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How Nik Sharma Thinks About Direct To Consumer Through The Food & Beverage Lens

By Scott Ginsberg, Head of Content, Metric Digital

If you work in the direct to consumer space, and you haven’t heard of Nik Sharma, you might be living under a rock.

Nik has been managing DTC marketing strategy since he was fifteen years old. And not only for himself, but also for his employers and for clients.

From being a company leader at Hint Water and Vayner Media, to consulting for brands like The Pill Club, Cha Cha Matcha and Hydrant (to name a few!) few experts in the field have accumulated Nik’s comprehensive experience and perspective.

We had the chance to sit down with Nik recently, chatting about everything from food and beverage to shipping costs to brands winning in the DTC space to how to diversify beyond Facebook and Google.

Enjoy!

Nik, you’ve driven a lot of success in the food and beverage space. How do you think about direct to consumer through the lens of that vertical?

Food and beverage is not for everybody. The economics required to get started and sustain growth in this vertical are hefty, and often require too much trust and/or patience from investors. Particularly on the beverage side, companies incur a huge shipping cost, making a marked difference in their profit and loss statement.

And yet, many brands in this space are excited about going direct to consumer. I think it’s partly because there is tons of hype around that distribution model, both in the trade-press and the industry itself. But we see many brands fail when trying to blindly execute this strategy because the second they invest in direct to consumer, their economics makes no sustainable financial sense.

How can hopeful brands protect themselves?

From a marketing perspective, food and beverage brands need to advertise using powerful creative, including imagery and especially video. There’s not a high barrier to entry in this space, which means a brand’s marketing has to be best in class aesthetically and strategically to stand out amongst all the competition.

Let’s say you’re launching a beverage company. And your team is scoping out creative for their initial phase of launch assets. Between hiring on camera talent, photo shoots, editing and post production, it’s easy to spend upwards of $150k in a short period of time, because it’s all about the assets, and having better assets than the competition. In a world of retail, you have to focus on acquiring shelf-space through aesthetically pleasing inserts for your shelf, nicely printed labels, and/or stickers on your product. On the internet, you’re confined to just the creative that you put out.

You absolutely have to personify your brand through video first and copy second. Otherwise you won’t achieve the number one goal of food and beverage, which is to get a sample in a customer’s hand. If you have a good product, that can sometimes be all it takes.

Tactically, Facebook, the most efficient and affordable channel for new customer acquisition, should execute against that singular goal. Get your product in their hands, in the hopes that they love it, come back and either subscribe or buy more. Your product has to be 12/10 for that to work. Anything lower, and your brand will not be able to support the economics that come with both the vertical of food and beverage, and the business model of direct to consumer.

You were also telling me that there are so many aspects of food and beverage that most people don’t even think about. Can you share some examples?

The first one that comes to mind is the cost of shipping. Most food and beverage brands learn to optimize through bundling, which raises their average order value to offset the logistical cost. Dirty Lemon is a perfect example. They have not only been able to sell a high-margin product DTC, which helps to off-set shipping cost, but the sheer volume of Dirty Lemon’s eCommerce allows them to negotiate for better rates with their own shipping carriers. With the Iris Nova platform now also coming to fruition, they can now pass those savings along to other beverage brands in their portfolio, such as Minna, Sanzo, etc. Outside of DTC for Dirty Lemon, Manhattan’s flagship location for buying this beverage is called The Drug Store, and the store has been getting a lot of media attention.

That’s a powerful differentiator. This kind of logistical finesse kicks open the industry doors to help future brands leverage more sustainable shipping costs down the line.

Here’s another aspect of food and beverage brands most people miss. You have to start with the financials. There are so many businesses for which it makes absolutely no sense to go direct to consumer. But because brands don’t execute proper financial due diligence before starting, they fail. As an example, some companies won’t even try to negotiate their rates from vendors. Whether it’s shipping, SAAS fees or some other COG in the supply chain, brands simply accept the fees as gospel. But they can push back and lower their cost burden significantly.

One last tactic smart brands are leveraging is partnership marketing. Facebook is particularly useful for executing this strategy because of their targeting capabilities. If your gluten-free snack brand has a non-competing beverage brand that services the same customers, that’s a prime option for a powerful partnership. You can cross-market, build out and/or swap custom lookalike audiences, send out email promotions that sell both products as a pair, and so on.

