India is having its D2C (direct-to-consumer) moment. The nascent space is witnessing it all—exponential growth, new and soon-to-be unicorns, funding deluges, mergers and acquisitions, startups targeting public markets, and a quick spate of Thrasio-styled firms buying D2C brands. And there is a good reason behind it: the D2C market in the country is expected to triple to USD 100 billion by 2025 from USD 33.1 billion last year.
D2C brands bypass the conventional method of multiple supply chain partners by marketing and selling products directly to consumers through online and offline channels. Backed by VCs and fuelled by massive digital adoption, they are a crop of newfangled brands that connect with consumers by catering to personalized needs across categories like food and beverages, beauty and personal care, fashion, and electronics and appliances.
Some of the D2C companies that have become mainstream include online meat seller Licious, electronics appliance retailer BoAt, coffee sellers Sleepy Owl and Rage Coffee, home furnishing provider Wakefit, fashion brands Bewakoof and Faballey, and beauty and personal care firms MamaEarth, Wow Skin Science, Good Glamm Group (formerly MyGlamm), and Sugar Cosmetics, among others.
Currently, there are over 800 D2C brands operating in the country. In the first seven months of 2021, local startups in the segment have raised a total of USD 783.7 million across 66 funding deals—almost half of the USD 1.75 billion funding that flowed into the sector in the last seven years—from 2014 to 2020.
Earlier this month, D2C meat delivery startup Licious became a unicorn after raising a USD 52 million round led by IIFL. Prior to Licious, eyewear retailer Lenskart and beauty product firm Nykaa—being omnichannel D2C players and category leaders—turned into billion-dollar companies in 2019 and 2020, respectively.
“Licious is one of the fastest-growing consumer brands in the country with two million unique customers across 14 Indian cities,” said Pranav Pai, founding partner at 3one4 Capital, one of the earliest backers of Licious. He added that the six-year-old startup expects to close the current financial year with an increase of 6x in revenues over the same period last year.
Fuelled by digital adoption
The rapid growth of D2C brands is partially driven by the increasing number of online shoppers. Compared to the 100 million people making purchases online in FY 2020, India is projected to have more than 350 million online shoppers by 2025, according to a recent report by Bain & Company and Flipkart.
Furthermore, during the ongoing festive season—the October to December period when Indians celebrate festivals such as Dussehra, Diwali, and Christmas—D2C brands are expecting a further surge in traction.
Two-year-old D2C brand The Sleep Company, which sells premium sleep accessories focused on a healthier lifestyle, including mattresses and pillows, recently kicked off its online festive sales—slashing prices by up to 45% and launching a slew of new products. The startup said it expects to hit INR 1 billion annual run rate (ARR) by November 2021.
“After a tumultuous year and a half, we expect a 50% increase in people who are willing to invest in lifestyle health care products within the comfort segment this Diwali,” said Priyanka Salot, co-founder of The Sleep Company.
The digital D2C brand had clocked an estimated revenue of INR 111 million in the financial year ended March 31, 2021—up 15 times from FY 2020—its first year of operations.
Similarly, three-year-old plant-based home and personal care D2C brand Beco is in the process of launching a brand campaign around Diwali and expects its revenues to grow by 4x by year-end.
Aditya Ruia, co-founder of Beco, told KrASIA that the demand for Beco’s products spiked up when the healthcare pandemic hit last year, as most of them fall under the essentials category. “Customers are increasingly becoming more conscious of the products they are using daily and their impact on nature,” he said, adding the company’s sales rose 500% between 2020 and 2021.
Notably, both The Sleep Company and Beco raised seed rounds earlier in July and hired Bollywood actors as brand ambassadors to reach a wider audience. Aside from their own portals, they sell products through e-commerce platforms to fuel their growth. For context, Flipkart and Amazon—the primary e-marketplaces for D2C brands—sold combined goods worth USD 4.2 billion in the first leg of festive sales earlier this month.
“India is fast becoming a breeding ground for large D2C brands in open and even, crowded spaces,” Anup Jain, managing partner at Orios Ventures Partners, told KrASIA.
