How are D2C brands entering the space claimed by FMCG players in the market?

Global trends after the onset of the pandemic have presented unique opportunities for Indian D2C brands, which are looking to increase their market share. With a plethora of D2C brands entering the market to capture the space claimed by FMCG players, the emphasis is on meeting the emerging consumer needs with unique strategies driven by technology and personalization.

As per the recent reports, the D2C sector in India captured around $44 billion market share in 2021 compared to $33 billion in the fiscal year 2020. While it is projected to be worth $100 billion by 2025, the soaring funding rounds and valuations of brands each week indicate that investors are being bullish about the D2C segment.

Rise Of D2C Brands

When pandemic hit the world, E-commerce emerged as the backbone of the retail ecosystem in India and elsewhere in the world. The Indian retail industry started to see radical changes across every function and sub-segment with the gigantic push of the digital economy, which has fuelled the growth of D2C brands. Today, there are 800+ digital-first and D2C brands across India challenging the traditional FMCG players to reinvent themselves to stay relevant.

While the fashion and electronics brands have been the major players, the personal and beauty care D2C brands are now following suit. Also, food and beverages is another category, in which the changed consumer habits to prefer specific diets (such as vegan), type of foods (such as organic), etc. has given the opportunity to D2C brands to come up with unique products or services for every niche.

D2C Vs FMCG

In the last few years, while the FMCG giants are sorting out the strategies to reshape the traditional retail space for customer attention, multiple digital-first brands have emerged with robust business models establishing a stronger connection with younger millennials in a shorter time.

Today, the consumers are expecting the brands to address their individual needs with personal attention. And, the scope that D2C brands have to cater rich consumer experience is what FMCG players are missing out on. Challenges such as supply-side pressures, ever-changing consumer expectations, limited visibility of consumer data, etc. are failing the traditional FMCG companies to deliver a personalized buying experience, which is something the D2C brands are banking on tremendously. Brands such as Nua, Vedix Lenskart, etc. are going the extra mile by delivering custom-made products to their customers as per their specific and unique needs.

D2C approach enables the brands to track the consumer touchpoints and feedback in real-time, which gives them a single view of the consumer across the platforms. And, brands are leveraging data-driven technology to build a one-on-one relationship with consumers at scale by approaching them with the most relevant and personalized messaging, services, products, and offers. This has given the D2C brands a competitive advantage to increase their consumer acquisition and loyalty with lower marketing spends, and better margins.

Also, the D2C brands are not just focussing on native platforms but also accessing established e-commerce platforms such as Amazon, Nykaa, Flipkart, Paytm, etc. to penetrate the deeper markets across India. With the backing of innovation, technology, personalization, logistics expansion, and e-commerce platforms, D2C brands are changing the game in the FMCG claimed markets. Thus, the competitive advantage of traditional FMCG over D2C brands in the aspects of scalability and channel access starts to diminish gradually, especially with the E-commerce expansion. Also, recent trends indicate that the consumption of traditional media and offline retail in certain sectors has been declining at alarming rates.

Though the changes in the market trends as well as in consumer behavior have been playing around even before covid, the pandemic has accelerated the online shopping adoption in the Indian consumers. This enabled D2C brands to reach consumers not in just metros but even in tier 2-3 cities, increasing their growth rate post covid.

FMCG Giants Tapping into D2C Space

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Though FMCG brands recognized the value of the D2C approach, most of the top FMCG companies in India remained hesitant so far. However, FMCG giants such as Marico, Tata consumer, ITC, began acquiring and adding the D2C brands to their portfolio earlier this year. And the D2C brand acquisition trend is expected to be aggressive in the coming 2-4 years among FMCG players with the further increase in internet and E-commerce penetration in India.

About the author:

Jatin Gujrati, Business Head, Vedix