How D2C brands make the CPG industry’s life miserable

Why I am writing this article and who it might concern

Last summer I had the pleasure of attending the K5 Future Retail Conference in Berlin’s Estrel. After the event I already shared a more detailed report about the whole event:

Survival tipps for the GAFA world (Day 1) (German only)
Survival tipps for the GAFA world (Day 2) (German only)

One of the lectures I remember most lastingly was the presentation by Dr. Martin Schulte, Partner for Retail at the management consultancy Oliver Wyman. In his talk, he focused on a global trend that is taking place without the attention of many retail experts: the attack of numerous microbrands specializing in direct-to-consumer business (D2C) on the business of established CPG groups such as Unilever or Procter & Gamble.

Martin Schultes lecture also fascinated me after the K5, so I followed the path of some D2C brands more closely. Among other things, I came across an interesting talk in which JT Marino, Co-Founder and Chief Visionary at Tuft & Needle, and Moiz Ali, Founder and CEO of Native, two protagonists of the scene, have their say. In the following article, I would like to relate their practical experience to Schultes theoretical observations in order to give both interested founders and representatives of the established CPG industry a well-founded insight into the emerging D2C market.

What are D2C brands anyway?

Thankfully, the organizers of the K5 have now shared Martin Schultes lecture in full length on YouTube:


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In his presentation he deals with the characteristics of the companies he himself describes as microbrands:

  • They are specifically looking for large but weakly innovative branches of industry – such as mattresses, suitcases or Home appliances – and concentrate within this industry on an extremely narrow product portfolio which they offer their customers.
  • They do not react passively to the current upheaval in trade, but rather make these changes – such as the growing importance of online retail and social networks – a central component of their business model.
  • They are on average 266 times smaller than the CPG groups they attack, but grow on average 19 times faster.

Based on such growth rates, D2C brands such as Casper, Tuft & Needle and others have already secured 8 percent of the industry’s total turnover in the mattress market. Oliver Wyman therefore assumes that microbrands could claim a quarter of the market by 2025 in segments in which they currently generate around 4 to 5 percent of sales.

What do D2C brands do differently from established companies?

According to Martin Schulte, the new approach of the D2C brands can be seen in various areas.

  • In the area of branding, companies focus clearly on the customer. Instead of ploughing through the traditional retail and trying to reach the end customer through this intermediary, the D2C brands – true to their name – address the consumer directly via digital channels and, for example, try to build up their brand through consistent content marketing in social media channels.
  • D2C brands also predominantly use digital channels in the distribution sector, thus circumventing the intermediaries in the retail sector. In this way, they do not have to deal with the challenge of being listed by the retailer in the first place, and they also increase their margin.
  • With regard to innovation, it pays off that D2C brands often concentrate on only a few products. In this way, they keep their R&D expenditure within bounds. In addition, the customer is much more closely involved in product development, e.g. via A/B tests, so that concrete customer feedback can flow into product optimization in rapid release cycles.
  • The D2C brands also benefit greatly from globalisation in terms of procurement. Thanks to the considerable production capacities, especially in Asia, even small start-ups are now able to produce their products in an uncomplicated way.
  • In addition, there are considerable differences with regard to the organisation. While corporations tend to rely on large teams in a highly organized environment, D2C companies get by with much smaller teams, making it easier for them to be more agile.

A look into practice: Tuft & Needle and Native as examples of successful D2C brands

As this – incomplete – overview shows, an extremely multi-faceted D2C scene has established itself especially in the United States. With JT Marino and Moiz Ali, Peter Kafka, editor of the blog Recode, invited two representatives of this scene to the Code Commerce conference. JT Marino founded the mattress brand Tuft & Needle together with Daehee Park in 2012, which last year merged with the largest mattress manufacturer in North America, Serta Simmons. Moiz Ali in turn launched the deodorant brand Native in 2015, which was acquired two years later by P&G for around 100 million US dollars. Fortunately, the organizers also uploaded the extremely informative talk of the two to YouTube:


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In their statements, Moiz Ali and JT Marino confirm the findings Martin Schulte made on the K5 about the mode of operation of the D2C brands in large parts. In addition, some interesting details were deepened.