LaCroix made waves when collaborating with AllBirds on custom LaCroix colored shoelaces.:

Brilliant!

Remember, if there are complimentary brands to your food or beverage product, find a way to join forces. Create acquisition offers where subscribing to one brand earns customers a free sample from the other brand. It’s a useful way to increase average order value (AOV), find new audiences and build strong partnerships within the industry.

How does growth through paid media differ in the food and beverage vertical, versus something like beauty, apparel, etc?

The biggest goal in apparel and beauty is achieving return on advertising spend (ROAS) in your first purchase. Whereas with food in beverage, brands are not looking at that at all. They’re focused on customer lifetime value (LTV). Trying to find an allowable customer acquisition cost (CAC) that fits into their subscription model. It’s more of a membership type of game. This mindset is quite different than other verticals, and you have to make sure the ladder is leaning against the right wall from the beginning.

In my experience, subscription can be highly profitable for food and beverage brands especially if their products have a high consumption habit, like with Hydrant or Super Coffee. If you’re on the brand side, I know from experience it’s exciting to wake up at 6am and see your subscription orders being processed and guaranteeing revenue for your brand. What’s more, consumers love the convenience of the direct to consumer model. You’ve taken away all of their worries about outside factors like order placing, arrival times, fulfillment amounts, or even having to bring bottles of water from the grocery store to your fridge.

(Metric has written extensively about this topic on our blog. Read more to dive deep into the subscription world.)

You’ve worked in every part of this ecosystem, from operating in house at Hint Water, to the agency side with VaynerMedia, to your consulting work with companies like The Pill Club Crunch, Dream Pops and Haus. How does that body of experience inform the way you think about digital marketing?

I’ve been fortunate to be able to look under the hood of a ton of different brands in a variety of verticals. From a macro-perspective, it means that today, anytime me or one of my brands makes a decision, there is a deeper context to the final choice. It also enables me to ask smarter questions — when I go into meetings with founders or brands, my first step is always on the supply side, not the demand side.

My questions are:

  1. What are your margins, shipping costs and return percentage?
  2. What is the cost of goods sold for your product?
  3. What are your current resources (team, funding, platforms, etc.)?
  4. Do you have a real community or cult following?
  5. What is your customer comms stack (email, SMS, mailers, etc.)?

Once we check all of those boxes, only then should we drill down into identifying and fixing demand issues such as customer acquisition cost and what ad creative should look like, all of which are much easier to fix. Too many businesses out there should, quite frankly, not be “businesses,” but they were able to acquire boat-loads of venture capital money, and figure out distribution as an after-thought. Brands that don’t think through distribution in their early stages or their infancy end up losing the most money over time.

In your Digiday interview, you said that a lot of brands are getting pressure from investors to show they can expand outside of Facebook and Instagram. What are your thoughts on brands diversifying their customer acquisition strategy?

Facebook is easy. On a scale from one to ten, in terms of how tough it is to acquire customers, it’s about a two. That’s why everyone goes there first. Facebook is the fastest place for getting initial product feedback, testing ad creative and identifying your value props.

Other marketing avenues such as newsletters, mailers, podcasts, television, print, etc. require a lot more work on the creative side. The barrier to entry is higher on channels like that, not only from a creative standpoint, but also from a pricing standpoint. Whether it simply requires more capital or even actual people to manage to new channels, you have to put the right resources against them to execute in an efficient manner. 

The worst is when brands try to simply replicate creative from existing channels into new channels, ignoring the native formats, and end up wasting their test budgets only to conclude the channel is a terrible one to advertise on.

Overall, one brand should not be overly reliant on a single channel. Facebook and Google are amazing platforms, but companies need to figure out ways to spend outside of them. Not because they’re hitting their ceiling budgets or maxing out audiences, but because channel diversity is attractive to investors, and acquirers. There are numerous untapped channels where no other food and beverage companies are, and it’s to a brand’s advantage to have the first-to-market advantage with emerging platforms.

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Thanks Nik for your insight! And congrats on making the Forbes 30 Under 30 list.

For those who aren’t following Nik on Twitter, add him to your daily reading list for all things direct to consumer. He sends out daily DTC tips & tricks that you don’t want to miss on his text line: 917-905-2340, just text him and say “hi”

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Scott Ginsberg Head of Content, Metric Digital The Metric Digital Blog A Blog on All Things Digital Marketing