Is direct to consumer selling set to revolutionise the manufacturing sector?

Going direct

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Contents3 Key takeaways

4 Executive summary

6 DTC – a growing trend?

8 ThebenefitsandrisksofDTCadoption

10 Pursuing a DTC strategy

14 Casestudy:Mornflake

16 Strategiesforsuccess

17 About the authors and additional sources

About this research

TheresearchhasbeencommissionedbyBarclaysUKwithworkcarriedoutbyDevelopmentEconomicsduringSeptemberandOctober2019.

ThereporthasbeenundertakeninparallelwithabespokesurveyofUKmanufacturerswithfieldworkcarriedbyOpiniumduringSeptember2019.

Thissurveyprovidedresponsesfromseniorexecutivesat500UKmanufacturers,withthesampleprovidingatleast50responsesperUKregionandmanufacturingsub-sector.

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Key takeaways

Opening up new revenue streams

Research from Barclays Corporate Banking focused on the opportunities for manufacturers to use a direct to consumer sales approach. The results showed the potential to increase turnover, open up a broader customer base and speed up the time it takes to get goods to market.

• TheUKmanufacturingsectorcouldadd£13.3bnofrevenuein2025throughgreaterinvestmentandmoreeffectivebusinessstrategiestosupportdirecttoconsumer(DTC)sales,a15%growthoverthecomingfiveyears.UsingtheDTCapproachcouldalsocreate31,400newjobs.

• EvenifDTCgrowthcontinuesonitscurrenttrajectory,salesthroughthisapproachcouldhelpthemanufacturingindustrygrowby12%by2025.

• Threequarters(73%)ofUKmanufacturersarenowsellingsomeoralloftheproductstheymanufacturedirecttoend-userconsumers–comparedto56%fiveyearsago.

• Sellingdirectlyprovidesopportunitiestoowntheend-to-endbrandexperienceandbuildcloserrelationshipswithcustomers,aswellasofferinggreatercontrolofproducts.Whenaskedaboutthebenefitsthattheircompanyhasexperienced,manufacturersidentifiedrevenuegrowth(45%),accesstoabroadercustomerbase(38%)andimprovedspeedtomarket(32%).

• Morethanthreequarters(77%)ofallmanufacturersplantoinvestinthenextyearand74%haveincreasedcapitalexpenditureoverthelast12months.

• ThemostcommonchallengesidentifiedbythoseusingDTCinclude:buildingbrandloyalty(41%),increasedresponsibilityforeverytouchpoint withinthesupplychain(32%),managingcustomerinteractionsanddifferentiatingtheproduct offering(31%).

• Togetreadytoselldirectlytoconsumers,businesses have already made – or say they will have tomake–changestotheirworkforces.Overonethird(36%)envisagetrainingorupskilling.Anotherthird(34%)expecttoemploypeoplewithadifferentskillsetand32%anticipatehiringmorepeople.

55%

ofbusinessesusingaDTCapproachhaveincreasedtheirsalesbyusingthechannel.

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Executive summary

New sales and distribution channels are creating disruptionwithintheUK’smanufacturingsector. Oneoftheseisdirecttoconsumer(DTC),whichcompletelybypassesthetraditionalmethodofmanufacturerssellingviawholesalers,retailers and/orotherthirdparties,andbuildsanewrelationshipbetweenthemanufacturerandtheendconsumer.

Importantly,itprovidesanopportunitytobuildsalesthroughanewrevenuestreamtohelpsupportgrowthambitionsintoday’smarket,whenmanybusinessesarestrugglingtohitevenconservatively-setannualtargets.

Global trendIt’satrendthat’salreadyseeingsignificantgrowthglobally.In2008,forexample,DTCaccountedforjust3%ofoverallfashion/clothing/footwearsalesintheUnitedStates.By2018thishadmorethandoubled,withpredictionssuggestingitcouldgrowby40%by2028.1

ResearchbyCranfieldUniversityshowsthatUKmanufacturersarealsokeentoexplorethepossibilitiesofDTC.Almosthalf(48%)ofmanufacturersare alreadybuildingchannelstosupportthestrategy, andalmostall(87%)seeDTCasrelevanttotheirproductsandconsumers.2

Thissupportsourownresearchwhichshowsnearly73%ofmanufacturingrespondentsnowselldirectlytoconsumers,increasingsalesfor55%ofbusinesses.Additionally,72%ofmanufacturers,whethercurrentlyusingDTCornot,admitthatthestrategyisgoodnewsforconsumersandthemanufacturersthemselves, while51%agreethatDTCbusinesseshaveimproved themarket.

Technology as a facilitatorAsisoftenthecase,technologyisactingasbothafacilitatorandalevellerofthetrend–givingsmallerbusinessesthesameopportunitiesastheirlargercompetitors.Ontheonehand,DTCispermittingsmallermanufacturers,newbusinessesandentrepreneurstoselldirectlytothetargetaudienceandbypasstherestrictionsoftenimposedbyretailersandwholesalers.However,thestrategyalsopresentsopportunitiesforexistingmediumandlargermanufacturerstodiversifytheirsalesanddistributionandreachawiderconsumeraudience.

“At a time when business conditionsarechallenging,exploringtheopportunitiesDTCofferscouldbegamechanging.”