  • The D2C brands base their branding on current technological developments. Moiz Ali, in the context of the talk, admits straight away that the success of his company a few years ago would not have been possible in this way. Decisive for this development is the possibility to precisely define the target group for social media campaigns via customer targeting, to specifically incentivize these people and to track the success of the campaign in detail. Not so long ago, such campaigns were like firing a cannonball: It was fired in one direction and hoped to hit. But sometimes the cannon exploded in your own face. Thanks to the further development of Facebook and other social media channels, the customer approach today is much more precise and allows more effective brand building. (Also note the Code Commerce talk with Susan Tynan, CEO and Founder of Framebridge, and Jennifer Rubio, Co-Founder and Chief Brand Officer of Away, who have also built successful D2C brands. According to the two, precise campaign tracking also makes it possible to quickly shift marketing budgets between channels – another secret of success in brand building.)
  • By focusing strongly on addressing customers directly, the retail trade can be consistently avoided in distribution. Word-of-mouth is explicitly promoted, so that ideally the customers themselves become Salesforce. E-commerce infrastructures do the rest in order to be able to work past traditional retail. In addition to increasing the margin, this circumvention of the retail has another advantage: In direct contact with the customer, the microbrands receive extremely valuable data on the preferences of their customers, which they can use to further improve their range of products. In addition to the online business – as in the case of Framebridge and Away, for example – brick-and-mortar shops are increasingly being run by the company itself. Their design is also optimized to contribute to customers’ word-of-mouth via social media channels – e.g. via customer photos taken in the store and shared via Instagram.
  • Even though D2C brands concentrate on a narrow product portfolio, there are certain R&D expenses. In contrast to many CPG groups, however, Microbrands involve their customers much more in product development. According to Moiz Ali, only large-scale A/B testing enabled his company to improve an initially mediocre product. According to JT Marino, personal experiences with the tech scene can help to establish this form of innovation in one’s own company. At Tuft & Needle, for example, it was never the goal to bring the perfect product to market with the first release. Instead, the philosophy should be to release the product as often as possible and optimise it as quickly as possible on the basis of customer feedback. Product development is therefore never finished.
  • In the field of procurement, the circle of potential suppliers has, of course, grown considerably as a result of globalization. At the same time, it is also difficult for D2C brands such as Tuft & Needle to convince manufacturers to cooperate. There are two main reasons for this: On the one hand, many producers are also partners of the established consumer goods groups, which are attacked by the microbrands. On the other hand, the D2C brands are aware that they are very difficult business partners for their manufacturers due to the narrow financial scope in the early days and the frequent product adaptations.
  • With a focus on a few products and a corporate philosophy that postulates more agile and iterative work, D2C brands are less rigid in their organisation than their competitors. In addition, microbrands as classic start-ups require comparatively small teams: Moiz Ali, for example, was the only employee in his company for about a year. Given that Native was founded in 2015 and was acquired by P&G two years later, Ali only needed to employ staff for about a year to build a $100 million business.

Are there also examples from Germany?

Even though not as many D2C brands have established themselves in Germany as in the United States, there are also some pioneers in this field in Germany. Companies such as Bett1 (mattresses), Lillydoo (diapers and baby care), Horizn Studios (suitcases) or the Dutch florist Bloomon, which is also very active in Germany, vary the success strategies mentioned in their interest and are actively working to attack the previous top dogs of their industry in Germany and Europe. In this context, the interview of Horizn Studios founder Stefan Holwe with the magazine “Berlin Valley” (German only) is worth reading.

How can established companies react to the attack of the D2C brands?

Even though the aforementioned attack is far from being felt in all areas of the CPG industry, it can be assumed that similar developments will be seen in other segments in the future. The success of microbrands is therefore a serious challenge for companies established in the CPG sector. From Schultes’ point of view, there are four possibilities for the groups concerned:

  1. They can buy up successful D2C brands.
  2. They may develop their own D2C brands in addition to their established business.
  3. They can learn from D2C brands and completely reposition their business culturally and organisationally.
  4. They can cooperate with D2C brands.


The acquisition of Native by P&G and the merger of Tuft & Needle with Serta Simmons clearly show that some groups are already actively implementing this advice. Another example is the German consumer goods giant Henkel, which has developed its own D2C brand with the hair coloration #mydentity. That seems to confirm one thing: The microbrands have brought movement into markets that have been stable for years and will also mix up other branches of industry in the coming years. Whether the packs in these sectors are actually reshuffled or whether the attack of the D2C brands remains a flash in the pan depends to a large extent on the further reactions of the established CPG groups. The examples show that at least some of them have recognized the signs of the times and are trying to bind the know-how of the attackers to themselves in order to learn from them.