The D2C sector is one of the most happening sectors for the year 2021. From the sector seeing its first unicorn, Licious, to several brands like boAt, Mamaearth, Wakefit, Country Delight crossing Rs 100 crore of revenue in a short span of time, the developments in the D2C sector are no small deal.
However, the big question is what is causing this growth in the sector. How the market scenario is going to change following the developments? How the competition is going to be affected?
Pandemic-push to the wide-scale adoption is one of the major reasons that cannot be denied. (According to IBM, e-commerce adoption has been accelerated by 5 years because of the pandemic) Consequently, the large-scale e-commerce adoption that followed further helped the D2C sector and to build a wider loyal consumer base.
As per a Deloitte survey, "Consumers now are expecting more than packages on their doorsteps: almost two-thirds of them (consumers) say they feel they have relationships with the brands they buy from, and three-quarters expect a brand not only to satisfy their requests but to know why they bought what they did."
Again, as per a recent study by Harvard Business School, "Going for a 5 percent increase in D2C customer retention will be able to boost brand's profits at least by 25 percent. The D2C brands, who are aware of these mandatories, have been clocking a decent growth."
Current Areas of Focus
In fact, many D2C brands have clocked 100 percent growth, and even a few have touched the 500 percent mark. Given the scale of the growth, brands are focusing on
i) capturing wider markets
ii) increasing product portfolio
iii) solving the logistical challenges.
Personal care brand Zlade's MoM revenue grew 300 percent compared to 2020 levels, and it has been focusing on sorting its supply chain. “We started the year with major challenges in front of us, mostly related to the supply chain. Our products were sold out towards the end of 2020 as e-commerce took off. We had a higher demand due to people still grooming themselves in their own homes. We had a difficult time replenishing our stocks as global supply chains were disrupted and sea freight rates were through the roof, and they still are,” said Suraj Chaudhari, Co-founder, and CEO, Zlade.
However, a few brands like Licious have solved the supply-chain issues as is evident from its yearly results. In addition to its billion-dollar valuation, the company has a revenue run-rate of about Rs 1,000 crore and is aiming to touch Rs 2,500 crore by the end of this financial year.
Licious spokesperson said, “Over the last six years, we have pioneered business solutions to some of the biggest problems in the industry – from supply chain management to demand forecast. Licious, which operates on a farm-to-fork business model, has complete control over the supply chain end-to-end. We use technology solutions to trace the whole inventory, from the time it is sourced from the suppliers till the time it reaches the customer.”
Clearly, this suggests that integrating technologies to up the supply chain efficiencies and for other processes have good long terms payoffs.
Most of the D2C brands are working to reinvest in their business by extending their product portfolio either backed by the growth they have clocked, funds raised, or to experiment into newer sub-categories.
The D2C brand for household products, Beco claims to register an overwhelming 500 percent growth (in just one year). The company plans to further scale its business by expanding the touchpoints.
“We were also successful in garnering funding which will be utilized to expand our distribution and customer touchpoints across different cities,” asserted Anuj Ruia, Co-founder, Beco.
“Going forward, we plan on expanding our categories and subcategories with more and more products formulated to help our consumers give problem-oriented solutions," added Aakash Anand, Founder & CEO, Bella Vita Organic.
Bella Vita Organic had raised $10 million this year.
Another big challenge that the D2C brands faced is marketing, owing to the increased competition among these brands for the same number of eyeballs in the online space.
AdYogi, a marketing platform specifically designed for Direct-to-Consumer e-commerce brands that acquire customers online and thereby increase revenue, has helped at least 50 brands attain success. The company shared various inputs like what D2C brands have been eyeing.
“In the post-and-during Covid era, D2C brands have started focusing on scaling brand stores along with marketplaces. More and more brands today are looking to scale brand websites on the back of platforms like Facebook and Google ads,” said Anshuk K Aggarwal, Co-Founder, AdYogi.
This is where companies like Adyogi steps in with its direct association with Facebook and Google. Additionally, online selling today is no longer limited to Enterprize brands alone. More and more new-age startups have also sprung up, which has further accelerated the D2C market growth.
Most Popular Segments
The most popular segment in the D2C is personal care (clocking about 94 percent increase in order volume growth). Plum, Skincraft, Bella Vita, Mama Earth, The Men's Lab among many others have been making a lot of buzz in the sector across all platforms. The interesting fact is that these brands have grown despite many upheavals in the last two years.
“Despite all odds, we have grown consistently. Our revenue for FY21 stood somewhere around Rs 75 lakh to 1 crore and the growth rate has been 250 percent more as compared to FY20. We successfully did business for 25,000 products and catered to 15,000 newly acquired customers. Our repeat customer rate is around 22-25 percent,” said Hiren Shah, Founder, The Men's Lab.
