Zooming In The D2C Market In India

While the pandemic swept through the entire planet, decimating industries and global commerce, there emerged sectors that beamed under the mainstream spotlight. The D2C market in India remained dominant, given the myriad success stories of the startups that are glittering bright in the ecosystem. The pandemic certainly acted as a juggernaut to D2C’s growth story, with the simultaneous evolution of digitisation and ecommerce. Its buzz everywhere is thumping, with soaring valuations and successive funding rounds of D2C start-ups each week. The business boom in many of such D2C start-ups has also magnetically pulled a significant level of PE / VC interest to these emerging brands.

Given the recent reports, the D2C segment could become a USD 100 billion addressable market by 2025. There are already 600+ D2C brands operating in India. 

Assessing India's D2C Trajectory

Looking back at the arrival of D2C, it began humbly. Companies like Dell and Amway had their distribution strategy that was direct to consumers. Amway did not have the traditional conventional distributors; instead, they had people selling to people. There is a multi-level network that is created with products ultimately coming from the company directly to the end consumers. Eureka Forbes, Tupperware & Oriflame are also some of the other initial examples.

Krishnarao Buddha, Sr. Category Head, Parle Products states that these companies realised that direct to consumers cannot be completely self-sustaining and as a result, they went to the conventional traditional channel. “There are some challenges to the growth of D2C in India. Within FMCG for example, for low-cost products, it will be extremely challenging to connect directly with consumers. For Parle Products, unless the basket size is worth a minimum of Rs. 500 or Rs. 1000, there would be difficulties in delivering directly as the delivery charges will be disproportionately higher making it an unviable proposition. But for brands like MTR, as some products are priced upwards of Rs.100, the possibility of D2C might become viable even if you set a minimum limit of Rs. 500 without affecting the margins. For consumer electronics similarly, D2C is an attractive proposition considering all factors. Brands like ITC, Marico, HUL etc. have their own e-stores which are seeing only a limited success. For a widely distributed product, easily available at a stone's throw from one’s house, there isn't much scope of ordering from these stores directly. Such e-stores work for a certain segment who are price insensitive or consumers staying abroad for whom these products may not be available easily in their local stores.”

Despite the challenges, there are a plethora of growth opportunities within this segment. The primary advantage of this business model is that it eliminates the channel margins by eliminating the cost of warehousing and distributor and retailer margin. These could be bundled as part of delivery charges and discount offers that could be passed on to the consumers.

Shauravi Malik and Meghana Narayana, co-founders, Slurrp Farm admit that the infrastructure for the entire D2C sector in India has really come together in the last two years - from the website experience to payments, to logistics, to warehouse solutions, to the investor community around supporting the companies defining the world of new-age brands. All of this together has built a strong ecosystem to rival any global experience. 

Mihir Kittur, Co-Founder and Chief Commercial Officer, Ugam furthers that India is a booming market for D2C due to a confluence of factors – a younger demographic with improving purchase power, changing customer behaviour, and an increasing preference for a seamless shopping experience, convenience, and product authenticity.

Enabling Enhanced Personalised Experiences

Until recently, brands had limited access to customer data beyond survey or third-party data. D2C is enabling brands to understand customers and their needs like never before. Brands have come to realise that customer data is a valuable tool, along with analytics and technology, to deliver personalised experiences for customers. 

Our current generation of entrepreneurs has successfully established an Indian way of e-commerce and internet-first brands that is rather unique and keeps customers/users at the centre of it.

Neha Kant, Founder & Director, Clovia observes that the direct connect enables brands to track trends, growth, and feedback in real-time, “The growing power of social media and digitalisation has helped us connect with our customers and nurture our relations through personalised experiences. It immensely helps a brand like us that operates in an essential category and where the audience has very little education about it.”

Samriddh Dasgupta, VP Marketing, Bombay Shaving Company also believes that products, schemes, packaging and experiences are all getting more personalised than the one-size-fits-all approach, “People are speaking about what they like and don't. They are more demanding of brands and the products they consume. There is a far longer and deeper deliberation funnel that a lot of us are going through when it comes to buying something. This depth of physical, intellectual, emotional and sentiment-driven data is a goldmine for tech-ready, digital-first brands who are always listening to their customers and giving them things that traditional companies failed to do because of their lack of agility and depth of involvement.” 

Chaitanya Nallan, Co-Founder & CEO, SkinKraft Laboratories also accepts that D2C brands are ticking off the right boxes by understanding their consumer needs and investing time and money in creating a stress-free shopping experience. 

Investment Inclination

It is believed that investors are inclined towards the D2C category because of the fragmented nature of the consumer base. Experts view our country as not one market but a medley of many markets. While this may stand as the biggest challenge for brands in achieving steep growth, a D2C business model however tackles this challenge very well with our ability to reach and service customers across India and modify our offerings as per local trends.

Buddha mentions, “Yes, investors are attracted towards this space because of the growth opportunities and the costs that are being saved by eliminating the middlemen. There is a fragmented customer base but you are able to reach a varied range of customers from various demographics and geographies like metros and Tier 2 and Tier 3 cities alike. D2C gets hold of the fragmented consumer base and hence the investors are attracted towards such propositions.”

Dasgupta, however, feels that it is the other way. “The consumer base used to be fragmented without data cohesiveness. Now no matter how fluid the consumer group is, the data points tagged to individuals and groups is amazing and enables companies to cross-market. Brands are able to drive deeper and more purposeful messaging, products and services, which makes it a deeply exciting category for investors.”

Gauging D2C's Potential

Increased internet penetration and changing consumer behaviour have led to tremendous disruption in the D2C space. India’s retail is largely unorganised or at best, semi-organised. Post-COVID, consumers with an eye on safety and convenience are choosing to upgrade to brand experiences as well as shop on e-commerce platforms or online D2C channels, which has widened the growing opportunity for D2C brands. Also, rising income, increase in first-time internet users, evolving buyer persona, growth in e-commerce penetration, and customers' inclination towards tech innovations are some factors that have also changed the game in favour of new-age start-up brands. 

“The D2C segment is open with significant opportunities and growing at a rapid pace and will continue to boom in the coming years. Our learnings in the Indian market have taught us how to handle local complexities while staying true to the brand promise. These learnings are making us world-ready and I firmly believe Indian D2C brands are due to arrive on the global stage very soon,” points Kant.

Kittur also asserts, “Due to the democratisation of commerce and availability of tools, technology, and analytics to better understand the customer, there is a great opportunity for brands. However, the growth of D2C largely depends on brands’ ability to build a profitable and sustainable business, with the key challenges being customer acquisition and retention.”

Experts anticipate consolidation of brands across categories, unique partnerships/ alliances/ mergers, people benefitting from employee-friendly stock options, traditional brands reinventing themselves and pushing the boundaries, new-age brands setting the primer for marketing to GenZ audiences and more Tier 2 and 3 commerce to take place in the coming time.