Show notes
We discuss the future of direct to consumer brands and the long awaited reclaiming of end-consumer relationships by the L’Oreals and Philips of the world, and why Nuno won’t do “automatic toothbrush head re-ordering” any time soon. We talk about the importance of chicken (yes, CHICKEN!), why CostCo is locking in its production and the future of food delivery, including dark and cloud kitchens. In gadgets, we talk about the Apple Watch and Amazon Alexa.
Navigation:
Digitally Native Brands - from Direct to Consumer 1.0 to DTC 2.0 (01:51)
The case for product differentiation in DTC (04:11)
Innovations in packaging (10:13)
Gaining direct relationships with consumers (13:22)
Theses in food delivery (16:38)
Emergence of dark and cloud kitchens (17:45)
Take-out still key in the US (21:52)
The importance of the Costco $4.99 Chicken (24:46)
Apple leader in smart watch (31:02)
After 5 years, why is Alexa barely better? (37:47)
Resources:
Frederic Fernandez, FMCG CEOs: 10 Thoughts About The Future Of DTC - http://bit.ly/3cWe88a
Times of India, Cooking food to become as rare as making own clothes - http://bit.ly/2WdndU9,
CNN Business, It's only $4.99. But Costco's rotisserie chicken comes at a huge price - https://cnn.it/3aXuls4
9to5Mac, Strategy Analytics: Apple Watch sales grew 51% in Q3, still the ‘clear industry leader’ - http://bit.ly/2QiAmr8
The Verge, After 5 years of Alexa, why isn’it it better - http://bit.ly/2WacdqJ
Our co-hosts:
Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt
Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro
Our show:
Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.
FMCG CEOs: 10 Thoughts About The Future Of DTC
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Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors
Bertrand: Hi Nuno, how are you today?
Nuno: I am well, and how are you Bertrand ?
Bertrand: I'm doing pretty good, so today we are going to talk about consumer, consumer goods, consumer tech and we have a few topics from consumer goods to food tech.
Nuno: Yes, and that will make us hungry. So this is going to be an interesting show at the end of the day.
Digitally native brands - from DTC 1.0 to DTC 2.0 (01:51)
Shall we go in? And to the direct to consumer analysis on digitally native brands. This really interesting article, by Frederick Fernandez, which really puts together a lot of research from ABI and a few other sources on the future of DTC, and he has 10 specific thoughts around it. And , to start with a non-controversial part, I think we will find it difficult to disagree tremendously with any of the 10 points. But maybe let's start at the beginning, right? So , let's start with definitions and what it is and what it's not.
We're talking about, effectively the direct to consumer or, what we call digitally native brands. So brands that are F in the FMCG space, that are reaching out to consumers in their first instance, through mostly a digitally enabled value chain and also digitally enabled front office in front of the house.
So, a lot of interesting analysis around it. I think let's start with sort of the obvious ones, and maybe go to the less obvious ones.
The point that he makes pretty early on is that, what got some of these digitally native brands to be so unique and so advanced, and really to take significant market shares is probably not going to work for the next wave of DTC 2.0. So DTC 1.0 was really focused on price arbitrage, on optimization of marketing, on paid traffic, and effectively there weren't a lot of barriers created there.
And , if we're looking at the future of DTC and, some of these FMCG digitally native brands, effectively that will look very different going forward. You need to have a structure that defends you. You need to be back to this point where there are some barriers to entry, et cetera.
I'll start with one thing that comes to mind quite a bit. Well, I look quite a lot at digitally native brands, on my day to day role, in VC, and we always see these companies, which is like, "we're going to be the new brand of salt of olive oil, of whatever" that's going to deliver to customers and we're going to be the new brand that will allow customers to have, for example , "spices in their home", and one of the few things, and it all seems a little bit idiotic, but it's not , because in some ways, the access that people want to have to specific brands because of convenience and a few other things is very well suited for direct to consumer, digitally native brands.
The case for product differentiation in DTC (04:11)
But at the end of the day, one of the questions I always ask, so I'll start with one pet peeve I have is: what's unique about your product, right? Are you doing anything around product? If you're just sourcing it from an existing player in the market, that can actually at some point go direct to consumer.
If you're not doing anything around product besides packaging and just distribution afterwards, what is unique about your angle? And, shockingly enough, what I've come to the conclusion of is most of these new players are still playing by what Frederick would call this sort of 1.0 playbook, right?
They really haven't thought through what are the attributes of their brand beyond marketing. What are they doing around product? Right? And, in consumer goods, we have to go back to that basic knowledge that the development of a brand, the development of a product, are not the same thing.
The development of a product is actually a complex thing. If you're doing something that requires certain types of approvals, from the food and drug administration, or that actually is going to be in the hands of consumers, how are you going to innovate around that? So that's my first pet peeve, which is really, how do these DTC 2.0 plays actually distinguish themselves on product, besides marketing, potentially business model, et cetera.
Bertrand: Yes, I think, interestingly enough, it's not clear. He talks a lot about differentiating in product, but it's quite a lot around how do you create some unique advantage. And some of your unique advantages might be around distribution. You have created an insane content and brands that make people want to buy from you because , you will present some specific brand attributes or because your product is part of a bigger system, is part of a bigger whole, and that's that "whole" that has a true strong business model. So in a way, it has to even go beyond that product.
I think the one product, however unique it is, might be a very difficult game in the first place. You're right to say it has to go beyond, a non-differentiated product. But I think his point is that it has to go beyond any single product.
Nuno: Yes. And I think there are a couple of different dimensions here.
One is the notion of traffic and how do you attract traffic to you and how do you build brand? And if we go back, to some of the core tenants of this article, it does make sense that you have content, that you have media, that you basically induce it into this really overall digitally native platform, and you generate a lot of traffic out of it, but in some ways, that's not a very different playbook from an FMCG brand in general, even one that sells offline and that has other types of presence. So you have advertising that basically grew and spread awareness and other things.
Bertrand: I would actually disagree a bit, because when you think about Glossier, it's a great example where: it's as if they owned the typical beauty magazines and typically the FMCG companies don't own these beauty magazine, they don't own the content. Here, Glossier owns the content that people are looking for in the first place, and then is building a brand from there.
So, I think there is a bit more vertical integration he is talking about, that actually is quite interesting and a big change from the old ways of doing business.
Nuno: Yes, I agree with that. I agree that there is a different angle on the integration and the stack of content. They go into a more fully integrated model.
I do think the next generation of people that we're seeing, and we've started seeing that already with some gen Z brands that are coming to market is going to come from actually a very different angle. Which he does mention quite a bit as well around forums and social interactivity and social connection and community building.
I think we're going to go even one step further than that, where the social community, actually is embedded in the product development life cycle. We've started seeing a few people and a few brands playing with that, we started seeing a few brands actually use the community also as influencers and social media presence, which is interesting.
And there's a lot of interesting, companies out there doing some experiments. I think for the time being, nobody's really scaled dramatically on it, but there's clearly something around that. So all of that I agree with. I think the social aspect, the community aspects, probably more distinctive, than just generating content.
Because at some point, I do think the classic brands will catch up, and they can generate their own content and they have huge marketing budgets, right? So they do have access to distribution in many different channels in any case. I don't want to hamper on the product point because , I agree in some details that there is a uniqueness to building a brand and having a multi-product portfolio that is unique.
My point here is not so much that you have unique product, but even in your multifamily of products,...
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