Advantages of digital-native brands setting up physical brand stores

Multi-channel retailing has become crucial to the sales strategy of any brand, including digital-native brands that started retailing as online-only. 

Digital-native brands like Quip in the US (an oral hygiene brand) and Myprotein in Europe (a sports nutrition brand) have partnered with independent retailers to offer consumers an in-person retail option. But some brands, especially those in the FMCG category, have opened their own brand stores to create a bigger physical footprint.

Van Crombrugge explains that “these stores offer physical exposure, which digital-native brands might struggle to attain on supermarket shelves, given the steep competition from mass-market brands”.

Brand stores increase brand awareness, which in turn can increase sales in the company owned online channel and independent supermarkets. 

“Brand stores can also spark distributor interest and prompt supermarkets to distribute more of the brand on their shelves. Since the number of brand stores that a digital-native FMCG brand can open is limited, increasing breadth and depth of supermarket distribution can further drive brand sales,” adds Breugelmans.

The supermarket effect

The research uncovered a substantially different impact of brand store entry on own-online channel sales, than on sales in independent supermarkets. 

In areas in the vicinity of brand stores, the brand’s online channel sales decreased, yet its supermarket sales increased. This is because, for customers seeking a more elevated consumption experience, brand stores offer an interesting alternative, which causes cannibalisation of its own online channel.

In supermarkets, on the other hand, buyers are mainly concerned with price and convenience. For them, brand stores offer an opportunity to discover a digital-native brand that otherwise would have remained anonymous between bigger mass-market brands, which in turn causes supermarket sales to increase.

The research team also discovered that brand stores spark distributor interest and prompt supermarkets to start distributing the brand on their shelves. Indeed, part of the supermarket sales increase that brand stores bring about is driven by brand stores’ positive effect on the number of supermarkets that carry the brand. This increase in distribution breadth is an important component to drive sales, since brands cannot open brand stores everywhere.

“We find that brand stores generate an influx of own-brand store sales that more than make up for any online losses. This is not necessarily surprising because their strong local visibility, typically in locations with high foot traffic, and their appeal to customers who lack opportunities or motivations to visit the online channel or supermarket, make brand stores an attractive sales channel on their own,” Scheiner says.

However, opening and running brand stores is a capital-intensive operation due to factors such as store rental cost and sales staff wages. Breinder warns that “our analyses show that nearly half of the brand stores under study were not able to turn a profit. Brands therefore need to carefully weigh brand stores’ top-line gains against their high operational expenses to justify the investment financially.”

You can read more about the research here.