With more than half of the Spanish population confined to their homes, another element that also seems to have been temporarily put in quarantine is the eternal debate over the channel dispute that has been maintained for years in the distribution business since the explosion of the Internet as a new sales window to the world.

BRANDS LAUNCH INTO DIRECT SALES "SHELTERED" BY THE COVID-19 CRISIS

A few days ago, Mahou, Damm and Estrella Galicia, three of the major breweries in our country, announced the reactivation and reinforcement of their respective e-commerce platforms to respond to the demand generated by the confinement and thus cushion the drop in sales in their respective hospitality channels. At the same time as this was happening, the home food delivery platform Deliveroo closed an agreement with Unilever to market and distribute basic products from the company's main brands, both in hygiene and personal care as well as food. Other brands such as Nespresso are also witnessing how the share of business coming from their online store is growing significantly during these weeks of quarantine. These are just a few examples that show that the crisis derived from Covid-19 is causing a proliferation of direct sales platforms through which brands and manufacturers try to relate and/or sell directly to their customers through the Internet and without the need to depend on third parties. These are the so-called D2C (Direct to Consumer) models. These types of models are not new in our country. Although, it is true that the rise of these initiatives during confinement has done nothing but strengthen a trend that in recent years has been gaining strength in the retail industry thanks to the influence of platforms like Amazon. A trend that affects not only the food sector but also other categories such as electronics, health or entertainment.

In an increasingly globalised environment, brands know that communication with their customers cannot depend solely on their intermediaries. It is precisely for this reason that during recent years we have seen several examples of brands that have been flirting with digital sales platforms, created with the desire to complement their traditional sales channels and build a more direct and omnichannel relationship with their customers. However, the majority of these initiatives have remained timid attempts at business models that, in general, have brought them more positioning than real impact on the business. One of the reasons for the low permeability of this type of initiative is explained by the permanent opposition and resistance that the channel has shown towards them, tending to interpret them as direct attacks on its business model and seeing them as a threat to its strong position in the market. This defensive posture shown by the intermediary has forced brands to use diplomacy and adopt a cooperative position with the channel to avoid putting at risk the capacity to reach the market that it undoubtedly provides them.

However, everything seems to indicate that after the passage of Covid-19 and its effects on consumption dynamics, the channel could have definitively run out of arguments to stop a trend that seems to have a more than obvious course and development potential in the distribution business. So much so, that according to a study recently published by eMarketer, it is estimated that D2C sales in the United States in 2020 could record growth of around 25% compared to the previous year, reaching $17.75 billion in turnover. Therefore, far from seeming like a temporary situation, we could be facing something structural that definitively changes the rules of the game and poses new challenges and opportunities for the business ecosystem of the sector.

COVID "CATCHES" THE DISTRIBUTION SECTOR WITH ITS HOMEWORK HALF DONE

Changes in consumer shopping habits caused by Covid-19 (fear of visiting physical points of sale due to risk of contagion, demand for immediacy and availability of the product, etc.) converge with a certain inability of some to provide a response up to the expectations of an increasingly demanding and omnichannel customer (e.g. deficiencies in the online shopping experience, digital services unsuited to the current situation, etc.). The combination of these two factors has resulted in a perfect storm in which manufacturing brands feel empowered and with the "license" to build new direct sales mechanisms; moving from being mere traffic generators towards the point of sale to actively operating sales and capturing customer knowledge. And all of this without even having to justify their new position in the industry's new value chain to the channel.

Far from seeming fortuitous, this situation is the result of the vision of many manufacturers who have been able to read and anticipate the implications of the new digital economy and have been taking steps towards their progressive business transformation over recent years. Aware that the future of their business is not just about placing the product on the supermarket shelf or point of sale, brands have been investing resources for some time in creating new links with their customers and offering them new value propositions that differentiate them from their competition. And it is precisely here where D2C models make more sense than ever, as they open up new ways of relating to the customer (not necessarily transactional) and allow them to influence their consumption decisions without depending exclusively on the intermediary.

This rapid reaction from manufacturing brands has not arrived with the same speed and conviction in the collective of retailers. This is a segment that has historically taken refuge in its dominant position in the industry and watched digital transformation from the rearview mirror, leaving the door open to the emergence of new startups and relinquishing more and more prominence to manufacturing brands in their struggle to control the channel and the customer. In this sense, the current crisis has highlighted some shortcomings of these retailers in their adaptation to the new consumer logic caused by the virus, and now forces them to start a race against time so as not to miss the customer train in an increasingly dynamic and competitive business ecosystem.

CUSTOMER KNOWLEDGE, KEY TO SUCCESS OF D2C MODELS

Talking about conflict over the channel inevitably leads us to talk about the battle for the customer and, therefore, for their data. Until not long ago, the only point of contact between manufacturing brands and their customers was limited to the moment of purchase at the physical point of sale. Brands were flying blind with the consumer and retailers thought they had control of the channel and possessed the knowledge of "their" customers.

However, the appearance of models such as D2C caused by the confinement situation reinforces the idea that the consumer today has more decision-making power than ever and has more options at their disposal to interact with the brands they follow. This discussion which has been on the lips of the retail industry for years seems to be more sterile than ever with the arrival of Covid-19. The only reality is that the customer is omnichannel and deposits their data (and trust) with whoever they choose and whoever brings them value, not what is determined by a pre-established market structure. This, which at first glance may seem so simple, leads us directly to a paradigm shift that affects without exception all agents that form part of the industry ecosystem; not only distributors, but also the manufacturing brands themselves, which in this situation are forced to rethink their relationship models and data strategies with their customers, something that until now seemed to be the exclusive competence of the retailer.

And the truth is that the Covid-19 crisis has not only caught distributors off guard, but also many manufacturers, especially those who are most resistant to the new trends that the digital economy has brought with it. In this sense, only those brands that during recent years have been building stable relationships and solid databases with their customers are now prepared to face these new challenges with certain guarantees of success. This, which at first glance may seem like an accessory, can be decisive in keeping afloat many businesses that are desperately looking for agile formulas to maintain active revenue flows in the short term.

NEW OPPORTUNITIES FOR THE RETAIL INDUSTRY

We find ourselves in a crisis of real significance. And whenever profound changes occur in the economy, new challenges and opportunities arise for companies to redirect and rethink their business models, regardless of which side of the industry they view it from.

Looking at it from the manufacturer's side and without leaving the territory of direct sales, it is clear that entering the world of D2C offers many advantages for brands, but also requires a value proposition radically different from traditional models; forcing them to resolve issues such as, for example, what to do with the single-brand model or how to integrate the supply chain within their traditional business model. However, beyond these and other questions that may arise, without a doubt the current context is appropriate for seeking innovations in the relationship with their customers while trying to respond to short-term business objectives.  

Looking at it from the retailer's perspective, it is undoubtedly a good time for companies to review their value propositions and join forces more than ever with brands, trying to create win win collaboration formulas that bring mutual benefit in favour of the customer. 

In summary, if the crisis leaves us with any lesson, it is that companies must continue to invest in strengthening digital capabilities and face the challenge of corporate digitisation with greater firmness and conviction than ever. We are facing a new normalcy in which speed is the new size and where the survival of companies depends, to a large extent, on their capacity and agility to adapt to change. Let this crisis serve as a learning experience to face new challenges that may appear in the future.