Is going direct the way forward?

Direct to consumer sales have increased significantly in the past few years, and it’s an approach that many manufacturers should consider, says Lee Collinson, National Head of Manufacturing, Transport and Logistics, Barclays Corporate Banking.

Manufacturers' use of DTC

of manufacturers already sell directly to consumers

73%

of manufacturers using DTC say this has increased overall sales

55%

of manufacturers say DTC isgood news for both consumers and manufacturers alike

72%

of manufacturers agree that DTC businesses have improved the market

51%

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Executive summary

Lee CollinsonNationalHeadofManufacturing,TransportandLogistics,BarclaysCorporateBanking

Technologythathelpsbuildbrandawareness,permitsdirectselling,supportsprocessesandcapturescustomerdataisessentialtosucessfullysupportingthegrowthofDTCsales.Oursurveyshowsthat96%ofmanufacturersthat already use DTC either already sell directly through theirownwebsitesorplantodosointhenextfiveyears,andmanyaredevelopingtheironlinesalespresencethroughsocialmedia.Forexample,72%currentlyuseorplantouseInstagramtoselltheirproducts,afigurethatrisesto79%forFacebook.

Balancing the costsTechnologyisneededtosupporttheriseofDTCand it’snotjustforthefrontend,consumer-facingplatform.Morethanhalf(58%)ofthemanufacturerswespoketoarelookingtodigitalisetheirdistributionprocess.Usingtechnologytostreamlinepicking,packinganddistributioniskeytodeliveringonconsumerdemand.

Thesametechnologyalsohasanimportantrole toplayinmakingthestrategycosteffective,becauseDTCdoesofcoursecomewithanoperationalcost.Manufacturerstraditionallyusewholesalers,retailersandotherthirdpartiestoprovidetheinfrastructuretoreachconsumers–whetherthat’sshopspaceande-commercesitestodisplaytheirgoods,warehousing tostorethegoods,orlogisticsagentstogetproducts infrontofconsumersacrossmultiplemarkets.

Forsome,particularlythoseoperatinginconsumer-facinggoodsormanufacturersofpremiumproducts,thebenefitsmayoutweighanychallenges.Forothers,meanwhile,theirstatusquoofsellingdirectlytobusinessesorusingthetraditionalchainofwholesalersandretailersremainsmoreappropriate.

WhatisimportanttounderstandisthatDTCisn’t anexclusivestrategy.Itcanbeusedaspartofan omni-channelapproachtoenhancesalesandreach abroadermarket.Thediversificationofrevenuestreamscanalsoreducethedependencyonalimitednumber ofrelationships.Inashiftingmacro-environment, wheretherearenumerouschallengesfacedbybusinessesacrosstheindustry,DTCcouldbeamajoropportunityworthexploringandanimportantstrategytobeatgrowthtargets.

“Using technology to streamlinepicking,packinganddistribution is key to delivering onconsumerdemand.”

DTC advantages include:

Revenue growth

Pricereductionfortheenduser

Strongerandcloserrelationships with the consumers

Broader customer base

Increased sales outside the UK

Improvedspeedtomarket

Enhanced customer data

DTCalsorequiresastrategicshiftandincreasedinvestmentininfrastructure,peopleandskills.However,thepotentialbenefitscalledoutbyoursurveyrespondentscouldoff-setthesechallenges,makingitworththetimeandeffortformanybusinesses.

Managing risks and opportunitiesSomemanufacturerswillbeunderstandablywary ofthepotentialtodamageexistingrelationshipswithwholesalersandretailers.Inthisreport,weexploreboththepotentialchallengesandopportunitiesofimplementingaDTCstrategy–evenatatimewhenbusinessconditionsarechallenging,thiscouldbe gamechanging.

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Manufacturer action

Directtoconsumer(DTC)salesisagrowingphenomenon,disruptingtraditionalgoods-to-marketapproachesbyallowingmanufacturerstoselldirectlytoconsumers, usuallythroughtheirownonlinesaleschannels,instead ofviawholesalersandretailers.Manybusinesseshavealreadybenefitedfromthisstrategy,withbreweries, clothingmanufacturersandpersonalgroomingbusinessesalltakingadvantage.

DTCadoptionisalsogatheringpaceinlinewithwidertrends,suchasconsumers’increasinguseofe-commerce. Thiscouldexplainwhy39%ofbusinessesusingtheDTCapproachhaveonlydonesointhepastfiveyears,while55%ofbusinessesusingthestrategyhaveincreasedtheirsalesthroughthechannelinthesametimespan.

