There’s a lot to deal with as a new distillery or brand founder and, often, the last thing on your mind is how to deal with direct to consumer sales. There’s the intricacies of perfecting your spirit, juggling operations, licensing, building works, designers and new suppliers and grappling with distribution channels.
“Sales are the end of the process and consumers are the end of the line… Right?”
Wrong.
In this digital age, there’s an avenue that beckons with immense promise: direct-to-consumer (DTC) sales. Not engaging right from the start is more than a missed opportunity, it’s an anchor dragging you behind your competition.
Moreover, figuring out how you are going to make sales and how you will get drinkers to discover, purchase and support you is key to developing a good brand in the first place. It forces you to think back from the drinker to you (bottom up), not just top down.
So whether you are a newbie about to start or an established brand who missed the boat and eager to make up for lost time – here’s how to go about digital retail, direct to consumer!
Building a database and knowing your fan base
Imagine launching a new spirit and instantly knowing who would love it? With a well-maintained customer database, this isn’t just fantasy. When you sell DTC, every sale provides a new data point. Over time, these points come together to paint a detailed portrait of your fan base.
Having a direct line to your customers also means understanding their preferences, needs, and buying habits. This data can be invaluable, allowing you to:
- Tailor marketing campaigns and brand messaging.
- Adjust or develop new products based on feedback.
- Foster a community around your brand.
The attractive margin of direct to consumer
It’s no secret that selling directly can offer a higher profit margin than your product having to work its way through wholesalers or retailers.
By sidestepping intermediaries, you’re also sidestepping all of the markups that happen in the supply chain. In the UK, it’s easily more than 40% more profitable. Australia, South Africa and other parts of the world also have similar margin differences by the time the entire supply chain is accounted for.
The added margin not only allows you to reap better profits, but also provides room to offer special deals. You can chose where and how to give added value.
For example, you can subsidise loyalty incentives for repeat customers, further strengthening your brand connection. You could chose to add extras in the parcel free of charge to encourage customers to try a signature serve that brings your USP to life.
The benefits far exceed just added income, or an added route to market.
Direct to consumer “must have’s” for craft distillers.
To make the most of DTC sales, keep these critical points in mind:
- Exceptional customer service: Your customers should feel valued. Address inquiries promptly and resolve issues efficiently. Make every interaction memorable and positive. If you can’t, don’t score a home goal and focus your efforts on supporting retailers who can.
- Sturdy packaging: First impressions matter. Ensure your spirits arrive in excellent condition with resilient, attractive packaging. Work with the couriers and ensure that your chosen packaging is compliant. For example in the UK, many packaging solutions have not been ‘drop test approved’ and as alcohol is a named consumer good that mainstream delivery services do not ensure against, despite any breakage being entirely the courier’s fault, it is up to you or the end consumer to cover. Which means, given you are following rule one above – it’s really you and you alone. Use packaging they approve of and get that in writing.
- Limited editions: Give customers something unique. Release limited batches or special editions that they can’t find elsewhere. If not, then use the need to pack your bottle safely as an opportunity to create truly engaging packaging and gift sets.
- Added value: Go beyond the bottle. Offer cocktail recipes, behind-the-scenes glimpses, or even distillery tours for loyal customers. There are so many ways you can bring unboxing experiences to life. Moreover, it’s very easy to work with other local businesses over key periods to add value (cross promo, cross sampling etc.)
- Engage and educate: Make your your customers spirits connoisseurs. Share the story of your distillery, the art of distilling, or the nuances of tasting. Build the category you are in not just your own product as that always goes a lot further and helps your fans understand your unique place in the broader context of it all.
Treading carefully: What to avoid
- Undercutting partners and retailers: Be careful with your pricing. Offering significantly lower prices on your website than in retail outlets can strain relationships with partners. Many brands have killed off valuable retail listings by doing this. It’s essential to maintain a balance where everyone feels they’re getting a fair deal. That goes with promo offering too. If you are constantly dropping deals and deep discounting, others will too and eventually, you’ll find that you can’t command the RRP you desire, mainly as you never maintained in the first place.
- Overpromising and underdelivering: Ensure that your operations, from production to shipping, can handle the demands of DTC. It’s better to under-promise and over-deliver than vice versa. This might mean outsourcing the entire operation.
- Licensing infringements: Countries like the UK and AUS have straight forward rules around selling direct to consumer. The US is not only complex state by state, but who is allowed to retail to who (brand to consumer is not allowed in some circumstances due to the three-tier rule). Check what you are legally allowed to do. Check what your security requirements are in regards to consumer data, from banking to storing customer information. Check what your obligations are in terms of age verification on delivery too.
If you feel like you are in a position to do start selling, that you can do it well (and within the rules), move onto to considering three more challenges.
Further DTC considerations for distillery owners
1. Time and Resource Commitment
DTC is not a mere addition to your operations; it’s an entirely new channel that demands its own set of resources and strategies.
- Scale complexity: As you grow, the logistics, customer service demands, and operations management will multiply. Conversely, costs will be high upfront until the rate of sale creates efficiencies.
- Cost analysis: While DTC can offer higher margins, the operational costs are not insignificant. It’s essential to conduct a thorough cost-benefit analysis, accounting for everything from platform fees to potential additional hires to do the picking and packing. It may well be far more cost effective to either outsource the fulfilment externally, or point to a partner retailer until you’ve built the volume of traffic and interest required to run the operation profitably in house.
2. Driving Sales and Awareness
Building a DTC platform is only the first step. You’ll need to actively promote it.
- Marketing campaigns: Consider using digital ads, social media campaigns, email marketing, and collaborations to draw attention to your online shop. This takes time and iterations to perfect.
- Engagement: Building a loyal customer base takes time. Regular engagement, be it through newsletters, exclusive offers, or interactive content, can keep customers coming back.Ask yourself how you will do this week on week.
3. Bonded Status and Duty Compliance
- Duty implications: Selling directly might change how you report the duty you owe the tax office. For those operating under bond and selling B2B exclusively, a digital bottle shop that operates outside of the bond and based on different unit metrics (bottles, not cases) might need some advance planning. Ensure you are well-versed in these changes and have the infrastructure to handle them.
- Pre-orders: If you are doing pre-sales or get huge sales surges ahead of production, factor in how it’ll effect your month by month reporting and accounts. Production under-bond may be different given you’ve already sold the goods and taken the money DTC.
In essence, while direct to consumer is an attractive proposition, it’s crucial to navigate it with clarity and preparation. Understanding the benefits and the commitment it takes means you can be tactical in your approach. It means you can plan for how it fits into operations holistically.
For those at the point of implementing it on their website – have a look at this article about E-Commerce Guidance for some pragmatic tips.
By considering all the above elements, distillery owners can build a successful and compliant DTC operation that enriches their brand and customer relationships. In time, it can become one of the most potent tools any brand can have to fuel growth.
