Riding the Sustainable Wave: D2C Brands

8 min readMay 20, 2021

by Felicity Lin, Republic Venture Fellow

☁️ TL;DR — D2C sustainable brands are driving change by creating social-driven products while capturing brand loyalty, increasing the investment potential that cares for our planet.

introduction

As an enthusiast Gen Z shopper myself, I’m constantly on the hunt for the perfect aesthetic and purpose-driven brand to upgrade my everyday essentials. I stumbled upon Republic when looking for ways to invest in innovative startups that I’m a fan of. I quickly found that stojo, a sustainable collapsible cup brand I worked with through a creative agency Scout Lab, was open to investing. Two years later, I joined Republic as a Venture Fellow looking to support this niche community of startups looking to make a change to our planet.

D2C brands have disrupted the way we consume everyday products from mattresses to toothbrushes. Studies have shown that 1/3 of consumers are investing in products from companies that they “believe are doing social or environmental good.” These retailers primarily target Gen Z and Millennials consumers, as these two generations become more socially conscious about the impact of their dollars. Even more so, brands are focused on creating products that are not only good for their consumers but also the planet.

About climate tech

Old boom — From 2005 to 2011, VC investment in climate-tech (aka “clean-tech” or “green-tech”) jumped from $1.75 billion to $44.5 billion. However, the bubble burst as a result of slow technological progress and scalability issues. At the time, VC firms were reluctant to invest large amounts of funds into risky technologies that may not be successfully commercialized. Additionally, climate tech required an extensive amount of research and testing, further limiting potential returns.
New boom — Since then, infrastructures and ecosystems such as funding in basic research, foundations (incubators and accelerators), and state programs have been improved. COVID-19 established a sense of urgency around climate change. With the rise in big techs like Tesla investing in the green space, there is a large need for the private sector to also address climate change. Recently, the Biden Administration pledged to achieve a 100% clean energy economy and net zero emissions by 2050 and allocate $1.7 trillion in federal investment over the next ten years, leveraging the additional private sector and state and local investments to total more than $5 trillion.

About direct-to-consumer (D2C)

D2C is the future of consumer interactions, especially for sustainable brands. This uprising business model allows brands to skip middlemen like Amazon and directly who can directly target, acquire and convert new customers. What truly drives customer loyalty are personalization, connection, and authenticity. Customers in the sustainability space demand comprehensive research and transparency. For companies, this model gives them full control over the value chain, protecting margins, and end-to-end operations. When done correctly, D2C saves money, time, and reduces waste that’s harmful to our planet. In the next five years, 40% of consumers expect D2C brands will comprise 4/10 of their purchases.

Find the sweet spot product-market-fit by understanding your customers deeply, dictate branding (how you speak to them), your product (what they want and need), and your marketing (where do you reach them)

industry potential

The U.S. sustainability market is projected to reach $150 billion in sales by 2021. D2C sales accounted for $17.75 billion of total e-commerce sales in 2020. 50% of CPG growth from 2013 to 2018 came from sustainability-marketed products. Products marketed as sustainable grew 5.6 times faster than those that were not. In more than 90% of the CPG categories, sustainability-marketed products grew faster than their conventional counterparts. With the oldest millennials turning 40 in 2020, the bulk of spending power is within the first “native digital” generation — holding $1.4 trillion of spending power in 2020 in the US.

change drivers

COVID-19 demonstrated the need for sustainable living and the ability for customers to change behavior quickly. The shift to online shopping during the pandemic accelerated e-commerce adoption. Instead of buying from retailers in large brick-and-mortar stores, consumers are enjoying the transparency and unique shopping experience on brands’ sites. With more spending powers today, millennial and Gen Z shoppers are voting with their dollars — against unsustainable brands.

key consumer preference changes:

6 in 10 consumers surveyed are willing to change their shopping habits to reduce environmental impact (IBM).
8 in 10 consumers indicate that sustainability is important for them (IBM).
70%+ of consumers would pay a premium of 35% on average for brands that are sustainable and environmentally responsible (IBM).
Consumers are looking for brands that are clean, sustainable, and simplify their lives, and willing to pay a premium.

D2C sustainable cash flow growth — D2C brand loyalty translates to stable revenue on highly profitable products, raising the retention rate.

84% say brand trust is important. Consumers strive to associate themselves with fewer brands and building deeper relationships with the ones that best reflect their values. As the social media generation, millennials and Gen Z consumers deeply care about their personal brands, and the products they consume play a crucial role in that.
Brand loyalty can be cultivated through intentional online and offline touchpoints such as transparent pricing and data reporting as well as community engagement initiatives.
For loyal customers, subscription models are a huge cash cow that keeps their customers coming back regularly to purchase their products.

verticals & landscape

investment trends

D2C startups have raised between $8 billion to $10 billion in known venture capital across more than 600 deals since the start of 2019 (Techcrunch). Since 2012, over $4 billion in funding has been invested into D2C brands (Retail Dive).

