India, one of the largest retail markets in the world, is projected to surpass $1.7 tn by 2025, highlights a report by Avendus. India expects its e-tail market to lead the shift to organized retail in the next five years. This trend is similar to that of China, where e-tail constitutes more than two-thirds of the organized retail share which is 45 percent of the total market. India’s rise in online shopping is fueled by the 63 crore strong internet population, growing at 24 percent. India added 80 million shoppers in the last three years alone to reach 130 million today.
The COVID-19 pandemic has further accelerated online adoption amidst the temporary closure of physical retail stores and the growing wariness for public places. On this backdrop, online spending in India is expected to grow at a CAGR of 35 percent plus from $39 bn today to $200 bn over the next 5 years, supported by Internet and payment infrastructure developments.
Looking at the immense opportunities, many D2C brands have emerged in India. Here are a few reasons why this category to excepted to flourish going ahead:
Adoption of E-commerce: The present Covid pandemic has been a catalyst of the adoption of e-commerce channels. Amidst the global pandemic, consumers have gone shopping online either for convenience or by force. With safer online payment options, consumers have found it convenient to shop from their homes. The fast-growing logistics system in India has also helped the growth of digital first brands. Marketplace giants like Amazon, Flipkart have also given D2C brands large access to customers and their supply chain efficiencies. Initially, consumers would shop online looking for deals and discounts however now it is a matter of convenience. The buying behaviour of the Indian consumer is changing with the times.
Ability to Penetrate Underserved Markets: With a growing middle class in India and faster adoption of Internet commerce, D2C brands have been able to tap on the market opportunities present in Tier II & III cities. These fast-growing cities in India have been a pillar of growth for the economy and the consumption patterns have significantly changed over the last decade. Many traditional high-end brands have found it difficult to align their supply chains and make themselves stand out in these fast-growing markets leaving a thirst for these consumers. D2C brands have been quicker to pounce on this opportunity as they play digitally and have taken maximum benefit from the fast-growing logistics system in India. They have been able to position themselves well and meet the growing demands of these fast-growing markets. They have penetrated these markets with precision where traditional brands have otherwise had to invest millions in supply chain efficiencies. As per an Avendus report, it took Revlon about 13 years to touch the Rs 100 cr revenue and a D2C personal care brand like Mamaearth could achieve the feat in less than 3 years.
Quick to Scale: Being digital first, D2C brands have been quick to scale their product portfolio and launch new products as per consumer trends. Typically traditional brands have taken 12-16 months to launch a product through various chains of internal policies and bureaucracies, whereas D2C brands can go from ideation to final product in less than 4-6 weeks. With agile teams and the comfort to do launches with smaller inventories, digital first brands have been very quick on capitalizing product opportunities and growing their product portfolios. With the ability to serve a large population through digital channels, these brands have grown significantly over the last couple of years.
D2C Brands Connect Deeper with Customers: D2C brands have large access to their customer insights, their demographics, and shopping patterns. They have a large understanding of ‘who their customer is’. This significantly helps brands to position themselves and curate their marketing and product strategies as per their customers and connect with them on a deeper level. Unlike traditional brands, D2C companies know exactly who their customers are. They also get quick feedback and reviews from consumers on their products either on their websites or marketplaces which helps them validate their products or also make changes as per the feedback of their customers. This direct relationship with customers has been very instrumental for the exponential growth of digital first brands in recent times.
The acceptance of e-commerce, development of payment and logistics providers has grown significantly over the last few years. With a fast-growing middle-class population in India and the ability of D2C brands to penetrate underserved markets with differentiated offerings, D2C brands have the potential to disrupt the retail segment in India. In the next couple of years, we may either see large-scale acquisitions by some of the traditional heavyweights or emerging of new brands altogether in various segments.