Global uptakeDTC as a sector trend is more mature in the US and in Canada,whereresearchidentifiesitasaresponsetoconsolidationwithintheretailsector,forcingbrandstoadoptDTCasadefensivestrategytoretaincontrolof theirproductsandgoods.3

Defensiveoropportunistic,surveysshowDTCacrossfashion,clothingandfootwearverticalshasmorethandoubledintheUSinthepastdecade,withpredictionsthat itcouldgrowbyafurther40%by2028.1 Onlinedirectsales

DTC – a growing trend

Direct to consumer sales is creating disruption within the sector, but it does offer the potential to revolutionise relationships between manufacturers and the end consumers of their goods.

ofmattressesintheUSreportedlydoubled–from5%to10%–between2016and2017,andwithinthefurniture andappliancessegment,therearereportsthatDTC isexpectedtoincreaseby11%perannuminthe 2018-22period.4

Facilitatedbythedevelopmentoftechnologyandincreasingdigitisation,DTChasgrownasastrategyalongsiderapidadvancesandinnovationsinsalesdistributionchannelsandinfrastructure.Thishasledtoablurringofthetraditionallinesbetweenindustries,includingthatbetweenmanufacturingandretaildistribution.Therisinginfluenceofsocialmediahas also enabled businesses to both communicate with andselldirectlytoconsumers,aswellastotranscendnationalboundariestocreateandgrowexportsales.

The rise of digital native businessesTheopportunitiesforDTCtobypassretailers,wholesalersandotherthirdpartiestoaccessconsumersdirectlyhasspawnedawholenewgenerationofstart-upDTCbusinesses.IntheUK,these‘digitalnative’DTCentrantsincludeLondon-basedsofamanufacturerMade.com,dentalsubscriptionserviceBrushboxandglobalbrandsHarry’sandTheDollarShaveClubintheshavingproductssector.Morestart-upsandrecognisednamesarelikelytofollow,especiallyiftheUKfollowsthetrendacrosstheAtlantic.

IntheUS,5forexample,areported400+start-upshaveenteredtheDTCmarket,andwiththeparticipationfrommoreestablishedbrandssuchasNikeUS,DTCsaleshavebeenincreasingbyaround30%perannum.In2017,DTCaccountedforatleast13%ofalle-commercesales.6

ThissuccesshasattractedtheattentionofUKmanufacturers.ResearchbyCranfieldUniversityidentifiedthatalmosthalf(48%)ofmanufacturershavebuiltDTCchannels,andthosemanufacturersleadingthemoveexpectDTCsalestoincreaseby5%annuallyoverthecomingfiveyears.Almostall(87%)seeDTCasrelevanttotheirproductsandconsumers.2WiththeUKleadingtheworldintermsofthenumberofonlinesalesasaproportionofoverallsales,thefamiliarityoftheUKconsumerwithdigitalchannelscouldcreatearipe marketformanufacturersembarkingonaDTCstrategy.

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Manufacturer action

Understanding customer demandsDTCisnotsuitableforallmanufacturingsectorsofcourse.IncontrasttotheCranfieldUniversitystudy,28%ofrespondentsinoursurveywhocurrentlydon’tusetheDTCchannelhighlightedthattheirproductsaren’trelevantfortheconsumermarket–theirgoodsbeingmanufacturedforusebycommercialenterprises,forexample.Additionally,deliverycostsandindividualcustomerfulfilmentchallengeswilllikelyseemanufacturersofhighvolume,lowvaluegoodsandthoseproducingconveniencegoodsmaintaintheuse ofwholesalers.

Anadditionalchallengeisthesuggestionofdigitalfatigue–consumers wanting to only engage with a limited number ofdifferentmarketplacesonline–andthiscouldlimitthescopeofsomeDTCstrategies.P&G’sCEO,forexample,notesthat:“…ourbeliefsofaristhatmostconsumersdonotwanttohavealotmoreaccountsfornarrowpartsoftheirdailyormonthlyneeds.”7However,despitethissentiment,P&GmaintainsownershipoftheGilletteshaveclubandistriallingDTCacrossotherproducts.

Asatrend,DTCprovidesthebiggestopportunitiesforthosesegmentsmanufacturingconsumer-facinggoods,suchasrazors,make-up,fashionandfootwear,orpremiumsegments,suchasvintagewines,Scotchwhiskyandchocolates.AccordingtoKPMG,forexample,growthof salesthroughDTCchannelsisexpectedtoincreaseby 5%p.a.inthefoodanddrink,householdgoodsandbeautyproductssegments,withthestudyalsoreportingthat 48%ofmanufacturersinthesesegmentshaveplansto buildDTCcapabilities.8

Thearrivalofnewentrantsand,moreparticularly,theloweringofthethresholdintermsofthemarketparticipationthatDTCoffers,threatenstodisruptthesector.51%ofour

respondentsagreedthatDTCbrandshaveimprovedthemarketbyencouragingbusinessestouptheirgame.WhenHarry’senteredtheUKmarket,forexample,marketsharerapidlygrew,withtheirsalesrising250%between2017and2018.9 Taking on the legacy giants in the razor segment by loweringpricesandusingtheDTCstrategyforcedthebiggerbrandstositupandtakenotice.Unilever’s$1bnpurchaseoftheDollarShaveClubandP&G’slaunchoftheGilletteshaveclubweretheirresponsetoaddressthecompetition.10

Wider implications for cross-sector disruptionIt’snotjustmanufacturersthemselveshavingtocometotermswiththeriseofDTC.Itsimplicationswillbefeltacrosswholesaleandretailsectorstooasmanufacturerscutoutthemiddleagents.Oursurveyshowsthatoverthepastfiveyears,thebiggestchangetomanufacturers’salesstrategieshas been to increase direct sales to consumers while decreasingsalesviaretailers.

