Entrepreneurs Go the Direct-to-Consumer Route

Direct-to-consumer (DTC) sales are the widening path for food and beverage startups these days. But even considering how the COVID-19 pandemic and its aftermath have enhanced the attractiveness of the e-commerce channel, nearly all entrepreneurs still want to move their goods eventually through traditional bricks-and-mortar retail stores and restaurants.

Consider Woody Hambrecht and Helena Price Hambrecht, founders of Haus, a startup they launched in California wine country about a year ago that sells European-style aperitifs for $35 a bottle—but only through their website. They’re pitching Haus products to American millennials who are looking for something new in alcohol by exploiting legal loopholes to be able to do it online: Because aperitifs are only 15% alcohol by volume, they can be sold the same way wine is, including directly like a wine subscription.

“It’s expensive to go the traditional distribution route, and it takes a lot of time,” Hambrecht says. “We felt we’d have more impact through the DTC route. Plus, our category isn’t super established yet in the United States. We need to have a dialogue with customers so we can strongly educate them rather than going through distributors and salespeople.”

And yet, says Price Hambrecht, their eventual objective in building a consumer base online is to “give us the leverage to go to retailers and restaurants and work with them. Our ultimate goal is to compete with Diageo and Pernod, so we need to be [sold] where they are, too.”

Newly created DTC brands are hyper-focused on a highly differentiated core product to serve their audience’s unique needs, offering greater personalization and convenience online than ever before, according to the Digital Shelf Institute. E-commerce sales account for almost all the growth in what the institute categorizes as “fast-moving consumer goods,” and a majority of the venture capital investments over the past five years went to brands with a DTC component.

“If you were launching a brand 40 years ago, you would have no choice but to sell your products to grocers, then consumers,” says Rob Gonzalez, cofounder of the Boston-based group that describes itself as a “community of manufacturing executives strategizing to win on the digital shelf.”

“But now, especially after the whole COVID-19 thing went down, even an ice cream brand can go DTC as a starting point,” says Gonzalez. “That’s not necessarily required, but it gives you an audience and a way to build traction that wasn’t available to brands before.”

L-Nutra, a Los Angeles–based startup, recently did an online-only launch of Fast Bar, a nutrition bar targeted to individuals who are doing intermittent fasting. Catalina Crunch, based in New York City, launched its ketogenic-oriented ready-to-eat cereals via e-commerce only, and within two years reached about $1 million in monthly sales. And Perennial, a nondairy meal supplement drink for the nutritional needs of older consumers, debuted only online a couple of years ago, says company cofounder Sara Bonham. The goal, according to Bonham, is to “test and learn, and adjust our messaging so that it resonates with our consumers more and helps us to formulate our next product.

“We really want to hear from consumers what they want next and transition to retail after that,” she continues. “Online, you can learn things quickly and test different messaging fast.”

Plus, Bonham says, 39% of online purchases are made by consumers aged 50 and older. “So there’s a misperception that it’s only millennials who shop online. As people age, they have more disposable income and aren’t afraid to shop online.”

Still, Gonzalez notes, “DTC companies generally don’t stay DTC forever. It’s kind of a silly thing for a brand to say. At some point, selling through other channels makes sense. Many of the most successful new brands go multichannel as soon as they can.”

And sure enough, Perennial lately has gone “out of stock” and isn’t available online while it prepares for a forthcoming second version, which will be available through new channels in the coming weeks—in stores as well as online. Fast Bar recently began penetrating retailers and health clubs. And Catalina Crunch finally is targeting retailers.

“Our approach,” says Catalina Crunch founder Krishna Kaliannan, is to be wherever customers are.”