NEW DELHI/KOLKATA: The pandemic may have pushed the economy into a slowdown of unknown severity, but it also set the stage for the robust growth of direct-to-consumer (d2c) brands, which turned the crisis into an opportunity to further consolidate their presence in the digital market.
d2c brands have been on the up and up in the last few years, along with horizontal and vertical e-commerce business. But as the pandemic hit logistics and supply chain and prompted more shoppers to go online, these new-age brands remained resilient.
While the changing customer preferences may have driven the growth of some d2c companies, their popularity has also been fuelled by a host of new online shoppers who turn to them for niche products, not available with conventional e-commerce players. Certain disruptive d2c brands identified these need gaps and set out to carve a space in one of the largest consumer markets.
Start-up growth stories
Men’s grooming start-up Beardo entered the market five years ago as a d2c brand focusing specifically on products for beards – a segment which barely existed back then. Later, it branched out into other categories for men’s grooming, including facial serum, shampoo and hair-oil and within a short span, the company earned a gross-revenue of Rs 104 crore. Earlier this year, FMCG giant Marico which had earlier acquired a 45 per cent stake in the company completed the acquisition by picking up the remaining 55 per cent and offering complete exit to its founders.
Another homegrown brand, Bombay Shaving Company, which started its journey in 2015 catering to men’s grooming, also recorded an uptick in sales during the pandemic as demand for personal care products rose. The start-up closed FY20 with gross annualised revenues of Rs 40 crore and targets to be a Rs 100 crore business by the end of FY21.
A recent report by Avendus Capital highlighted that India’s e-commerce has been driven by its 639 million internet population, and the sector has added 80 million online shoppers in the last three years alone to touch 130 million at present. The report further stated that d2c brands may be looking at a $100 billion addressable consumer opportunity in the country by 2025. Experts believe it would be easier for d2c brands to attract new shoppers as they have greater emotional connect with consumers and a consolidated brand identity.
boAt found its footing in a similar manner, when it created a buzz in a market dominated by Sony and Bose four years ago. In 2020, BoAt became the first Indian company to reach the top five in the global wearables market. When on one hand major brands cut down their advertising spends in 2020, BoAt invested heavily in social media to engage with its customers. It registered Rs 500 crore gross revenue in FY20, with a 20 per cent surge in demand for its products in the early part of the pandemic as people moved from offices to the four walls of their homes. The brand occupied 2.6 per cent of the global wearable shipment in the September quarter, sharing the fifth position with Google's owned Fitbit, according to International Data Corporation (IDC)’s latest report.
Most of these brands scripted their success stories by establishing a consolidated presence on social media and adapting to the changing preferences of consumers. A primarily digitally-driven band, WOW Skin Science built its market of nature-based sustainable skin products while riding on the success of e-commerce in India, enabling it to reach out to customers in smaller cities and towns. But in the long run, it relied heavily on influencers on social media and customer reviews on its website to drive growth. The brand encountered a few stumbling blocks initially but now sits pretty at a valuation of $50 million (Rs 350 crore).
Indian cosmetic brand Sugar Cosmetics has grown by 60 per cent from its pre-lockdown numbers, chiefly by capitalising on social media to boost its followers to 240 million monthly odd impressions. The financial year 2020 was already a favourable one for the company and it achieved Rs 200 crores worth of sales over 3,00,000 orders. Now, it has taken an ambitious aim to touch Rs 500 crore net revenue in next five-six years.
Mamaearth, is another digital-first wonder which created a market for itself with a brand vision to create safe products for kids. Soon, it expanded in the personal care segment and became Asia’s first MadeSafe certified brand for its toxin-free product range.
The sleeptech start-up Wakelift too accelerated its growth amid the pandemic and forayed into home furniture. At a time when people were hesitant to move out due to the coronavirus pandemic, but wanted comfortable work from home furniture, the company stepped in to address their needs. The furniture market in India has largely been unorganised and the Bengaluru based start-up made use of the opportunity. One of the most discussed consumer brands in India, Wakelift reported Rs 200 crore in revenue in FY20.
2020 sets the stage for a miraculous growth
Reports indicate that nearly 600 d2c brands have already germinated in India. With consumers preferring direct relations with brands, especially due to lack of access to physical stores in lockdown, those brands have seen considerable growth this year. According to Unicommerce’s e-commerce trends report, brand websites witnessed 88 per cent growth in order volume as compared to 32 per cent growth in e-commerce marketplaces during the lockdown.
Even after the stringent lockdown was lifted in June, brands with their own websites have grown at a higher rate compared to brands dependent on marketplaces. It is undeniable that life has slowly begun to return to normal, leading to an increase in physical store footfalls. But with a number of consumers keen to avoid social gatherings due to safety concerns, the brands with online presence will only keep growing. In addition to that, the crisis has strengthened the entire ecosystem including logistics and warehousing.
The year also saw the d2c sector moving beyond beauty, personal care, fashion, lifestyle and tapping into newer categories. Many global legacy brands have pulled out their products from traditional e-commerce brands to build distinct d2c presence. The trend is slowly catching up in India too. Electronic brands such as OnePlus, Apple, Xiaomi, and Samsung are building their own online presence along with marketplace partnerships. Many top-notch FMCGs are also expected to increase their online presence in coming years and acquire smaller digital-first start-ups. There has been a 65 per cent increase in brands developing their own website in India in the past one year.
Investors turn attention to new-age brands:
Spotting the potential in the sector, venture capitalists have invested in the sector over the last few months. MamaEarth has raised Rs 130 crore in a round led by Sequoia Capital India. Another digital-first wellness brand, The Moms Co pocketed $8 million as part of its Series B funding, led by existing investors DSG Partners and Saama Capital. It aims to expand its global footprint by launching the brand internationally. Another new-age customer brand, Hopscotch has raised $25 million from Facebook co-founder Eduardo Saverin's investment arm EE Capital, Lionrock Capital, Rise Capital, RPG Ventures and IIFL Seed Ventures Fund. Last month, Belgian investment firm Verlinvest led a Rs 185 crore Series B funding round in Wakelift, with existing investor Sequoia Capital India also participating. The company aims to deploy the capital to accelerate its strategic expansion to newer markets, foster product innovation, and leverage technology to deepen its consumer-first approach.
What the future bodes for the d2c sector
2020 has been an inflection point for digital technology. As more people logged online to purchase products, it also helped get over the concerns regarding online payments. According to a recent report by Avendus Capital, online spending in India is expected to grow at a compound annual growth rate of more than 35 per cent, from $39 billion today to $200 billion over the next five years. Brands are increasing their marketing spends too. A study by Invespcro says 78 per cent of d2c brands have increased their marketing budget lately, compared to only 60 per cent of traditional retailers. Along with a stronger marketing plan, more data generated by shoppers and consumer behaviour can help these brands to create a better customised experience.
d2c brands have set a new standard for quality, timeliness, and accessibility of customer service. Consumers no longer have to choose between convenience and luxury, higher quality and lower prices, since d2c brands offer the best of both worlds. Over the course of 2020, these companies have been able to turn a nadir to their advantage and amassed share and cultural relevance. It will be interesting to see how d2c brands maintain this consumer centricity while continuing to grow and build sustainable businesses in the time to come.
