Digital brands are coming hard and fast at consumer goods majors

Over the past few quarters, established, dominant consumer goods companies have made a grudging acknowledgement: that younger, mostly digital-first brands, and even local firms, are chipping away into what they reckon should’ve been their share of the market.

Young Indians, while still value-conscious shoppers, are discovering food, clothing, beauty products and other goods online, unafraid to experiment and seeking newer ways to express themselves.

Several large companies including Hindustan Unilever, Britannia, Pizza Hut, and Marico have acknowledged the increasing competition from local manufacturers of products such as tea, spices and noodles, as well as from new-age direct-to-consumer brands.

“The days of mass-manufactured products are over,” said Pakhi Saxena, practice head, retail and consumer products, at Wazir Advisors, adding that new-age companies are catering to greater demand for specialised, niche products.

“Product innovation and category creation is truly helping drive demand, especially across beauty and personal care categories,” she said. Competition is especially strong across categories such as apparel, home products, and beauty and personal care, she said.

Kirat Gill, 23, for instance, largely discovers new brands via Youtube and Instagram. Gill, who shops online frequently, said she is also ditching brands such as Lakme and Maybelline for American brand Elf Cosmetics.

Young shoppers such as Gill are shuffling up the consumer goods market, said Vineeta Singh, CEO and co-founder of SUGAR Cosmetics, founded in 2015 selling directly to consumers via online channels. It ventured into traditional offline retail in 2017.

“Ten years ago, everybody would buy the same product. However, today, younger consumers are willing to express their needs more openly. This is driving creation of brands and categories that did not exist before,” Singh said.

“While multinational companies are still ahead of us, over the last four-to-five years, we have eaten into their market share,” she added.

The trend is percolating across the country’s top malls as well. Nexus Malls, which is present in multiple cities including Bengaluru, Pune, Hyderabad, and Ahmedabad, for instance, has been shrinking the area it once allotted to supermarkets in favour of brands such as Tira, Sugar and Tata Pallette.

“We have downsized supermarkets to get brands like Decathlon. We also have more direct-to-consumer retailers coming in, such as Nykaa, Mamaearth, Sugar, Tira, SS Beauty (Shoppers Stop Beauty), and Tata Palette,” said Dalip Sehgal, executive director and CEO of Nexus Select Trust.

In a recent interview with Mint, Rakesh Ranjan, CEO, food delivery at Zomato, pointed to a greater influx of new restaurants on the platform as young chefs and hospitality entrepreneurs experiment with running their own business.

“All of this has led to a scenario where you get a lot of good quality food which is not necessarily coming from the large (quick service restaurants). If you just look at burgers or pizzas as a category, the kind of domination the larger QSRs had three-to-four years ago versus now is very different,” Ranjan said. 

Small-to-medium-sized restaurants now account for 60-70% of Zomato’s business.

In the pizza category, competition has intensified with 4,000 stores being operated by various regional players, according to a 27 November Motilal Oswal report.

Across the board, consumers are being offered greater choices. Online marketplaces are also enabling greater access to newer brands to shoppers, especially in India’s smaller cities where organised retail is still under-indexed. 

Manish Kapoor, chief executive and managing director at Pepe Jeans India, the popularity of niche online brands was helping in “expanding the market”.

“There is a young, Gen-Z consumer who might enter the category via some of these new-age, online brands. Once they buy into D2C brands, they get exposed to other established brands. We clearly see these players are expanding the market,” he said. 

To be sure, India is a deeply value-conscious market. For long, brands selling goods at affordable prices dominated the consumer goods industry. Young shoppers are more aspirational and willing to experiment, albeit at the right price and in tune with the latest trends. 

It isn’t just new-age brands that are worrying established companies. 

Over the last two quarters, large fast-moving consumer goods companies have acknowledged heightened competition also from regional and local brands selling everything from chips and tea and soaps. 

While such brands struggled in the aftermath of the pandemic lockdowns, they are now making a strong comeback with localised marketing strategies and competitive pricing. Volume growth of local brands surpassed that of national brands significantly over the 12-month period ended 30 April, market researcher Kantar said in June. 

Rohit Jawa, chief executive and managing director, Hindustan Unilever Ltd, acknowledged the resurgence of local competition in categories such as tea and detergents during the company’s post-earnings call with analysts for the September quarter. 

Local tea players grew 1.4 times ahead of larger players in value terms; while local detergents brands grew six times when compared with more established brands during the quarter, the company said.

“… in these spaces as commodities soften we have seen (the) resurgence of many small players, and which is why at an aggregate market level these players have grown ahead of the large players,” Jawa told analysts. “And, of course, as you know, we are market leaders in these categories. So, as this development happens, it has impacted us in pockets where our market share is limited.”

Established brands, in response, are driving greater innovation and even investing in new-age brands. Aditya Birla Fashion and Retail Ltd has set up an entity to incubate and acquire digital brands across fashion, beauty and other lifestyle segments. Hindustan Unilever has launched several internet-first brands such as Love Beauty and Planet, and Simple.