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Consumer Trends 2022: The rise of direct-to-consumer and new platform challenges

11 January 2022

Online platforms have offered new routes to market, is that about to change, or is this just the beginning of the opportunity for brand owners?

For many years it has been clear that brand owners make products and retailers and hospitality venues sell those products, usually from bricks and mortar locations. Brand owners produced in bulk, shipped in pallets, and the retail operations took that product, broke it up and shipped it to its stores. That dynamic was clear and everyone understood where they were.   

As consumers do not often buy in pallet loads, brand owners were not really set up to ship direct to consumers and the scale and volume of that market was limited. For several years now, there has been a change to that dynamic as brand owners have found solutions that take the pain and provide a solution. The growth of fulfilment providers like  eBay, Amazon, Alibaba or the Hut Group allows businesses to avoid the significant cost and challenge of changing their operations by outsourcing this aspect to a third party. It keeps cost manageable by minimising capital expenditure and risk, and allows a business to determine if their market works as expected. There are many models available in this space from merely outsourcing the third-party logistics (3PL) activity to a wider website and online retail offering. This again gives brands considerable flexibility and in most cases allows the brand to remain as the seller of record. 

Part of the continued attraction of this model is that it allows a range of different products to be tested in the market and allows brands to offer a wider range than those that would be able to be stocked in store. A fuller range can be offered without as much concern about the slower selling lines compromising the space you have, particularly in the ultra-competitive battle for space in grocery retail. But, in some cases it may also allow you to then prove the concept for those products before getting a listing in the retailers. All of which allows cost and time to be saved whilst maximising margin. 

Over the last year we have helped more and more clients explore these models as part of their expansion plans and we foresee the growth of these channels continuing as consumers enjoy the convenience of online shopping and shop in multiple ways and brands capitalise on this too. 

As the lockdown period has opened consumers' eyes to the value of online shopping – something clearly recognised by the large number of quick grocery businesses entering the market, we do not anticipate that this will change any time soon. 

Who is responsible? Are market places about to be regulated like producers?

While 3PLs have largely been unscathed, online marketplaces are currently receiving considerable attention as it is being suggested that they should be legally responsible for ensuring the safety of all products sold through them. This is primarily as they are viewed as a mechanic for unsafe products to be placed on the market.  

It is repeatedly stated that there is a legal gap regulating these products. This is not true, it is just that the marketplaces make an easier target.  It is being suggested that marketplaces should be responsible for ensuring that the products sold by others are safe: at present the platform has no legal liability where it does not sell – in that case the responsibility is with the seller or producer (if they are different). Often there is criticism that many of these products are shipped into the market and the law makes clear, for general products, that it is the importer, in circumstances where the producer is not established in the EU/UK that is responsible. If a consumer happens to have purchased from a platform outside the EU/UK and has imported themselves, then they have done that at their own risk. 

All reputable brands go to considerable lengths to ensure that their products are safe and put in place considerable quality assurance (QA) systems to ensure this. Everyone would agree that only safe products should be available, but it is not a marketplace's job to police this where they neither sell nor produce the product and merely publish an advert.  Where they fulfil, perhaps there is an argument that they can take distributor type roles and pass safety information to the producer, and potentially support notifying consumers in the same way that a retailer would. It seems grossly disproportionate that they should instigate a range of QA and other tests to validate that a product is what it says it is and meets all the necessary standards, when they are doing little more than carrying an advertisement.   

This is an emotive area and one in which we expect further debate and potential regulation in 2022 as both the EU and UK update their product safety laws. We know that following the UK's recent call for evidence on product safety that online sales generally and on marketplaces specifically emerged as a key trend.  With that in mind the UK Office for Product Safety and Standards has confirmed it has a policy development priority for the '…clarification of economic operator responsibilities with accountability and traceability. Ensuring consumers are better informed' and we expect policy proposals to be consulted on in Q1 2022 with legislation likely.  While many will say that this should not cause compliant businesses to fear, the issue is in the administrative burden that is likely to occur in making a marketplace operate as a regulator and gatekeeper. This will require a fundamental shift in models, creating an entirely new industry with limited benefit. 

If you have any questions about marketing or regulating your products or engaging with a third-party platform please don't hesitate to get in touch

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