Furthermore,55%ofthosebusinessesthathavechangedtheir strategy to use DTC say that this move has increased totalsales–potentiallyavitalstrategyformanybusinesseswishing to hit growth targets or seeing current markets dryup.However,afifthofrespondentswhodonotusetheapproachweremindfulofthepotentialconflictthatamovetoDTCcouldcausetotheirexistingrelationshipswithwholesalers(21%)and/orretailers(19%).

It’simportanttounderstandthatDTCisn’tnecessarilyanall-or-nothingstrategy.EventheDTCdigitalnativesareexploringotheroptionstogrowmarketshare.Harry’sforexample,enteredintoapartnershipwithBootsin2019tobroadenitstargetmarket.Existing,largemanufacturersdon’tneedtodivesttheircurrentchannelsofdistribution,butleveragetheirscaleanddeeppocketstoinvestinDTCasanalternativechannelandrevenuestreamtosupportgrowthambitions.

Canada

8.2% 15.5% 1.3%China

16.6% 4.5% 0.7%France

9.7% 8.5% 0.8%Germany

11.2% 8.0% 0.9%India

4.8% 1.5% 0.1%Japan

6.2% 7.0% 0.4%South Korea

12.0% 7.5% 0.9%Spain

6.7% 4.5% 0.3%UK

18.2% 8.0% 1.5%US

11.0% 17.0% 1.9%

DTCsalesproportionsglobally

Onlinesalesasaproportionofall

retail sales

DTC as proportionofall

online sales

DTC as proportionofall

retail sales

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Cost implications

Themajorityofbusinessesputaconstantfocusoncostreductionandefficiencies.Thebenefitsofcuttingout thirdparties,suchaswholesalersandretailers,throughtheDTCapproachmaythereforeseemobvious.Itcouldexplainwhy26%ofbusinessesusingaDTCchannelhavebeenabletoreducethepricepaidbytheconsumerfortheirgoodsthroughgreaterefficiencies,therebymakingtheirproductevenmoreattractive.CertainlytheadvantagesofDTCcalledoutbyourrespondentsmake astrongcaseforitsadoption.

Carriedoutsuccessfully,aDTCstrategycanboostsales asdemonstratedbyexperiencesintheUS(Seepage7). AreportpublishedbyCranfieldUniversity2identifiedfive mainbenefitsformanufacturersdevelopingDTCcapabilities:

1. Bettercontrolandclarityoftheirbrand2. Fullshareofthe‘customerexperience’–i.e.brand

alignmentfromproductdesign,brandmarketing, thepurchasingprocessandpost-purchaseaftercare

3. Fasterspeedoftakingproductstomarket4. Directaccesstothecustomer,potentiallyyielding

ahugevolumeofvaluabledataandinsight5. Abilitytoprovidecustomerswithawiderrange

andchoiceofproductsanddesigns.

Thesereplicatethefindingsfromourownsurvey,(right).

witnessed an improvementin customer data

Ability to reduce pricesforendusers

increasedemployee/businessproductivity

increased sales to customers outside the UK

fosteredcloserrelationshipwith end-userconsumer

improvedemployeeefficiencywithnewsmart technology

Ability to greater personaliseproducts

improvedtheir stock management

witnessed an increase in employeeapplications

The benefits and risks of DTC adoption

Successfully utilising a DTC approach can bring cost and resource efficiencies, but it requires a full analysis of the opportunities and challenges to ensure it aligns with business objectives.

Majorbenefitsexperiencedbybusinessesinclude:

AdditionalbenefitsnotedbyDTCbusinesses:

45%

29% 26% 24%

28% 26% 18%

28% 25% 18%

38% 32%saw a growth in revenue

accessed a broader customer base

improvedtheirspeedto market

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Cost implications

Considering costs as well as benefitsFormanymanufacturers,thefinancialgainsarecleartosee:fromimprovedrevenuetoincreasedsalesandenhancedproductivityandefficiencies.However,buildingandmaintainingasuccessfulDTCstrategycanalsobecostly,particularlyforlegacymanufacturerswhichhavealreadycommitted to the more traditional wholesale/retail sales anddistributionmodel.

OurownstudyshowsthattheinvestmentrequiredtoachieveDTCsalesacrossthesectoris£2.694bnin2020,risingto£3.010bnperannumby2025.ThisinvestmentwillberequiredtohelpthemovercomecommonDTCchallenges.Theseincludebuildingfulfilmentandbusinessinfrastructure,DTCrequirementsidentifiedby24% and20%ofourrespondentswhocurrentlyusethe strategyrespectively.

Investmentwillalsobeneededbythe58%ofmanufacturerswhichplantodigitisetheirdistributionprocessesinthenextfiveyears.Similarly,forthosebusinesseswhichdidnotstartoutwithaDTCstrategy,orwhichareplanningtointroduce itinthefuture,investmentwouldbeneededbythe:

• 36%whichwillneedtotrainandupskilltheir existingworkforce

• 32%whichwouldneedtohiremorepeople

• 31%whichwouldintroducenewproducts

• 23% which would need to change their businesspremises.