Global sustainable and environmentally responsible investment is up 68% since 2014 and now tops $30 trillion USD. VCs have poured almost $16 billion into the sector already in 2021. That’s up from an average of about $5.6 billion per year between 2008 and 2016. $6 cents of every VC dollar spent last year went towards climate tech, a PwC report shows.

future potentials, risks & trends

Upcoming trends

Consumers are returning to the back-to-basics mindset and opting for products that are not only made with natural ingredients but also have a positive impact.
Toilet tissue, facial tissue, milk, yogurt, coffee, salty snacks, and bottled juices were among those with the highest share in their category (more than 18%), while laundry care, floor cleaner, and chocolate candy had less than a 5% share.

Potential risks

High CAC with digital ads and marketing reduces profit margins.
With easy access to manufacturers, digital marketing, and e-commerce tools, anyone can start their own D2C brand from their homes. COVID-19 has also accelerated the rate at which new brands are growing, leading to a massive increase in competition.
Product-based businesses are harder to scale compared to software enterprises.

Future-proof D2C business model

Omnichannel — expanding distribution channels is needed for growth. New multi-brand D2C retail platforms such as Neighborhood Goods, Goldune, and Re:Store bundles up a multitude of brands and houses them under one roof. Many have been able to acquire customers at 30%-50% less than Instagram. However, some companies like Brandless tanked with this strategy by spreading themselves too thin, lacking a coherent brand strategy that this category of shoppers cares about.
Community, or “direct with” — members collaborate with brands to co-create new products and services that lowers CAC (word-of-mouth) and increases customer lifetime value (brand loyalty).
Vertical integration — most D2C retailers rely on contractors in the supply chain, but the model won’t be sustainable. As customer acquisition costs increase, brands need to vertically integrate to maintain margins. At the same time, brands need to leverage sustainability through their end-to-end operations

Bullish on: Blueland

☁️ TL;DR — Blueland is reimagining conventional household cleaning and personal care products to eliminate the need for plastic packaging.

Vertical: Household essentials

Co-founders: Sarah Yoo and John Mascari

The problem: From cookware and toothbrushes to shampoo and women care products, consumers have been increasingly drawn to elevated and improved versions of their day-to-day essentials. Next-generation consumer brands are going back to the basics and reimagining traditional product categories by tailoring unique products and experiences with millennial and Gen Z buyers in mind. At the same time, COVID-19 has accelerated the need for not only quick and easy cleaning supplies but also items that fit a home’s aesthetic and value. Blueland took shape when Sarah Yoo became a new mom and was shocked by how single-use material generated hundreds of micro-plastics, impacting the food that her child was consuming.

The solution: Instead of wasting millions of plastic bottles cleaning your homes, Blueland offers reusable and refillable products — soaps, dish, laundry, and cleaning sprays — that not only last you a whole lifetime, but are also safe for use, affordable, and from environmentally responsible ingredients. With a sustainable mission at heart, Blueland shows us that we don’t have to sacrifice a clean home for a clean planet. The brand offers a full line-up “Clean Suite” to get you started with cleaning essentials as well as a refillable tablet for each product for just $74. Once you have this bundle, all you need to purchase is refill tablets that range from $6 to $14 each.

Blueland’s potential: Cleaning products are a low-interest category with little brand and channel loyalty. Founder Sarah Yoo built an authentic, emotional brand rooted in a strong social mission to literally save the planet. Millennials and Gen Z today are willing to spend more on enhancing their self-care routines and everyday household essentials as well as brands that they truly believe in.

Profitability — Their new line of products comes in never-been-seen before formats that are also 300x lighter and 30x cheaper to ship than conventional products. Cleaning sprays are also 95% water so there is a clear and massive opportunity to reduce the weight of these products to reduce shipping costs, and thus enable us to sell our products at a lower price point to consumers.

Blueland is well-positioned to attract demand from this specific demographic who are driven by social impact and their brand associations.

✨ key learnings

Social Consciousness — Social impact and sustainability is top of mind for consumers.
Brand Association — Gen Z and millennial shoppers personalize the everyday brands they consume to their ideal lifestyles.
Brand loyalty — Shoppers are initially more selective, until discovering brands that fully align with their values, social issues, and personal image
Stable cash flow growth — Brand loyalty translates to stable revenue growth driven by highly profitable products, along with higher customer retention rates.
Behavior Change — Shifts in political agenda have increased the urgency for the private sector to address climate change.

Are you building in the future of sustainable D2C brands? Email Felicity at felicityxlin@gmail.com — she’d love to meet you.