BackLegacy firms are eager to grab a slice of the D2C pie
The second covid wave has only reiterated the value of direct reach to the consumer
PremiumOn Monday, FMCG company Emami Ltd said it has increased its stake in Helios Lifestyle, which sells male-grooming products under The Man Company brand, by 15% to 45.96%. This was in line with its ambition to tap emerging online opportunities, Emami said. The Man Company’s premium products sell on its website and on e-marketplaces.
Likewise, Hindustan Unilever Ltd, India’s largest maker of packaged goods, said it was focusing on making some of its premium brands available direct to consumer (D2C) via mono brand sites. At the recent annual general meeting of Tata Consumer Products Ltd (TCPL), chairman N. Chandrasekaran announced the launch of its foreign premium coffee brand Eight O’Clock in India as a D2C brand. Prior to that, TCPL had marked its foray into the D2C market via premium roasted and ground coffee brand Sonnets aimed at urban aficionados.
Clearly, action in the D2C segment is heating up with some of the largest traditional FMCG companies actively participating in the frenzy for digital-first brands. Of course, the flurry of activity continues among the startups, too, which began the D2C craze in the first place.
A lot has been written about the size of the D2C opportunity in India. And the second and more severe covid wave that kept the country shut in April and May has only reiterated the value of direct reach to the consumer as store operations remained patchy.
Little surprise then, Shoptimize, the company that helps set up D2C e-commerce websites for brands and drives growth for them, has seen its business jump 300% since January. Co-founder and CEO Mangesh Panditrao said the growth came from brands he on-boarded on a revenue-sharing model, which was piloted three months ago. These are in the consumer durables, food and lifestyle categories. “Fashion brands have also come on board and some are offshoots of large offline brands," he said.
But why are more and more legacy companies veering towards D2C brands? For two reasons probably, and the first is more of an aberration caused by the pandemic, which restricted offline store operations from time to time, and kept consumers away for fear of infection.
“The pandemic has accelerated the pace of digital adoption and legacy FMCG companies are attempting to fast-track their online adoption journey through organic (stepping up focus on D2C strategy) or inorganic means (partnerships/investments/acquisitions)," said Ankur Pahwa, partner at EY in the strategy and transactions practice, and also the national leader for the e-commerce and consumer internet sector.
Also, the pandemic has taught brands that if the customer can’t come to you, you will need to go the customer, he said. Besides, millennials are a fast-growing and influential consumer group who are increasingly gravitating towards online shopping. And, if legacy players don’t adapt soon, they could soon miss the bus on this aspirational segment, he said.
To be sure, younger shoppers hardly visit kiranas to buy groceries or personal care products, said Panditrao. A lot of product research happens online. They even get introduced to new brands through Instagram. The entire cycle of discovering brands and becoming loyal consumers has changed, and digital is a large part of it. “So, traditional brands need to see how they will acquire and retain new customers," he said.
“Right under their nose, many new brands have come and built a whole, large business from a market they (legacy firms) never knew existed," said Panditrao, adding, that’s what they worry about. It’s the fear of missing out on growth opportunities, he added.
But can they compete with more nimble internet-first brands? Pahwa admitted that online is fast-paced, and consumer preferences can change relatively quickly compared to the sales cycles of traditional retail. “However, traditional firms bring years of experience along with understanding supply chains, unit economics and deep pockets," he said.
Besides, they are keen to learn the game and are, therefore, either backing some of the internet-first brands or launching their own.
Pahwa said growth through acquisitions is likely to play out as this becomes an increasingly competitive space. Clearly, D2C brands are no longer a fad, but a trend here to stay.
Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pre-ssing issues related to all three. Or just fun stuff.
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