Aswithothergrowthstrategies,arigorouscostandopportunityanalysisandthoroughinterrogationofpossible

Investment linked to DTC (£millions)

20252020

19,7433,010

Food & drink 4,598669649

Wood & paper 2,043304283

Chemicals, rubber, plastics

3,023468408

Metals 1,535230213

Electronics & electrical 1,155179155

Machinery & automotive 5,221827692

Others 1,469225199

2,694Total

Textiles & apparel 69810894

2020-2025

ROIisthereforeessentialtoreducetherisksofinvestmentandensurethepotentialbenefitsaresecured.

Beyond financial gainsGettingclosertocustomersprovidesadditionalbenefitsformanufacturers,andallowsforbetterrelationshipsthatcanimprovebrandloyalty,thecreationoftargetedorpersonalisedproductsandaccesstoamorediverseorbroadercustomerbase(seepage8).Intoday’smarket,thesecouldbekeystrategiesinmaintaininglong-termrelationshipsandongoingsaleswithtargetaudiences.However,therisksoffailingtomanagethoserelationshipscanbehigh.Existingemployeesmay,forexample,struggletotransfertheirskillsinB2BcustomerrelationshiphandlingtothepotentiallymoredemandingB2Csegment,andreputationaldamagecanbehardtorepair.

Creating the ability to gather and use customer data effectivelythroughDTCsalescanoffersignificantbenefitsifthemanufacturerhasinvestedintheskillsnecessarytoanalyse,interpretandutilisethedatatoimproveproductsordeliverabilityforexample.Butthisabilitydoesneedtherightpeoplewiththerightskillstotranslatethedataeffectively.

Additionally,DTCgivesmanufacturersfargreatercontrolovertheirbrand,theirmessageandthespeedwithwhichproductscanreachthemarket,andalsothewayproductsareservicedandsold.However,withthatcomesthecostsandrisksofmanagingarobustdistributionstrategythatdeliversproductsquicklyandsafelyandthat,potentially,can handle returned stock and its associated administration effectively.ToenjoythefinancialandrelationshipbenefitsthatDTCcanoffer,manufacturersmustbeawareofthepotentialriskstosalesmarginsandtheirbrandreputation,andtakestepstomanagethemthroughthedeployment oftherighttechnology,skillsandpeople.

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Manufacturing benefits

Formanufacturerswhichtraditionallyrelyontheirwholesaleorretailpartnerstomarket,advertiseandselltheirproducts,DTCcouldpresentsomechallenges.Inoursurvey,theareasthatwouldusuallybemanagedbythesesupplychainpartnerswereidentifiedbythosebusinessescurrentlyusingaDTCapproachasthetopchallengestheyfacedwhenadoptingthestrategy:

• 41%identifiedbuildingbrandloyalty

• 32%feltincreasedresponsibilityforeverytouchpointwithinthesupplychaine.g.inventorymanagement

• 31%pinpointedmanagingcustomerinteraction,suchashandlingstockreturns.

Nearlyaquarterofrespondents(24%)whouseDTCcalledoutalackoffulfilmentinfrastructureasakeychallengetoovercome,while16%ofthosenotusingDTChighlighteditasamajorobstacle.14%ofthosenotusingDTCalsocitedthemanagementofcustomerinteractionsasakeybarrier.

Pursuing a DTC strategy

For manufacturers which see the potential for DTC to improve – or even transform – their business, there will still be some challenges to overcome.

The rise of social media sellingHowever,withclearopportunitiesforanumberofmanufacturingsegments,businessesareactivelylookingtoaddressthesechallenges.Forexample,manufacturersare increasingly turning to social media to build brand awarenessaswellastoselltheirproducts.WefoundthattheuseofplatformslikeInstagram,SnapchatandFacebookareincreasinglybeingusedbythosebusinessescurrently using DTC channels to reach new markets:

• 96%currently,orplanto,sellviatheirownwebsite

• 72%currently,orplanto,sellviaInstagram

• 58%currently,orplanto,sellviaSnapchat

• 79%currently,orplanto,sellviaFacebook.

Whilecustomer-facingtechnologyisfacilitatingdirectsalesandallowingcompaniestoharvestlargeamountsofdata,manufacturingfirmstraditionallylackthein-houseskillsnecessarytomanage,analyseandinterpretthatdata,andmaythereforebemissingopportunitiestoenhancetheirproductofferings,cross-sellorspottrends.Unfortunatelyforthesebusinesses,accessingtheseskills,whetherthroughrecruitmentorupskillingandtrainingcurrentemployees,canbecostly.

Employingadataanalystisonething,butshiftingabusinessculturefromatechnical,B2Bfocustoaconsumer-facingmodelrequiresawholesetofnewskills.Securingtheskillsneededtomarketandselltocustomers,offercustomerservicethroughoutthesalesprocess,aswellasmanagethesupplychainanddistributionisoneofthemostsignificantchallengesmanufacturersfaceinadoptingDTC.AroundathirdofrespondentswhodidnotstartoutwithaDTCstrategyorareplanningtousetheapproachinthefuturehighlightedtheneedtoeitherhiremorestaff(32%),accessnewskills(34%)orup-skill theirexistingworkforce(36%)inordertoimplement DTCsuccessfully.