Also, this sub-segment saw several acquisitions like the acquisition of The Moms Co by The Good Glamm Group in an estimated Rs 500 crore deal.
However, in terms of potential, fashion is at the highest among all sub-segment of the D2C sector, which is poised to reach $44 billion by 2025, according to a report.
Fablestreet, Bewakoof, Snitch, XYXX were some of the most sought-after brands.
Complete Market View
As per a report, the D2C sector in India will be worth $100 billion by 2025. Currently, it is worth $44.6 billion at the end of the fiscal year 2021 compared to $33.1 billion in 2020. In 2019, the D2C sector had a total valuation of $26.8 billion compared to $20.8 billion in 2018. This suggests how the industry has experienced growth over the years.
SinceTier-I cities are close to saturation level, most D2C brands are penetrating deep into Tier-II cities and beyond and are experiencing decent growth in these cities.
“The focus has been on major metropolitan cities based on the demand for sustainable products. But with the consumer shift in buying behavior in Tier-II cities, we have witnessed a steady surge in demand in these markets," Ruia further added.
Given the need to expand pan-India, several D2C brands have been considering opening retail stores and servicing consumers at multiple touchpoints.
The Omnichannel Buzz
Adopting an omnichannel strategy, where the brand engages with a customer at more than one touchpoint, puts the customer at the center of its strategy.
According to a survey by Accenture, "91 percent of consumers are more likely to shop with brands who recognize, remember, and provide them with relevant offers and recommendations."
Some D2C brands like XYXX have already adopted an omnichannel strategy from its early stage where it has been in constant touch with its consumers getting regular feedback. The trends suggest that more and more D2C brands are going to bet big on omnichannel.
Licious, which currently operates in 14 Indian cities, is looking to extend its presence into the offline channel as well. "Aggressive expansion plans are on cards," the company stated.
Expected Future Trends
Given, the rate at which the D2C sector is still evolving, a lot of innovation and more sophisticated personalization are likely to happen in this space in the future. Focus on 'sustainable packaging' and 'health-conscious products' are other important trends which the D2C brands are stressing upon.
“One of our most ambitious goals is to become an ESG (Environmental, Social, and Governance) Complaint organization. Over the last year, we have been working consciously and consistently towards achieving that goal,” Licious spokesperson said.
"We have now seen personalization and sustainable packaging already practiced by a few brands, we are also working on sustainability and have a few products which will be eco-friendly and will be made from bio-degradable materials. The modern consumer is aware of their responsibilities to the environment and we are working to provide sustainable solutions to our consumers," added Chaudhari of Zlade resonating the same thoughts.
Another D2C brand in the food delivery segment, FreshToHome has stressed the growing demand for better quality products.
"Health and wellness play a key role in the consumers' choice today. Especially post-pandemic we see this as a key consideration for consumers. All of the products at the Freshtohome platform are guaranteed to be chemical-free such as are our antibiotic-free chicken or our formalin/ chlorine-free fish," Shan Kadavil, Co-founder and CEO, FreshToHome concluded.
Business Possibilities For 2022
Given the rate at which is the industry is growing the next year is going to be another happening period for the D2C brands. Many new entrants are also likely to be entering given the attractiveness that it holds with huge investments coming in.
"D2C segment has grown really well this year and with the kind of investments coming in the sector, it's going to go higher and up in the coming year also. We are also hopeful to have new products and to grow exponentially next year. We are expecting 100% increase as per the demand we are witnessing currently and D2C market is expected to grow exponentially and reach a market size of $100 Bn by 2025," said Hitesh Rathi, Founder, Aadvik Foods.
"D2C brands are going to challenge the legacy brands in 2022 and will start owning a market share of the overall market, not just the online market. For Bewakoof we will continue to invest heavily on talent, brand building, newer product categories and adding distribution to the brand," said Prabhkiran Singh, Founder and CEO, Bewakoof.
As for the brands that have been thriving in the market and have had raised quite some amount of funds, their next year will be about upgrading their processes across all departments to match the competition against other D2C and traditional legacy players.
Aarti Gill, Co-founder of popular D2C nutrition brand OZiva that recently raised a $12 million Series B round at a valuation of $80 million, has said: "The funds are being allocated in 5 key areas that are crucial to drive our growth in the next 3 years - scaling the team, category expansion by investing in R&D, brand building, expanding our offline presence and scaling our technology platform to provide more value-added services."
Similarly, Jatin Gujrati, Business Head of one of the leading Ayurveda beauty brands Vedix has said, "2022 should turn out to be another blockbuster year for D2C as more and more consumers embrace online commerce. Increased awareness around products is driving demand for customization and clean beauty and we believe Vedix is well-positioned to leverage that trend. We doubled our revenue in 2021 and we expect the same to continue in 2022 as well."