Member Exclusive   //   October 19, 2021

DTC Briefing: After a year-plus of disruptions, the e-commerce startup playbook has changed

This is the latest installment of the DTC Briefing, a weekly Modern Retail+ column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. More from the series →

This is the latest installment of the DTC Briefing, a weekly Modern Retail column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. To receive it in your inbox every week, sign up here

In-person events are starting to trickle back, both for retailers as well as for media companies. Last week, Modern Retail hosted our first multi-day event since 2019, where executives from companies like Mars, Olipop, Made In and Exploding Kittens gathered to talk about what was top of mind for them at their respective businesses. It was good to hear from attendees about what’s working and what’s not working at their respective businesses, in more candid discussions compared to what’s typically distilled in 240 characters on Twitter. 

My big takeaway from the event is that what it takes to successfully run and scale an e-commerce startup has been upended over the past 18-plus months. That’s due to both short-term headwinds — such as supply chain delays — as well as permanent disruptions. Apple’s recent privacy changes, which falls into the latter camp, have led e-commerce startups to completely rethink their marketing funnel. 

As DTC startups adjust to this new retail landscape, adaptivity — rather than adhering to conventional wisdom from a few years ago — is becoming more important. Below are three ways in which that is playing out: 

Inventory shortages are making achieving e-commerce growth more challenging: In theory, this year should be the perfect year for brands to capitalize on the huge e-commerce growth they saw last year. But one significant challenge brands have faced in matching last year’s e-commerce growth is the fact that supply chain delays are making it more difficult to keep products in-stock — as well as pushing back the launch of new items.

It’s also an impediment for wholesale-reliant brands looking to grow their direct-to-consumer sales. “This year, one of our company-wide goals was to prioritize our e-commerce site,” Carly McGinnis, head of production, sales and logistics at card game maker Exploding Kittens, said. Currently, Exploding Kittens’ direct-to-consumer website makes up 5% of its sales. 

“Unfortunately, this year [our direct-to-consumer site] is going to have to be second to retailers,” McGinnis said. That’s because Exploding Kittens, like other brands, has experienced severe supply chain delays this year. McGinnis said when it does come in, Exploding Kittens has to prioritize sending it first to its major retail partners like Target and Walmart, in order to avoid chargebacks. 

With the inventory it did have on hand, Exploding Kittens has tested out a few tactics to driven more customers to its direct-to-consumer site — launching puzzles first on its website, and offering a gift with purchase for upcoming holiday sales. But, most of Exploding Kittens’ plans to grow its DTC site are on hold until next year, McGinnis said. 

Scaling on digital marketing channels has gotten more complicated: At the event, attendees were asked to describe the biggest challenges they were currently facing at their jobs. The most common answer, by far, was rethinking their marketing strategy after Apple’s recent iOS14 update. That update has made it more difficult for retailers to run retargeting ads based on what other websites a user might have browsed — most notably, to run these ads on Facebook and Instagram, which has historically been one of the first advertising channels DTC brands test out. 

What that means is that DTC companies that are just starting out are no longer relying solely on Facebook and Instagram to get their products in front of new customers. Attendees discussed how gathering first-party data was becoming increasingly more important, though getting customers to actually fill out surveys or take a quiz is an ongoing challenge. Brands are also starting to spread their marketing dollars across a greater variety of channels with TikTok being one of the most popular new channels that people were testing. 

But TikTok requires a different strategy than Facebook. Some attendees spoke about how success on TikTok required paying close attention to what was trending on the For You page and capitalizing on that. Another ongoing discussion point around TikTok was about how videos that weren’t highly polished — and looked like they could have been created by any average TIkTok user — were typically the best performers. 

Startups have their sights set on national distribution earlier than before: Very few of the DTC startups at the event wanted to stay solely direct-to-consumer. Increasingly, more and more direct-to-consumer startups are looking to add wholesale partnerships only a year or two after launching.

Their reasons for pursuing wholesale partnerships varied. Jolene Abbott, svp and head of global marketing and e-commerce at Ember, said that the company pursued a wholesale deal with Starbucks just one year after launching. Abbott said that Ember — which sells temperature-controlling coffee mugs — was “creating a new category that no one had heard of,” and as such felt like it needed to build brand awareness quickly by partnering with a trusted coffee chain like Starbucks. 

For beverage startup Olipop, the company’s longterm goal is to chip away at the market share of soda conglomerates like Pepsi and Coca-Cola — and to create a new category of “functional soda,” co-founder Ben Goodwin said. As such, the company quickly prioritized getting into grocery stores.

Olipop started out on the shelves of natural foods-focused grocers like Whole Foods, and then started focusing on more mass-market players like Kroger, which carries Olipop in roughly 1,800 of its stores. Goodwin said that Olipop will be announcing new national partners at the beginning of 2022.

“The long trajectory of this product is to sit where soda sits,” Goodwin said.

As Goodwin noted, it takes a long time to achieve the category-defining status that most startups hope to achieve. And the toolkit required to get there hasn’t been settled yet.

A new data point in the Coke vs. Pepsi brand affinity

During my conversation with Goodwin, he also spoke about a campaign Olipop ran earlier this year, in which the company took on soda conglomerates more directly, by recreating a Pepsi Zero campaign shot-for-shot. The campaign called for customers to “ditch the zero” and “switch to Olipop.”

“I know some Pepsi executives, and one of them texted me after the campaign — just a one-word text — [reading] ‘cheeky,'” Goodwin said.

Goodwin admitted that the campaign didn’t go as “viral” as Olipop hoped. “We actually got a little less bite on it on the initial rollout, and we’ve gotten more bite on it on the tail,” he said, as Olipop has put out more Facebook and social ads encouraging customers to switch from Pepsi Zero to Olipop.

Olipop also tested out a Facebook ad encouraging customers to switch from Diet Coke to Olipop, and “the Coke one performed ten times better,” Goodwin said and is Olipop’s best-performing Facebook ad to date.

What I’m reading

  • Camp has taken over a space at a New Jersey mall formerly occupied by a Toys ‘R’ Us, as the startup attempts to become the go-to toy store for a new generation. 
  • Some toymakers are prioritizing the distribution of soft, squishy toys this holiday season in light of supply chain delays, CNN reports. That’s because it is easier for them to cram more of these toys into hard-to-find shipping containers. 
  • Shopify announced last week during its Commerce+ event that it will add more business-to-business tools to Shopify Plus — a sign that the company wants to go after more enterprise-level customers who have historically flocked to competitors like Big Commerce.

What we’ve covered 

  • Subscriber exclusive: Ember, which makes temperature-controlling mugs, scored a significant brand-building opportunity in its first year in business. The company inked a wholesale deal with Starbucks. Here’s how they secured that partnership, as well as a wholesale deal with Apple.
  • Winc is the latest consumer startup that’s filing to go public after a year of explosive e-commerce growth. 
  • Gift cards are set to play a bigger role this holiday season, as retailers are increasingly using them as a stop gap for inventory shortages