazon. It’s a complex distribution model.

    In recent years, however, Mornflake has been increasing its investment in DTC distribution, a move which is not only helping the company to expand its customer base, but also gather valuable insights that feed its future direction.

    Making it easy

    “As a business, we’ve always been focused on how we get our oats in front of consumers,” says James Lea, Managing Director of Mornflake’s parent company Morning Foods Limited. “We’ve had a telesales offering since the 1980s, so DTC was not completely new to us.

    “However, the introduction of the internet was a complete game changer, and something we really wanted to leverage. So, our focus has been on making purchasing as easy as possible for consumers. That means, whether they pick up the phone, visit us through our website or drop us a direct message on Instagram or Facebook, we will pick that up and direct them into our omni-channel sales process.”

    Equipped for success

    Mornflake’s move to DTC has seen the business invest in technology, staff and warehousing to ensure it is fully equipped to deliver on its commitment of “making it easy” for the consumer.

    However, James says another crucial element has been raising awareness of the Mornflake brand and ensuring consumers are aware of the opportunity to purchase directly. As a result, the company has also invested in a variety of social media marketing.

    “A lot of our marketing activity now revolves around working with foodie and healthy life-styler social influencers – they often review our oats and share recipes using them. We’re gaining access to new audiences via our influencers all the time.

    Paid-for social media advertising is also increasing, he adds: “Social media is an advertising vehicle and if you really want to get the best from it, you need to invest in reach to audiences beyond your existing followers.”

    From mill to bowl

    Implementing a thorough and effective DTC strategy has produced some challenges for the business.

    Mornflake, which is dedicated to helping customers “wake up to a better-quality breakfast each and every morning”, recognises the importance of making sure the product gets there in great shape. “The reality is that you’re often dealing with a distribution network that is used to throwing cardboard boxes in the back of vans,” James says.

    In response, the business has invested in “the best rather than the cheapest” distributors, as well as using stronger and more durable packaging for distributed products, he explains.

    Growth and innovation

    Despite these challenges, James says the benefits of DTC far outweigh the cost and effort.

    “Far from just taking orders from new customers, the internet and social media channels have allowed us to genuinely connect with audiences,” he says. “DTC has given us a direct relationship with the consumer, which means we can tap into them more easily for feedback and suggestions about products.”

    In more than one instance, that feedback has led to the launch of new products across its channels – both DTC and traditional.

    This has also helped counter any potential conflict with retailers and wholesalers about Mornflake’s use of DTC. “Through direct feedback and by monitoring our own sales trends, we can better guide our stockists on the products they too should be selling,” says James.

    Look before you leap

    James has a clear message for other companies looking to develop a similar strategy, regardless of their sector.

    “This might feel like a natural thing to do – because every company wants to connect with more customers,” he says. “However, it is important to know your market, know your competitors, identify ways to differentiate yourselves and then target the right customers with the right products. And you must be prepared for the speed of the online world. It’s far quicker than traditional manufacturing.”

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