Traditional FMCG Companies are Ramping Up Investments in the D2C Space.

Traditional fast moving consumer goods (FMCG) companies have begun acquiring, investing, or building direct-to-consumer and online-first brands. These companies have shifted from solely selling their products on marketplaces such as Amazon, to running their own websites and D2C operations. Though D2C and online sales represent a small percentage of the sales of these companies, they have grown from almost nothing a few years back.

Marico was among the first few traditional FMCG majors to invest in the D2C business, with the acquisition of Beardo, and later Just Herbs. Apart from Marico, companies such as Hindustan Unilever, Dabur, ITC, Emami and others have been investing in building the D2C platform. For instance, HUL has focused on creating D2C channels for some of its premium brands by creating online websites for each brand separately. ITC bought a 16 per cent stake in Mother Sparsh,an Ayurvedic D2C brand. Along the same lines Emami has gone ahead and bought a 22 per cent stake in Tru Nativ, a nutritional food brand. Tata Consumer has started selling premium products such as 1868 by Tata Tea, Sonnets, and Eight o’Clock Coffee, through the D2C route. In addition, it has been working on Tata Nutrikorner, an online grocery shopping site, to increase its D2C reach. Reliance Retail had acquired a 89 per cent stake in CLovia, a D2C intimate wear brand for women. Wipro Consumer Care Ventures has invested in The Ayurveda Company and SoulFlower. All of these deals have taken place in the last three years, with the majority occurring in the post-pandemic era as FMCG majors realised the potential of D2C companies.

Given the economics of running a D2C operation, these companies are mainly focused on launching premium category products through the D2C route. None of the companies have launched mass market products through these channels, as mass market products command lower margins. As a result the sales of these products through D2C channels are not as attractive as selling premium products. Personal care products, especially premium products, have a high value – making them a better option for sale compared to other FMCG products. Even start-ups in the D2C space are focused majorly on the personal care space, compared to other segments. The space has a scenario ripe for mergers, investments, and acquisitions – FMCG companies are flush with cash and eager to enter the D2C space. At the same time, small D2C brands are burning cash to acquire customers and run intense advertising campaigns. Case in point, Mamaearth, has run campaigns heavily across social media with partnerships with prominent social media influencers. As a result, between financial year 2019 and financial year 2020, its revenues went up by almost seven times from Rs 16.8 crores to Rs 110 crores. For FY21, the company generated revenues of Rs 461 crores, even as it was competing with several prominent well-established brands. In addition, smaller D2C brands struggle with a high cost of last-mile delivery, making premium products and a good amount of initial funding the two requirements for survival.

D2C products, though currently forming around 3-4 per cent of the entire FMCG market, are expected to reach around 10 per cent of the entire market over the next few years. In addition, the channel offer greater control over messaging, data, and customer experience compared to other traditional channels. Further, D2C brands are said to have a greater connect with the younger audiences in India, as they are not as loyal to traditional brands as their parents. Hence, it is imperative for FMCG giants to reach these audiences through their own D2C brands. While FMCG companies continue striving to build or acquire new D2C brands, another group of entrepreneurs have begun consolidating several D2C brands under a single umbrella. The model, initially launched by Thrasio Holdings, has since been adopted by several ventures in India. Given the heavy competition in the space, it is no wonder that some companies such as Licious and Mamaearth have already attained Unicorn status.

While it is clear that FMCG giants are looking at all options to get into the D2C space, the space is still not large enough to impact the earnings of these companies significantly. It remains to be seen whether the new sales channel transforms into a major revenue-earner for FMCG companies.