May 10, 2022 - Economy

Big brands bite back

Sales growth for U.S. <span style="background:#054f9f; padding:3px 5px;color:white;">digitally-native</span> and <span style="background:#15a0ff; padding:3px 5px;color:white;">established</span> DTC brands
Data: eMarketer; Chart: Thomas Oide/Axios

Splashy direct-to-consumer brands like Peloton and Blue Apron are losing their edge as established companies double down on digital products and services.

The big picture: The digital upper hand can only take new brands so far. Established companies have far more capital and scale, enabling them to leverage the ideas and marketing that startups have tried to use against them.

State of play: At the start of the pandemic, digitally native companies prioritized marketing to consumers who were stuck at home and spending far more time on social media.

  • That drove a huge rise in investment in upstart brands that investors believed could eventually displace traditional firms. What they hadn't anticipated, though, was that many established firms would push aggressively to catch up.

Driving the news: New data from Insider Intelligence shows that direct-to-consumer e-commerce sales from established brands will be three times larger than those of digitally native brands.

  • The upstarts' marketing playbook "has mostly run out of juice," wrote Andrew Lipsman, principal analyst for retail & e-commerce.

Flashback: "We believe that there is a paradigm shift going on," Accenture CEO Julie Sweet said last month at Axios' "What's Next" Summit.

  • "Back in 2019 when I became CEO, I said, 'Over the next decade, the disrupted would become the disrupters.' And by that I meant the traditional companies, the incumbents who've been disrupted by technology-first companies, would over the course of a decade catch up. That's happening much more quickly,"

Traditional companies across industries are finally beginning to claw back at their upstart rivals.

  • In entertainment, Netflix's massive sell-off last month showed just how much the streamer is suffering from competition from established media companies like Disney and Warner Bros. Discover, which is home to HBO Max.
  • In food delivery, despite the pandemic-driven at-home meal kit boom, companies like Blue Apron, Sunbasket and HelloFresh have struggled to maintain their competitive edge against options from grocery giants Kroger, Albertsons, Walmart and Whole Foods, local restaurants and chains like Denny's and Chick-fil-A, and even food brands themselves like Pepsi and Kraft Heinz.

Details: Upstarts are finding it more difficult to do business online as advertising becomes more expensive, and privacy changes have limited their ability to track their customers.

  • "Digital ad costs are rising, the early arbitrage opportunity has eroded, and brands can't growth-hack their way to scale," Lipsman wrote.

What to watch: The script is flipping.

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