Why Corporate Giants Are Entering the D2C Space

Why Corporate Giants Are Entering the D2C Space
Marico is one of the first few traditional FMCG companies to invest in the D2C domain through the acquisition of Beardo and Just Herbs.

By Manisha bhatia , Author

13 Apr 2022 | 11 min read

The new generation of D2C (direct-to-consumer) e-commerce companies is revolutionizing the retail space by creating direct and personalized connections with customers. These companies produce, market, sell, and distribute their products without involving any middleman. In a way, they are transforming the way people shop by fundamentally transforming customers’ preferences and expectations from the brand. By eliminating the middlemen, these brands are providing good quality products at lower cost, maintaining complete ownership of marketing, production, delivery, and service. Hence, they don’t need to rely on traditional stores or distribution models for reaching out to their customers. 

The product range spans apparel, sneakers, beauty products, healthy food, detergent, etc. Besides building their distribution network, they have also leveraged the social media platforms such as Google, Facebook, and Instagram for higher growth and to create better connections with the customers. In today’s date, these well-positioned startups are challenging some of the biggest retail brands not only by offering innovative and customized products but also by reinventing the complete retail model. 

Additionally, they are also utilizing well-established e-commerce platforms such as Amazon, Flipkart, Myntra, etc. for the partial distribution of their products, carving a niche in the highly competitive retail space.

Joining the wave, the FMCG majors have also jumped into the bandwagon by investing, acquiring, or setting up their D2C brands in the online space. They have kickstarted by selling their products through their website and social media channels hence eliminating the dependency on Amazon for selling their products. Although currently, it represents a very small percentage of sales however it’s a good progression. The Indian behemoths are also facing good competition from the various new generation D2C startup brands such as SUGAR Cosmetics, Licious, Blue Tokai, BOAT, and Mamaearth who have created a strong customer base for their products in a very short period of time. 

In 2021, the D2C retail segment had a record funding of a whopping $1.4 billion across 160+ funding deals. Marico is one of the first few traditional FMCG companies to invest in the D2C domain through the acquisition of Beardo and Just Herbs. Following Marico, many other FMCG giants such as Dabur, ITC, and HUL have also invested in building the D2C platform for their products. For example, HUL has been creating different D2C channels for its premium brands.

Changing Consumer Behavior

The need to switch from selling the products through traditional channels to D2C space revolves around two main factors. Primarily the changing consumer behavior wherein today’s customer prefers to research a specific brand through its source while making a purchase decision. 

During the research, Astound Commerce found that 59 percent of the consumers prefer to research directly through the brand’s original website with 55 percent concluding the purchase on the same platform as they feel more confident about the authenticity of the product as well as resolution in case of any dispute. For example, a customer looking for a new set of cricket kits would like to check out the products on SG’s original website for more information as compared to Amazon for making the final purchase decision. Imagine the customer doesn’t find any information on its website, it is likely he would cancel the purchase and instead end up choosing another brand. It is worth mentioning that since consumers are surfing the direct source for information it is likely they aren’t interested in doing business with third-party retailers. Hence, in the above case, even brands cannot rely on big e-commerce platforms for selling out their products. 

Fastest Growing Segment

Amongst all the other segments, fashion, beauty, and personal care have emerged as the fastest-growing D2C categories in India. 

The beauty and fashion segments are still largely unorganized, offering ample space for newer labels, products, and brands. Though, the traditional brands will continue to dominate the segment however they are facing tough competition from the new age start-ups who are leveraging social media and influencer marketing and automation in products, customer service, and logistics to offer enhanced shopping experience and customer service. The various D2C fashion brands growing exponentially in India include The Souled Store, FableStreet, Chumbak, Bewakof, Zivame, Anouk, Clovia including many more.

Increasing Demand from Tier II and Beyond

Another reason for corporate giants entering the D2C space is the behavioral shift of Tier II and Tier III customers to online shopping post-pandemic. According to a study by Redseer, Tier II and further locations may account for 88 percent of the online shoppers between 2020 and 2030 and brands don’t want to miss out on the big opportunity offered by these new shoppers. Also, the increasing penetration of social commerce platforms such as Moj, Trell, and Josh drawing millions of users in small towns and Tier II and III cities will help brands in building their presence in the new geographies. The study further reveals that these shoppers are expected to generate online retail transactions more than worth $7 billion and more than $ 150 billion cumulative incremental online retail GMV during this period. 

Tapping into non-metro markets will not be an easy task for the brands. They need to revisit and rework their marketing strategies to cater to the cultural diversity of India.

Tanvi Johri, Founder and CEO of Carmesi – a Gurugram-based women’s hygiene brand feels. “Tier II and Tier III customers want to understand the brand, its USP and values, price, narrative, and rationale behind the products.”

Backing up Johri’s thoughts, Vivek Gambhir, CEO of BOAT said that “Users in hinterland India become more comfortable with shopping online, the brand has noticed a visible uptick in sales. He attributed 40% of its growth today to Tier-II and Tier-III cities, a massive increase as compared to the share of the cities before the pandemic.”

Conclusion 

The growing D2C retail sector has pushed the FMCG giants for acquiring online-first brands instead of developing a brand from scratch. Emami and Marico have disrupted the status quo by investing in the male grooming start-ups The Man Company and Beardo. 

Aditya Birla Fashion is also eyeing investments and acquisitions of new brands to enhance its fashion portfolio. Following the suite, Reliance and Tata have already invested in many D2C brands. 

In a dynamic and culturally diverse market like India, vertical integration of the entire value chain, eliminating intermediaries, as well as end-to-end control of logistics and marketing is a herculean task. 

Besides, the D2C space is still naïve and is expected to get fiercer in the future as brands realize e-commerce as an indispensable medium to promote their products, develop strong customer connections, and increase their revenue. Brands are restructuring their business strategies and operations to create a strong foothold in the D2C space in the future. To remain at top of the game, they need to decode future trends in advance, stay attuned to global innovations, and evolve consumer behavior worldwide. 

According to Prabhkiran Singh, Co-founder of the new age apparel brand Bewakoof, “Limited-time discounts on purchases or incentives for product recommendations, likes and comments will help online users get a taste of the social atmosphere that offline shoppers enjoy at physical stores. It also forms the core of social commerce that is fast catching up globally and in India. Shopping has always been a social thing to do. When we think of shopping, we think of going out with family and friends and having a good time. So, digitally native brands need to incentivize group shopping to compete with the offline experience.” 
 

The new generation of D2C (direct-to-consumer) e-commerce companies is revolutionizing the retail space by creating direct and personalized connections with customers. These companies produce, market, sell, and distribute their products without involving any middleman. In a way, they are transforming the way people shop by fundamentally transforming customers’ preferences and expectations from the brand. By eliminating the middlemen, these brands are providing good quality products at lower cost, maintaining complete ownership of marketing, production, delivery, and service. Hence, they don’t need to rely on traditional stores or distribution models for reaching out to their customers. 

The product range spans apparel, sneakers, beauty products, healthy food, detergent, etc. Besides building their distribution network, they have also leveraged the social media platforms such as Google, Facebook, and Instagram for higher growth and to create better connections with the customers. In today’s date, these well-positioned startups are challenging some of the biggest retail brands not only by offering innovative and customized products but also by reinventing the complete retail model. 

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