More than a few top consumer goods makers, including Hindustan Unilever, Dabur, and Emami, are taking their direct-to-consumer (D2C) brands launched online in the last two years during the pandemic into brick-and-mortar stores after their brands built a reasonable size and sales from supermarkets improved.
With ecommerce doubling its contribution over the past two years, several mainstream companies either launched online-only brands or acquired stakes in existing D2C companies. This helped them compete with nearly 600 online-only brands, especially in the premium segment, as well as learn from their nimbler rivals in the digital space.
Like Emami, it is extending a few D2C products to large retail chains, and when they have good potential, they will be launched in general trade as well. “Ecommerce is a channel where it’s easy to test the market, but we will take products that have potential where it’s convenient for consumers to buy them,” Emami managing director Harsha V Agarwal said.
Whereas Dabur India chief executive officer Mohit Malhotra said, “We will take the equity of Dabur by bringing digital exclusive brands to brick-and-mortar stores.” The idea is to connect with younger consumers and then shift them back to traditional trade to build a larger business, adding that consumers are more experimental in ecommerce versus traditional trade.
The question is whether new brands will lose their sheen in brick-and-mortar stores to 100 year-old brands. They will struggle in brick and mortar if they offer a similar premium to old brands.
Dabur has taken its baby-care range, mustard oil, ghee, pickles, and apple cider vinegar offline to large chains. Fast-moving consumer goods companies report that traditional retailers, including kirana stores, account for 85% of their overall business, followed by modern trade at nearly 10%, while ecommerce contributes 5–6% of sales.
Several mainstream companies have acquired online-first brands in the past three years. For instance, Colgate Palmolive bought a stake in Bombay Shaving Company, Emami purchased a majority stake in The Man Company, Marico acquired a stake in Just Herbs and Beardo, and ITC recently acquired a stake in Mother Sparsh. Last year, HUL set up a premium business unit and an incubator to dial up innovation within its product portfolio and compete with new-age brands.
In January this year, HUL managing director Sanjiv Mehta said a significant part of D2C brands’ growth is driven by existing shoppers’ shifting to online channels instead of incremental growth. So be it. “You may find some time that certain trends are captured by some company before us, and so be it,” Mehta said. “Not all the trends would be captured first by us, and we could be second and still be better.”
According to a report by HDFC Securities, the potential impact of D2C on domestic revenue of mainstream companies could be more than 30% for large firms such as HUL, Dabur, Godrej Consumer and Emami, and more than 20% for Nestle, Marico, and Colgate.
Companies continue to be unruffled. Tata Consumer Products managing director Sunil D’Souza said a lot of D2C brands start well, grow at a triple digit rate, and then come offline.
Businesses need to be present on both offline and online channels to play the game. But offline is a difficult game, “he said.
At present, only 5% of the 600 companies in the D2C segment have achieved the ₹100 crore revenue milestone, while 20% have revenue between ₹20-90 crore, and the rest of them are below ₹20 crores each, which may see consolidation going forward, according to the India D2C Summit 2022.