Job creation and economic gainAdoptingaDTCstrategydoes,therefore,offereconomicopportunitiesintermsofjobcreation,withoursurveyresultsshowingaclearpotentialboostforregionaleconomiesthroughanabilitytoreachabroadermarket.Nearlyaquarterofbusinesses(24%)usingDTCalsorecognisethatincreasedemployeeproductivityandsatisfactionarepotentialbenefitsoftheapproach, with18%suggestingthatadoptingaDTCstrategy hasincreasedapplicationsforjobs,perhapsthrough agrowthinopportunitiesandawareness.

“Shiftingabusinessculture fromatechnical,B2Bfocustoa consumer-facingmodelrequires awholesetofnewskills.”

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Manufacturing benefits

NorisitjustbusinessesandemployeesthatstandtoreapthebenefitsofDTC.OurrespondentswhosellusingDTChighlightanumberofadvantagesforcustomers,whichincludesanabilitytolowerprices(26%),thespeedtomarket(32%)andopportunitiesforproductpersonalisation(28%).

Balancing customer growthDTC,accordingtooveraquarter(26%)ofthosewhousetheapproach,alsooffersanopportunityforbusinessestobuildcloserrelationshipswithcustomers,whichcan impactfuturebuyingdecisions,guidetheproductrange,andincreasebothloyaltyandrecommendations.

However,oneofthechallengesofbuildingcloserrelationshipsdirectlywithconsumers,particularly forestablishedmanufacturers,isinnotalienating partnerswithintheexistingsupplyanddistributionchain.AroundafifthofmanufacturerssaythatsellingDTChasreducedtheirrelationshipswithwholesalersandretailers,whileotherscitethepotentialofareductionintheserelationshipsasakeyreasonfornotsellingDTC.

It’sclearthattheperceiveddependenceontheserelationshipsandthechannelstheypresentfor reachingcustomersandforlogisticalsupport,has meantmanufacturersfearabacklashfromretailersorwholesalersiftheypursueDTCindirectcompetition.

North West, North East and Yorkshire

37%

34%

23%

42%

London and South East

Scotland and Northern Ireland

South West and Wales

% of respondents currently using the DTC approach who saw a broadening of their customer base as a benefit of the strategy

% of respondents who did not start out using DTC but are either currently using it or planning to use it in the future who would need to hire more people to support the approach

Midlands and East of England

27%

36%

36%

38%

34%

40%

Potential job creation and regional economic gain

“DTCalsooffersanopportunityforbusinessestobuildcloserrelationshipswithcustomers.”

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Scenario 1 Scenario 2

Extra sales of manufactured products using DTC

+11.0bn 12.0%increase

+13.3bn 14.5%increase

Proportion of sector sales attributable to DTC (currently 15.6%)

Increase to

16.9%Increase to

17.3%

Region expected to benefit most

East Midlands £1.736bnincrease

East Midlands £2.166bnincrease

Business sector expected to benefit most

Large manufacturers of250+employees

Large manufacturers of250+employees

Total number of extra jobs actively supported by DTC sales

+21,100 5.5%increase

+31,400 8.2%increase

Strategic benefits of expanding DTC channels (2019-2025)

Manufacturing benefits

However,withalmosthalfofourrespondentswhosellDTCexperiencingrevenuegrowth(45%)it’sarisk worthtakingformanybusinesses.InvestinginimprovingtheircapacitytosellDTCisastrategythatmanyareadoptingorconsidering.Theaverageinvestmentthatmanufacturersinoursurveyplantomakeinthenext12monthsinordertoimprovetheirabilitytosellDTCis closeto£320,000.

Aspartofourstudy,wedevelopedtwoforward-lookingscenariostoexplorethepotentialimpactofexpandingDTCsaleschannelsforUKmanufacturers.ThesewereinformedbythelatestnationalandregionalmanufacturingdataandbyindependenteconomicforecastforUKmanufacturinganditssub-sectors.

Scenario 1ThefirstscenarioassumesthattheproportionofsalesaccountedforbyDTCchannelscontinuestogrowsteadily,followingthesametrajectorythatwe’veseenoverthelastfiveyears.

If‘businessasusual’continues,thenUKmanufacturingwillwitness12%growthby2025tobecomea£102.8bnindustry.Fivesectorsachieveddouble-digitgrowthwithinthisscenario,withmachineryandautomotive(21%),chemicals,rubbersandplastics(15%)andtextilesandapparel(14%)showingthegreatestgains.Meanwhile, theEastMidlands,YorkshireandHumberandtheNorthWestregionswouldbenefitmost,withgrowthof16%,13%and12%respectively.

Manufacturing benefits

Scenario 2ThesecondscenarioispredicatedonalargerproportionofUKmanufacturingbusinessesdevelopingeffectivestrategiestoutiliseDTCchannels,andthataproportion ofbusinessesthathavealreadyadoptedthestrategyexpandthescaleoftheirfinancialandotherinvestmentsinthesecapabilities.

ThisgreatercommitmenttoDTCprovesmuchmoreadvantageoustothemanufacturingindustryandtothewiderUKeconomy.Theindustrywouldaddafurther£2.3bnofsalescomparedtoScenario1,anincreaseof£13.3bn(15%growth)between2020and2025.TheproportionoftotalsalesattributabletoDTCwouldincreasefromalmost16%in2019toover17%by2025.

