Slowdown or not, the D2C juggernaut rolls on

The pandemic and its forced stay-at-home requirements may have propelled the growth of ecommerce, but it’s now clear that a Direct-to-Consumer (D2C) strategy can no longer be an afterthought for brands looking to scale up rapidly. 

While brands have realised that timidity will not get them far and are innovating on business models in the space, Indian consumers are loving the freedom and choice D2C offers, especially in categories such as food, health and nutrition, personal care, and beauty. 

And it’s only going to become bigger with industry experts saying demand is unlikely to come down any time soon.

“Economic growth is here to stay and 60% of our GDP comes from consumer spending,” says Dipanjan Basu, Partner and CFO at Fireside Ventures, which has invested in D2C brands like Ayurvedic period care product brand Gynoveda, Yoga app SARVA , children’s health food brand Slurrp Farm, and women’s work wear brand FableStreet, among others.

Dipanjan and several other thought leaders will be at YourStory’s Brand Residency event in Delhi later this week to discuss and debate the way forward for the sector.

“The share of ecommerce is only increasing and we think that from a demand standpoint, the share of digital-first consumer brands in sectors, such as food and beverages, home, personal care, fashion, pets, and healthcare, is only going to go up,” he says.

The slowdown in new investments, however, has forced brands to re-evaluate their approach and path to a well-defined minimum viable product.

Differentiation is key

Sellers have realised that differentiation is the key that will continue to open the doors to growth. Take Country Delight, for instance. The brand has been able to successfully stand out from the crowd through its range of dairy, fruits, and vegetables. 

“We are a mass premium brand catering to the essential needs of the households we serve. While there has been a market slowdown, many D2C brands in general–and in the essential food space–continue to grow,” says Chakradhar Gade, Co-founder at Country Delight, who is also participating in YourStory’s Brand Residency event. 

“Specific to the crucial food space, changing consumer preferences and the shift towards a healthy lifestyle in post-COVID-19 times have significantly contributed to such growth,” he adds. “So the farm fresh-to-home delivery market is continuously growing and businesses are seeing huge successes.”

The brand is focused on improving the farmer ecosystem and improving their productivity and scale. 

Investors wait and watch

“Capital is an enabler for scaling up businesses ahead of time and can help you move faster with the plans. Since the environment has changed from last year, brands are taking time to find the MVP (minimum viable product) and come up with a stronger proposition,” says Rishi Vasudev, Co-founder of G.O.A.T Brand Labs.

He adds that an omnichannel approach and looking at growth in markets beyond India are potential levers of growth for domestic D2C brands. Of the 15 brands in the G.O.A.T portfolio, eight are in various stages of discussions to start selling overseas, he says.

“It is more sensible to build out a D2C brand as a part of a house-of-brands rather than spending alone on the team, building capabilities, and (dealing with) ever-increasing digital marketing expenses. It also gives brands a better leverage with suppliers, marketplace, logistics providers, and others,” adds Rishi.

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Celebrating brands and their builders at Brand Residency 2022, an initiative by YourStory’s Brands of New India

Exit strategy

But as with all investments, the key would be the returns and exits. While D2C aggregators racked up $1.18 billion in venture capital investments in 2021, up 30-times from 2020, according to a report by Bain & Co, investors are hopeful of multiple avenues of exits, and with healthy returns. 

“Consumer businesses are capital-efficient and provide exit opportunities in funding rounds to early-stage investors,” says Dipanjan of Fireside Ventures. 

“We remain bullish on IPOs of fast-growing and profitable consumer businesses,” he adds. “Very recently, the possibility of exits to strategic players like Tata, Reliance, Unilever, Marcio, ITC, and other large companies that are building a house-of-brands play has added to the exit opportunity.”

Tune in to Brand Residency 2022 in New Delhi on September 9-10 for more such insights from industry experts and leaders.