Marico bets on D2C biz to ‘roar’ loud and clear in the days to come

Mumbai-headquartered consumer products and goods company Marico is keen to develop a “roaring” direct-to-consumer (D2C) engine that would fuel its next phase of growth in the digital and ecommerce era. 

“Roaring Engine 2”—as Saugata Gupta, Managing Director and CEO of Marico, calls it—is expected to be fuelled by the personal care and food categories, which lend themselves well to the D2C business. 

During the company’s earnings call earlier this month, for the quarter ended September 30, 2022, Saugata said that Marico was confident that its bets on digital brands—in the above-mentioned categories—were likely to double from an annual run rate of Rs 250 crore at present to Rs 450 crore to Rs 500 crore. This, he said, would happen while the company continued to explore inorganic opportunities. 

Scaling up D2C biz through acquisitions

Marico’s acquisitions in the last few years have begun to bear fruit. 

Men’s grooming brand Beardo, acquired by Marico in 2017, has already scaled up in terms of distribution in online as well as omnichannel mediums and overall revenue contribution, says Saugata. Beardo crossed an ARR of Rs 100 crore on an exit basis at the end of FY22. Its other acquisitions—Ayurvedic hair and skin care brand Just Herbs and healthy breakfast and snack brand True Elements—are expected to scale up over the next two years.

The company, which owns household brands such as Parachute, Saffola, Hair and Care, Nihar Naturals, and Livon, expects 15% of its overall revenue over the next couple of years to come from its online/e-commerce business—from 9% at present. Online sales include consolidated e-commerce sales from its core portfolio as well. 

In FY22, Marico reported a revenue of Rs 9,512 crore. It operates in key categories such as personal care, foods, and digital-first or D2C Brands. The digital-first brand portfolio clocked an exit run rate of Rs 180 crore to Rs 200 crore in FY22.

Going forward, the company is betting on the ‘string of pearls’ strategy with a bouquet of 8-10 digital brands and companies that will have synergies together. 

The string of pearls strategy is one in which a company makes small or moderate price range acquisitions. These increase the company’s value gradually, instead of making a big acquisition in one go. 

“We are looking at inorganic. We are getting into a lot of interesting categories in the functional foods and nutraceutical space,” says Saugata. 

Saugata compares the company’s D2C strategy to the house of brands model of Mensa Brands, with a higher focus on the personal care and food categories. 

Acquiring and scaling D2C brands requires a different mindset, says Saugata. “Scaled CPG companies are geared towards large brands, large investments, mass distribution, and a scale-driven business which has a repeatable model of developing large brands.”

The business of D2C brands is poles apart in terms of velocity of innovation, risk appetite, and scale. For instance, product launches for traditional FMCG companies could take as long as 6-8 months, but for D2C start-ups, it takes just 45-60 days to get a product to market. 

Marico’s D2C brands are run independently by a separate team. “We (Marico as an investor) have a say in only four things—portfolio, capital allocation, reputation, and quality. These are non-negotiable and the rest is handled by them (the D2C team). All Marico expertise is available on tap,” says the company’s CEO. 

Organic growth 

Despite its quest for inorganic growth, Marico does not wish to ignore organic progress. 

Marico has three homegrown D2C brands—coconut-based gourmet hair and skin care brand CocoSoul, clean beauty brand PureSense, and nutraceutical brand Fittify. Among these, the first one to “show potential to scale up” is Fittify, says Saugata. 

Investing in D2C brands

According to Saugata, Marico is emerging as a strategic investor of choice for D2C brands owing to the expertise and resources available to the investee companies at the tap. This becomes especially important in the current market conditions as D2C brands struggle to raise growth funds to break the Rs 100-crore ceiling. 

“D2C is going through a phase of reckoning. Even FMCG is seeing intense churn in the sector. Almost all big private retailers have announced their intentions to step into the space with Marico, HUL, ITC and Dabur,” says Ankur Bisen, Senior Partner and Head of Consumer, Food and Retail, Technopak Advisors. 

In the past year, about seven FMCG companies, including Emami, ITC, and Tata Consumer, have invested in D2C startups. 

For instance, Colgate-Palmolive and Reckitt both hold a minority stake in Bombay Shaving Company. ITC has picked up a stake in D2C parenting brand Mylo and mother and babycare company Mother Sparsh. Emami too has invested in the D2C brand TruNativand the pet care brand Fur Ball. 

Digital-first brands grow easily to Rs 100 crore, becoming interesting targets of acquisition for large CPG companies which are looking to hit the ground running. However, in order to build a brand with a topline of Rs 200 crore, relying on a digital-only strategy does not work, according to Ankur. 

He says, “The lines on who exactly is an FMCG player are blurring with Reliance announcing its entry into the space with private labels, DMart selling private labels, and Tata selling FMCG labels through its stores and through its digital business in Bigbasket.”

The broader vision for FMCG and CPG players is to stay relevant in a fast-evolving market. 

“To stay relevant to millennial and Gen Z consumers, for the next 15-20 years, digital strategy becomes important, as does broader mind share, and some sort of direct customer outreach,” says Ankur. 

Research firm Tracxn estimates that the D2C market will be $12 billion in 2022 and it is expected to reach $60 billion by 2027, growing at a CAGR of 40%. At present, D2C makes up only 5% of the overall consumer goods market, but it is likely to command a significantly larger share over the next few years. 

Data from Tracxn also shows that about $37.3 million has been invested in D2C companies, across 10 funding rounds, by larger, traditional FMCG players in 2022, so far. In comparison, $262 million was invested in the D2C space by FMCG companies in 2021.