The D2C healthcare revolution could see new winners emerge
The jury’s still out on who they’ll be but both legacy FMCG firms and D2C health natives must adapt
PremiumHealthcare in India needs an overhaul. Three in 5 deaths in India are due to lifestyle diseases. There is more than a 20% probability of death over age 30 due to such diseases. This data is alarming not just on an absolute basis, but also because it has been increasing continuously for five decades. The pandemic has reinforced the importance of one’s lifestyle in managing one’s health. Almost 60% of consumers are likely to increase their spend on health and wellness after the pandemic, as per a study done by BCG’s Centre for Consumer Insight. The number of users who buy ‘healthy’ packaged food and nutritional supplements increased by 1.5 times after the second wave of covid, it found. According to a recent Red Seer report, the preventive healthcare market in India is poised to reach $100 billion plus this year, and is projected to grow at a robust 20% plus year-on-year to go over $200 billion by 2025.
The direct-to-consumer (D2C) health market is at an inflection point: Growth has led to the advent of hundreds of business models anchored on bringing health and wellness offerings to the Indian consumer. The number of health-focused startups is already above 1,000. The inflow of capital in health-related startups has risen from $600 million in 2017 and 2018 to $3.5 billion in 2021, and $2 billion has already been invested in 2022. However, we are still scratching the surface. Investments in the health space are still only 9% of 2022’s total private equity/venture capital investments in India, which is much lower than 25% in the US and 14% in the UK.
Several business models have proliferated in the past three years, spanning core fitness and exercise, packaged food, nutraceuticals and supplements, wearables and devices, telemedicine and personal care and beauty. Companies have experimented with multiple planks for their positioning: ‘clean’, ‘transparent ingredients’, ‘low calorie’, ‘high protein’, ‘India-inspired’, ‘sustainable’, ‘natural’… the list is long. There is a tussle between legacy FMCG companies expanding into the health space and D2C-first health natives. There are no clear winners so far. Most segments are highly fragmented, comprising limited-scale plays with unclear paths to profitability.
What it takes to win in the D2C health market: There are five imperatives for companies operating in this space.
1) Clear differentiation is needed to stand out on a store shelf. Enter a chemist shop and you will see at least 10 brands of protein or energy bars stacked next to each other, all claiming to be ‘healthy’ or ‘clean’ or whatever the latest buzzword is. Without sharp differentiation and a reason to buy, each brand risks of getting lost in the clutter. Companies also need to keep in mind what the consumer is willing to pay for; any claim has to be backed by the right credentials (formulation, accreditation, communication), which do not come cheap. This becomes even more complex when the store shelf is virtual and competition is based on which brand is spending more on search engine optimization.
2) It’s necessary to drive content, not just commerce, and foster a sense of community. The importance of social commerce has increased manifold. Almost 40% more consumers buy on social media, with a 70%+ higher frequency post the pandemic, as per the study by BCG’s Centre for Consumer Insight. In order to win the loyalty of this consumer, companies will need to spend dollars on creating content that can help cut through the clutter and drive consumer awareness. At the same time, building a community behind the brand through a network of lead users, micro and nano-influencers and experts, will ensure that consumers keep coming back. Investments in building content and community must be looked at in the context of their total media value in brand growth.
3)’Quick’ D2C commerce is critical. The world has gone hyper-local. Consumers want what they want now. While going for a D2C outreach, brands must therefore also ensure availability through hyperlocal delivery players, especially in the nutrition space, where consumer expectations are anchored in same-day, if not immediate, delivery.
4) Product category extensions are often a must. Successful health brands in Western markets have expanded through such extensions to gain a greater share of the consumer’s wallet. Category extensions may be in existing or novel categories, but must be in line with the core positioning of the brand. Such extensions could be critical in ensuring payback on investments in content and community efforts.
5) Data-driven personalization must get priority. Personalizing offers for micro-segments of consumers is the next frontier for consumer brands, and even more so in the D2C health space. Given the information overload on social media, consumers would value solutions which are personalized for their starting positions and health goals. This may also enable companies to charge a premium for their offerings.
It is clear that we are at an inflection point right now in the country’s D2C health revolution. While the jury is out on who the winner(s) in this space will be, both legacy FMCG companies and D2C health natives need to adapt. And they need to do so now.
The author is an avid health and wellness enthusiast.
Parul Bajaj is managing director and partner, Boston Consulting Group
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