This is primarily because of two milestones, he believes. In India, the internet access rate has hit 50%, and Indians are more comfortable than ever before with paying digitally, he explained. This reflects the massive number of UPI (an instant, bank-to-bank payment system) transactions that crossed 3.6 billion in September 2021.
“Larger traditional players have mostly focused only on the top 25 million households of the country over the past 30 years,” Jain added. “The next five years will see multiple D2C brands targeting this very consumer fiercely with ‘better-for-you’ and ‘better-for-the-planet’ products as well as targeting small Indian towns with quality products at affordable prices.”
Rohit Krishna, a general partner at WEH Ventures, told KrASIA he expects challenger consumer D2C brands to hit at least a 50% growth over last year’s festive season.
“There’s much lesser uncertainty with regards to COVID-19 in this festive season compared to last year,” he said. In addition to that, he explained that new marketplaces like Cred and Instamart have ramped up their operations in the last few months, which D2C brands can tap to expand their reach.
Of late, traditional consumer goods majors have started focusing on the D2C play as well. FMCG company Marico has scooped up men’s grooming firm Beardo and ayurvedic beauty brand Just Herbs to strengthen its presence in the D2C segment since last year. Earlier this year, another FMCG company, Emami, increased its stake to over 45% in The Man Company, a male-grooming brand, in which it bought a 15% stake in 2019. Similarly, salt-to-software conglomerate Tata-owned consumer goods firm Tata Consumer Products Ltd. recently unveiled two premium D2C coffee brands—Sonnets and Eight O’Clock.
Earlier in August, omnichannel beauty retailer Nykaa became the first D2C company to file for IPO. Another five-year-old startup, boAt Lifestyle, an earwear and wearable retailer that became the fifth-largest wearable brand globally late last year, is reportedly planning to list at a valuation of about USD 1.4 billion between March and June 2022.
With many D2C players expanding quickly on the heels of massive digital adoption, M&A activity has also picked up in the segment. In recent months, Nykaa bought online jewelry brand Pipa Bella and boAt scooped up lifestyle brand TAGG. Meanwhile, Good Glamm Group acquired parenting platform BabyChakra and mother and baby care brand The Moms Co. and is reportedly in talks to buy stakes in D2C brands St Botanica and Organic Harvest.
Moreover, US-based startup Thrasio’s model of acquiring digital marketplace brands and growing them is gaining momentum in India. A slew of startups, including 10Club, Mensa Brands, GOAT Brand Labs, Powerhouse91, Upscalio, and GlobalBees, have sprouted this year and are eyeing the acquisition of online D2C brands.
For instance, in the last couple of months, Mensa Brands invested in ten D2C brands across fashion, beauty and personal care, and home categories. Similarly, GlobalBees bought andMe, a women’s health product brand, and home-care brand, The Better Home. Reportedly, Thrasio is also planning to venture into the Indian market by acquiring Lifelong Online, a local D2C home appliances brand.
“Three years back, we used to get a lot of questions about the addressable market size for D2C opportunities; some believed they would remain niche. But companies like boAt, Sugar, Bewakoof, and Licious have settled these debates for good,” said WEH Ventures’ Krishna. “What’s more interesting is that investors (and founders) can get exits at various stages of the company.”
According to him, D2C brands with INR 100–200 million (USD 1.3–2.6 million) ARR can get exits to Thrasio-styled brand roll-up companies, and those with INR 200 million–1 billion (USD 2.6–13.3 million) ARR can get acquired by larger listed companies.
“If founders are truly ambitious, they have enough availability of capital now to aim for an IPO as well,” Krishna added.
Still, some challenges remain. Orios’ Jain believes D2C brands will be able to get the right mix of consumer acquisition costs, purchase frequency, and logistics to build a sustainable business.
Meanwhile, Flipkart has also jumped into the D2C space with a new program, Flipkart Boost. Under the initiative, the e-commerce giant plans to mentor digital-first D2C brands and help them with planning, advertising, cataloging, logistics, quality control, and fundraising. All these developments point toward one central theme: a rapidly evolving D2C ecosystem that has got investors, entrepreneurs, and users hooked onto it.