The Growth of DTC Brands in the COVID-19 Crisis

With unemployment at an all time high and the number furloughed employees increasing every week, it comes as no surprise that social media and online traffic are also seeing engagement rates that are at an all-time high.

We’ve all experienced slower than normal broadband speeds, especially while streaming video content from our favorite apps.  The fact is, all of us, whether working from home, or temporarily unemployed, are spending much more time at home and that just means that we’re consuming a lot more content online thank during regular time.  So if the audience is there and so is the engagement, why is ad spending also at an all-time low?

The answer is simple.  Consumers are at home because they can’t be anywhere else.  With that, most major advertisers, from consumer packaged good (CPG) companies, to online travel agencies (OTA) to business to business brands (B2B) have massively reduced if not eliminated their advertising during the crisis.

Major ad platforms like Google and Facebook are seeing up to an 80% decrease in advertising budgets from some of their largest customers, namely OTAs.  So much so, that Expedia recently announced that it would slash its advertising spend to $1 billion, down from around $5 billion while Booking also said that they could lower their budget by 50% to $2 billion for the year.

That’s a lot of ad space to fill and a whole lot less competition for the coveted above the fold spots on any publisher website.  Less competition means lower CPMs.  Lower CPM also means a higher return on your ad spend (ROAS).  So who’s benefiting from all this?  The answer is eCommerce brands.

If there’s a time when eCommerce brands can benefit from a worldwide crisis, this is it.  This is the time to double-down and grow!  Even “old fashion” consumers that were reluctant to online shopping are now buying online while established online shoppers are now also expanding into products and categories that they never purchased online before.

The bottom line is that online sales volume is significantly higher YOY due to the COVID-19 crisis. Overall eCommerce and Direct to Consumer (DTC) brands are seeing their cash flow grow at a more rapid pace.  As the graphics show below, this is particularly noticeable for brands in the household, food & beverage, and health & beauty verticals.  The added sales and cash flow coupled with the lower ad costs (less competition from major brands) is also allowing these brands to invest more in online ads which in turn, grows their sales even more.

graph1

Food & Beverage Online Sales YOY

graph2

Health & Beauty Online Sales YOY

graph3

Home & Garden Online Sales YOY

The question is, how long will this shift to online shopping last?  Smart brands are creating new habits for consumers and once new habits take over the old habits, they are harder to replace.  Especially, when the new habit provides less friction and a better shopping experience than the previous one.

Once government lockdowns end around the world and especially in the US, traditional stores will slowly reopen, but that doesn’t mean that consumers will rush to them just like they won’t rush to restaurants, movie theaters or any other crowded space.  Social distancing, limitations in capacity, wearing masks, etc. will all make store retail shopping an unpleasant experience compared to the convenience of shopping online.

But as I’ve mentioned several times elsewhere on this blog, the ultimate goal of DTC brands is to grow their own audience, have full control of the sales cycle and their message without relying on third party advertising or sales channels.

Down the road, I foresee these brands that are now taking advantage of government lockdowns combined with low online ad rates, growing and targeting their own audience.  They will do this by shifting their focus to their own channels and communicating with their newly acquired customers through channels they can control, namely, email marketing, SMS, their own eComm website, voice apps, podcasting, and even targeted direct mail campaigns.

But time is of the essence and planning needs to start right away.  That will be the topic of next week’s part two of this article.

As always, if you need any assistance with your branding and digital marketing, our MGR Team will be happy to chat with you one-on-one.  Use this link to contact us and set up your free consultation.

Thank you for reading.  Until next time, this is Manuel Gil del Real (MGR).

Graphics Source: Klaviyo.com

2020-05-09T15:16:45-07:00

About the Author:

Manuel Gil Del Real is the owner of MGR Consulting Group, an Interactive Marketing Agency providing marketing solutions to companies worldwide. He’s also an auto racing enthusiast and a blog author who enjoys sharing his thoughts and ideas on eCommerce, SEO, Social Media, Website Design, Video Marketing Internet Marketing, entrepreneurial advice, lifestyle and travel experiences among many others.