In the past year, at least seven fast-moving consumer goods (FMCG) companies in India have made a beeline for investing in direct-to-consumer (D2C) startups.
Two of them happened just this past month. Emami, known for healthcare and personal-care brands like BoroPlus and Navratna, acquired a 19% stake in D2C nutrition brand TruNativ for an undisclosed sum. And the venture funding arm of Wipro Consumer Care, known for Santoor soaps, was part of cosmetics brand The Ayurveda Company’s first fundraise of $3 million.
This is because D2C brands—the ones you might come across while scrolling through your Instagram feed—are slowly increasing their share of the pie. D2C products currently account for just 3% of India’s total FMCG revenue—pegged at $55 billion $55 billion Crisil FMCG revenue growth seen doubling to 10-12% this fiscal Read more in the year ended March 2021. But that could rise to 8-10% in the next few years, according to a recent report by brokerage HDFC Securities.
A D2C strategy may not be an immediate priority for an FMCG behemoth like Hindustan Unilever (HUL), whose revenue in the year ended March 2021 was ~Rs 47,000 crore ($6.2 billion). But for smaller companies like Emami and Marico, having a D2C portfolio is crucial.
For one, these legacy companies have a huge blindspot when it comes to figuring out how to sell to Instagram- and YouTube-influenced twenty-somethings, who are more comfortable browsing an online catalogue than walking into a store. Nearly half Nearly half Mint More than 50% of Indian's population 25 years or older Read more of India’s 1.3 billion population is under 25 years old. A D2C portfolio is also a way to reduce their dependence on one or two business verticals, or to make up for their lacklustre revenue growth in recent years.
Marico, an FMCG company with a market cap of $8.4 billion, was one of the earliest proponents of a D2C strategy. In March 2017, it bought a 45% stake in men’s grooming startup Beardo for an undisclosed sum, before acquiring the rest of the shares three years later. And in July 2021, it picked up 60% in Ayurvedic skin- and hair-care brand Just Herbs. Thanks to owning brands such as Parachute (hair oil) and Set Wet (men’s hair gel and deodorant), Marico is no stranger to the categories Just Herbs and Beardo operate in.
However, D2C brands couldn’t be more different from FMCGs in how they go about their business.
For instance, Just Herbs and Beardo can launch a new product in 45-90 days, according to their respective co-founders, Arush Chopra and Ashutosh Valani. Marico needs eight to nine months—developing a new product can sometimes take up to two years, says a former senior executive with the company.
