Opportunity For Disruptive Brands Is Still At Its Nascency
The rise of D2C was also because it was tech-backed, and asset-light, matching products to consumers directly online. Now as many players look to go the D2C retail route and begin physical stores. How this will impact their growth and revenue?
The last five years have been disruptive for the consumer brands’ space in India and have seen the emergence of hundreds of new brands, primarily digital-first brands commonly known as direct-to-consumer (D2C). The combination of strong digital media choices like Instagram, Meta and Google and ecommerce channels like Amazon and Flipkart gave the brands a new business model to offer the internet-savvy millennials relevant products and services.
The post-pandemic scenario has, however, seen the re-emergence of consumer shopping in physical retail stores and looking for experiential options through touch and feel. This presents a challenge and an opportunity for new-age brands. While physical distribution is complex and can be high working capital intensive, it also allows for a much larger growth opportunity.
The critical requirement is how these businesses design for this new omnichannel opportunity, leveraging available third-party logistics, payments and marketing infrastructure across channels. Mamaearth and boAt have found a strong growth opportunity with this omnichannel approach and have significant distribution across traditional trade channels. Newer brands like The Sleep Company and Baker’s Dozen are expanding their business through a combination of online commerce, offline stores and Q-commerce (quick commerce) players like Instamart, Blinkit etc.
Where do you see the D2C market, that as per reports is pegged at $55 billion in India, heading in the next two years?
We believe the inherent opportunity for new-age disruptive brands is still at its nascency and we will see many more such brands emerge. The business models of most of these brands will necessarily have to adopt an omnichannel approach even though several of these will begin as digital-first brands. Consumer engagement could continue to be largely digital. Social media and new emerging digital channels especially in regional media are becoming default engagement options for consumers. The challenges will be centred around designing the customer acquisition funnels to be cost-effective and also integrated with the multi-channel options.
In terms of trends, we see health and wellness continue to be a big area of focus for consumers and conscious consumption will feature in many choices. Virtual living is also becoming more mainstream and sectors like gaming and entertainment are fast emerging. Finally, more and more consumers are evaluating brands on the scale of how they impact the planet and society and responsible consumption will pick up at a faster pace.
The Indian market saw an ecommerce boom and a bubble burst in the last decade only to rise again in the wake of Covid with certain clear leaders and market patterns. Will D2C ecommerce face a wave of slowdown as well?
With the shifting consumer behaviour, the share of ecommerce is only increasing, and we think that from a demand standpoint, the share of digital-first consumer brands in sectors, such as food and beverages, home, personal care, fashion, pets, and health and wellness, is only going to go up and propel digital-first brands well past the role of ‘challenger’.
In key categories like beauty and personal care, food and beverage, and fashion, D2C brands are already competing alongside legacy players. The big challenge facing D2C brands today is the increasing customer acquisition cost. To mitigate that and to leverage the opportunity to expand ecommerce into newer distribution channels like Q-commerce, social commerce and eventually offline distribution is going to be the next growth driver for these brands.
What is your advice to the established and emerging D2C players in India?
Some key learnings that D2C startups and brands can imbibe and invest in is to better understand consumer insights and why they are buying their or their competitor’s products. Focus on deeper engagement via communities, better content and higher personalisation. Define the brand proposition very sharply and very early on. This is as critical as product-market fit to building a long-term sustainable business.
Omnichannel is here to stay. It’s not two separate silos of online and offline. Leverage the fast maturing infrastructure and technology tools to build a seamless consumer journey and design for multi-touch points for the same consumer without friction.
There is no substitute for building responsible brands. Consumers of tomorrow are not going to forgive your brand if you are not doing good for the planet and society as well as doing good for the business.
From an investment viewpoint, for a young brand entrepreneur, raising the right amount of money at the right time to establish the product-market fit while maintaining a healthy unit of economics is the only prudent option. Once the above is achieved, then putting the foundations for growth like channel strategy, product roadmap, building the team for scale etc. becomes clearer and justifies the next fundraising. This is not a winner take all space and chasing rapid growth at any cost invariably backfires.