Inthisscenario,thesamefiveleadingsectorsstilldisplaydouble-digitgrowthbutnowatahigherlevel.Electronicsandelectricalequipmentgainsthebiggestboost,however,with14%growthinScenario1and18%inScenario2.

Onceagain,theregionexpectedtoseethelargestincreaseinsalesistheEastMidlands,withpredicted extrasalesof£361mperannum.YorkshireandHumber,theNorthWest,theWestMidlandsandtheEastshouldeachseeanextra£1bnormoreofturnoverinthe comingfiveyears.

ThenumberofjobssupportedviatheDTCchannel wouldalsoincreasemoresubstantiallyinScenario2.WhereasScenario1wouldseethenumberofrolesgrowingfrom382,300to403,400inthefiveyearsto 2025,thetotalnumberofrolesunderthesecond scenariowouldincreaseto413,700.

SimilardifferencesoccurintermsoftherealvalueofGrossValueAddedassociatedwithmanufacturedproductssoldviaDTCwhichiscurrently£28.9bnfor2019.Underscenario1,thiswouldincreaseto£32.5bn by2025,whereasscenario2wouldseethefigurerise to£33.3bnwithinthesametimescale.

Manufacturing enhanced growthBothscenariosdemonstratethepotentialbenefitsformanufacturersandthewiderUKeconomyifthesectorembracesDTCtoagreaterdegree.Thereareobviouschallengestonavigate–theneedtorecruitnewskills,avoidingdamagetocurrentrelationships,buildingnewdigitalandphysicalinfrastructureetc.However,thepotentialgrowthrevealedfromthetwoscenariosshowswhatcouldbeachievedfromacommittedinvestmentintheDTCchannel.Formanufacturingbusinessesthemselves,itcouldbeworthreviewingcurrentand futurestrategiestoseeifDTCcanformavitalpartof theirconsolidation,diversificationorgrowthambitions.

“Both scenarios demonstrate the potentialbenefitsformanufacturersandthewiderUKeconomyifthesectorembracesDTCtoagreaterdegree.”

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Case study

Cheshire-basedMornflakehasbeenmillingoatsinthesamefamilysince1675,makingitBritain’sfourtholdestcompany.Thebusiness,passeddownthrough15generations,millsandmarketsoats,oatbranandmuesliwhichitnowsuppliestomorethan80countriesaroundtheworld.Thebrandisalsoaperfectexampleofhow newroutestomarketcanhelpabusinessevolvetoreachnewcustomers.

Mornflakeiscurrentlystockedinallmajorsupermarkets,throughhealthfoodstoressuchasPlanetOrganicandWholefoods,andisdistributedthroughwholesalersaswellasonlinechannels,includingAmazon.It’sacomplexdistributionmodel.

Inrecentyears,however,Mornflakehasbeenincreasing itsinvestmentinDTCdistribution,amovewhichisnotonlyhelpingthecompanytoexpanditscustomerbase,butalsogathervaluableinsightsthatfeeditsfuturedirection.

A natural step?

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

“DTChasgivenusadirectrelationshipwiththeconsumer,whichmeanswecantapintothemmoreeasilyforfeedbackandsuggestionsaboutproducts.”

JohnBorrowdale(Director),EdwardLea(Director),JohnLea(ManagingDirector)andJamesLea(Director).

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Case study

Inmorethanoneinstance,thatfeedbackhasledtothelaunchofnewproductsacrossitschannels–bothDTCandtraditional.

ThishasalsohelpedcounteranypotentialconflictwithretailersandwholesalersaboutMornflake’suseofDTC.“Throughdirectfeedbackandbymonitoringourownsalestrends,wecanbetterguideourstockistsontheproductstheytooshouldbeselling,”saysJames.

Look before you leapJameshasaclearmessageforothercompanieslooking todevelopasimilarstrategy,regardlessoftheirsector.

“DTCmightfeellikeanaturalthingtodo–because everycompanywantstoconnectwithmorecustomers,”hesays.“However,itisimportanttoknowyourmarket, knowyourcompetitors,identifywaystodifferentiateyourselves and then target the right customers with therightproducts.Andyoumustbepreparedfor thespeedoftheonlineworld.It’sfarquickerthantraditionalmanufacturing.”

Making it easy“Asabusiness,we’vealwaysbeenfocusedonhowwegetouroatsinfrontofconsumers,”saysJamesLea,ManagingDirectorofMornflake’sparentcompanyMorningFoodsLimited.“We’vehadatelesalesofferingsincethe1980s,soDTCwasnotcompletelynewtous.

“However,theintroductionoftheinternetwasa completegamechangerandsomethingwereallywantedtoleverage.Soourfocushasbeenonmakingpurchasing aseasyaspossibleforconsumers.Thatmeans,whethertheypickupthephone,visitusthroughourwebsiteordropusadirectmessageonInstagramorFacebook,wewillpickthatupanddirectthemintoouromni-channelsalesprocess.”

Equipped for successMornflake’smovetoDTChasseenthebusinessinvestintechnology,staffandwarehousingtoensureitisfullyequippedtodeliveronitscommitmentof“makingit easy”fortheconsumer.

