Tips for Balancing DTC and B2B Retail for CPG Companies

The consumer packaged goods industry is experiencing unprecedented transformation. Over the past few years, we've witnessed a remarkable phenomenon: established CPG companies executing multiple strategic pivots as they navigate through increasingly complex market dynamics. The challenges are manifold – from persistent labor shortages and supply chain disruptions to escalating material costs and volatile carrier relationships. Add to this the growing complexity of last-mile delivery costs, and it becomes clear why success in today's CPG landscape requires a sophisticated approach to channel strategy.

As Accenture aptly notes, "The consumer packaged goods (CPG) industry is experiencing the largest channel proliferation and fundamental shift in the relationship between consumers and manufacturers ever." This observation captures the essence of the current transformation, but it only scratches the surface of the profound changes reshaping the industry.

For those who have successfully steered their organizations through these turbulent times, there's certainly cause for celebration. However, the rapidly evolving landscape demands continued vigilance and strategic adaptation. The key to future success lies in effectively balancing the dynamic relationship between direct-to-consumer (DTC) sales channels and traditional B2B retail operations.

The Evolution of Direct-to-Consumer Operations

The allure of DTC operations is immediately apparent: elimination of middleman costs, reduced markups, and the potential for higher margins without the burden of traditional retail shelf space costs. Perhaps most importantly, DTC operations provide something invaluable in today's data-driven marketplace – direct access to customer information and behavior patterns.

However, the reality of managing successful DTC operations is far more complex than many initially anticipate. The challenge begins with supply chain management, where precision becomes paramount. Unlike traditional retail channels, where buffer stocks can sometimes mask inefficiencies, DTC operations require exceptionally accurate demand forecasting and inventory management.

Consider the ripple effects of a stockout in the DTC channel. When a customer encounters an out-of-stock situation on your direct channel, they don't simply wait for replenishment – they often turn to competitors, potentially never to return. This highlights why sophisticated inventory management isn't just an operational necessity but a critical customer retention tool.

The financial dynamics of DTC operations present their own unique challenges. Customer acquisition costs (CAC) have risen dramatically across digital channels, with some categories seeing increases of over 40% in the past year alone. This escalation in acquisition costs makes the balance between CAC and customer lifetime value (CLV) increasingly precarious. Success requires not just acquiring customers efficiently but also developing sophisticated retention strategies to maximize lifetime value.

The key to managing these challenges lies in developing robust real-time data capabilities. Modern DTC operations require integrated systems that provide immediate visibility into sales patterns, inventory levels, and customer behavior. This real-time insight enables quick pivots in strategy – whether adjusting marketing spend, modifying pricing, or rebalancing inventory levels.

B2B Retail

While DTC operations often capture headlines and investor attention, B2B retail remains the backbone of most successful CPG operations. The advantages are clear: predictable revenue streams, high-volume sales, and established distribution networks. However, today's B2B retail environment presents its own set of evolving challenges that require careful navigation.

Managing cash flow becomes increasingly challenging as business delinquency rates and overdue payments rise. Over half of B2B invoices are now paid late, yet you still need to fund purchases upfront and ensure your supplier delivers. Unlike DTC sales, where payments are immediate, B2B transactions involve a significant delay.

The complexity of B2B operations extends beyond payment terms or cash flow. Bulk order economics require sophisticated pricing strategies that account for volume discounts while maintaining profitable margins. This becomes increasingly challenging in an environment of volatile input costs and changing customer expectations.

Demand forecasting in the B2B channel presents unique challenges compared to DTC operations. While B2B orders might be larger, they're often less frequent, making pattern recognition more difficult. Additionally, B2B customers typically expect higher service levels and more consistent availability, making stock management crucial.

Success in B2B retail increasingly depends on strong supplier relationship management. This goes beyond traditional purchasing and extends into collaborative planning, shared forecasting, and joint innovation initiatives. Leading CPG companies are investing in digital tools and analytics capabilities that enable closer collaboration with suppliers while providing deeper insights into supply chain performance.

Unified Financials, Tracking by Sales Channel

Perhaps the most critical element for success in today's CPG landscape is maintaining a unified view of financial performance across all channels. This might seem obvious, but the practical implementation is often surprisingly complex.

Consider a common scenario we encounter: CPG companies running their B2B transactions through the same platforms they use for DTC sales, such as Shopify. While this might seem efficient from an operational standpoint, it often creates significant challenges in understanding true channel performance.

When B2B sales are processed through DTC platforms, it becomes difficult to accurately assess channel-specific metrics. The costs, margins, and operational requirements of each channel are fundamentally different, and mixing them creates a distorted view of performance. This can lead to suboptimal decision-making and resource allocation.

The solution lies in implementing sophisticated accounting and analytics platforms that can accurately track and attribute sales, costs, and margins to specific channels while maintaining a unified view of overall business performance. This enables organizations to make informed decisions about channel investment and optimization while maintaining clear visibility into overall business health.

Balancing Your Sales Channels

The complexity of modern CPG operations places unprecedented demands on cash flow management, burn rate and cash runway. The combination of delayed B2B payments, upfront inventory requirements for DTC operations, and volatile supply chain costs creates a complex cash flow environment that requires careful management.

This is why we strongly advocate for maintaining 12-18 months of cash runway. This buffer provides the flexibility to weather unexpected challenges while taking advantage of opportunities as they arise. It also provides time to evaluate and implement financing options or strategic investments when needed.

The key to effective cash flow management lies in developing sophisticated forecasting capabilities that account for the different dynamics of each channel. This includes understanding seasonal patterns, payment cycles, and inventory requirements across channels while maintaining sufficient flexibility to adapt to changing conditions.

Enhance Your Financial Strategy: A Resource for CPG Success

The modern CPG landscape is undeniably complex, but this complexity also creates opportunities for organizations that can effectively navigate it. Success requires a sophisticated approach to channel strategy, supported by robust technology, strong analytical capabilities, and effective operational processes.

For organizations looking to enhance their capabilities in this area, we've developed a comprehensive resource: "How CPG Founders Can Build Financial Confidence." This ebook provides detailed guidance on:

• Building integrated financial reporting systems that provide clear visibility across channels
• Developing effective investor communications that accurately represent multi-channel operations
• Implementing automation tools that improve efficiency while maintaining accuracy

The future of CPG belongs to organizations that can effectively balance the opportunities and challenges of multiple channels while maintaining operational efficiency and financial stability. By building the right capabilities now, organizations can position themselves for success in this evolving landscape.