However,JamessaysanothercrucialelementhasbeenraisingawarenessoftheMornflakebrandandensuringconsumersknowthattheyhavetheoptiontopurchasedirectly.Asaresult,thecompanyhasalsoinvestedinavarietyofsocialmediamarketing.

“Alotofourmarketingactivitynowrevolvesaroundworkingwithfoodieandhealthylifestyleinfluencers– theyoftenreviewouroatsandsharerecipesusingthem.We’regainingaccesstonewaudiencesviaourinfluencersallthetime.

Paid-forsocialmediaadvertisingisalsoincreasing,headds:“Socialmediaisanadvertisingvehicleandifyoureallywanttogetthebestfromit,youneedtoinvestinreachingaudiencesbeyondyourexistingfollowers.”

From mill to bowlImplementingathoroughandeffectiveDTCstrategy hasproducedsomechallengesforthebusiness.

Mornflake,whichisdedicatedtohelpingcustomers“wakeuptoabetter-qualitybreakfasteachandeverymorning”,recognisestheimportanceofmakingsuretheproductgetsthereingreatshape.“Therealityisthatyou’reoftendealingwithadistributionnetworkthatisusedtothrowingcardboardboxesinthebackofvans,”Jamessays.

Inresponse,thebusinesshasinvestedin“thebestratherthanthecheapest”distributors,aswellasusingstrongerandmoredurablepackagingfordistributedproducts, heexplains.

Growth and innovationDespitethesechallenges,Jamessaysthebenefitsof DTCfaroutweighthecostandeffort.

“Farfromjusttakingordersfromnewcustomers,theinternet and social media channels have allowed us to genuinelyconnectwithaudiences,”hesays.“DTChasgivenusadirectrelationshipwiththeconsumer,whichmeanswecantapintothemmoreeasilyforfeedback andsuggestionsaboutproducts.”

“DTCmightfeellikeanaturalthing todo,butitisimportanttoknow yourmarket,knowyourcompetitors,identifywaystodifferentiateyourselvesand then target the right customers withtherightproducts.”

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Strategies for success

While the impact of DTC on UK manufacturing will be disruptive, there are rewards available, particularly for those who embrace it as a complementary tool in an omni-channel strategy. In order to fully achieve the potential that DTC offers, a number of actions would be required:

EngageHavingagreaterawarenessofwhatDTCcan offercanhelpsecurethecommitmentfromtheBoardsandseniormanagementofUKmanufacturers,helpingbusinessestoembrace theopportunitiesandpotentialofferedbydevelopingthestrategiccapabilities.

InvestAnacceleratedanddeeperinvestmentindevelopingin-houselogisticsinfrastructureand/orpartnershipsorcollaborationswithspecialistlogisticsproviderscanhelpincreasethepotentialtoopenupnewcustomerbases.

Recruitment and trainingInvestmentdirectedatin-housedataanalyticssoftwareandexpertiseisrequiredtoenablethebusinesstobenefitfromthelargevolumesofuserandotherdata.Thiscouldincludehiringnewemployeestomakethemostofthisdirect,orretrainingcurrentcolleagues.Additionalrecruitmentorre-trainingmaybeneededtofulfilotherroleslinkedtotheDTCstrategy.

CommunicateAcommitmenttodevelopingbrandandproductawarenessisrequiredtoharnessthepotentialofsocial media – a key medium to communicate directly and engagingly with the target audience and thereby growsalesandrevenueopportunities.

Strategic developmentDTCisnotanexclusivestrategy,themaintenanceandfurtherdevelopmentofexisting,complementarydistributionchannels,includingthemaintenanceofexistingrelationshipswithwholesalersand/orretailers,isamusttoensureadiversifiedrevenuestreamandmaximumconsumerreach.

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For further information and to find out how our sector specialist team can help your business respond to the issues outlined in this report, please contact Barclays Head of Manufacturing, Transport and Logistics, Lee Collinson. To find out more about how Barclays can support your business, please call 0800 015 4242.*

LeeisanexperiencedbankingprofessionalwhojoinedBarclaysin1988,undertakinganumberofrolesacrossclientcoverage,debtfinanceandcredit.HeisresponsibleforallBarclaysUKclientsintheManufacturing,TransportandLogisticssectors.

Mikehasawealthofexperienceinthebankingsectorandisresponsibleforthestrategy,portfolioandincomeperformanceforthesectorintheUKandIreland.Mike’svisionistomakeBarclaysthe‘goto’bankforbusinessesacrosstheManufacturing,TransportandLogisticsspace.

About the authors

Sources

Lee CollinsonNationalHeadofManufacturing,TransportandLogistics,BarclaysCorporateBankinglee.m.collinson@barclayscorp.com

Mike RigbyIndustryDirector,Manufacturing,Transport andLogistics,BarclaysCorporateBankingmichael.rigby@barclays.com

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*Callsto0800numbersarefreefromUKlandlinesandpersonalmobiles,otherwisecallchargesmayapply.Tomaintainaqualityservicewemaymonitororrecordphonecalls.

6Deloitte(2018)‘ConsumerProductsOutlook’.Availableat:deloitte.com/gr/en/pages/consumer-business/articles/2019-

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