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What is Direct-to-Consumer or D2C? Why are all FMCG bigwigs boarding the D2C ride?

Several big-size fast moving consumer goods (FMCG) companies including ITC, HUL, Marico, Emami, Tata Consumer Products, Dabur India, etc. are embracing D2C.

December 08, 2021 3:42 IST | India Infoline News Service
Since the onset of the pandemic, Direct-to-Consumer or D2C channel has witnessed unprecedented growth. In fact, several big-size fast moving consumer goods (FMCG) companies including ITC, HUL, Marico, Emami, Tata Consumer Products, Dabur India, etc. have hopped on to the D2C bandwagon. While some of these companies have acquired prominent D2C brands, others have chosen the organic route of launching their own brands online and building their own D2C platforms. Companies are also doing a bit of both.

The table below summarizes some of these initiatives.
Company D2C initiatives
Tata Consumer Products Limited
  • Launched Tata Tea 1868, and Sonnets by Tata Coffee through the D2C channel
  • Is expanding Tata Nutrikorner, its online shopping platform to offer the company’s full product portfolio
Marico
  • Launched Saffola Stores online D2C platform
  • Own brands Pure Sense and Coco Soul are available on D2C
  • Acquired 60% stake in digital-first brand - Just Herbs
  • Acquired Beardo, a grooming startup
ITC
  • Launched its own portal ITC e-Store
Adani Wilmar
  • Launched an app for its entire range of ‘Fortune’ products
Parle Products
  • Invested in health food company, ASAP Bars
HUL
  • Will make some of its premium brands available on the D2C channel
  • Owns minority stake in personal care brands ‘Phy’ and ‘Free Will’
Emami
  • Introduced Kesh King Ayurvedic Onion Oil and Shampoo and Navratna Gold Ayurvedic Cool Oil on its D2C platform
  • To launch products under ‘7 Oils in One’
  • Owns a majority stake in Helios Lifestyle, owner of male-grooming products under ‘The Man Company’ brand
Dabur India
  • Planning to launch its own D2C platform
  • Launching brands exclusively for e-commerce
Shoppers Stop
  • Provides 100+ exclusive brands on its own D2C platform

In short, established players are not leaving any stone unturned while tapping into the D2C opportunity to derive incremental growth, market share gains and higher efficiencies.

So what is D2C?

The term D2C applies to brands and companies who sell their products first or solely on internet/e-commerce channels. Some brands have their own D2C websites, some sell their products on online marketplaces (Amazon, Flipkart, Nykaa, etc.) and some have adopted a blended model combining both these options.

While D2C platform has been growing over the past few years, the real shot in the arm was provided by the pandemic. As per data by Technopak, the D2C channel grew ~20% in the past two years and could grow another 15-20% in the next five years.

D2C is just one more outcome of the digital disruption which has been transforming traditional business models like never before. It has happened in almost every industry – whether it is the banking space (digital payments, online aggregators, fintechs, etc.) or the multiplexes industry (OTT platforms, online ticket booking, etc.). Retail sector was among the first to witness this disruption post the establishment of several online marketplaces operating on different business models.

Few years down the line, as the newer businesses evolve, we are witnessing traditional businesses joining hands with their digital counterparts in most of the above cases. Omni-channel, for instance has been the buzz word for all retail companies in the past few years. Likewise, traditional banking and financial services companies are adopting several formats from tie ups, to acquisitions and even co-lending in order to derive the best of both digital and physical worlds.

What are the advantages of D2C?

The D2C channel offers several benefits to all stakeholders, which became more amplified during the pandemic.

Achieving critical mass at a fraction of the cost when compared to the traditional distribution network is a key benefit. Traditional distribution models are multi-layered, need more capital and take years in achieving scale. Through DTC, companies can reach out to a much larger consumer pool, deliver the product in a shorter time frame and lower their costs of acquiring new customers. In the D2C channel, companies can get customer feedback almost instantly and make suitable amends in a timely manner. Thus, companies have more insights into consumer preferences and post-purchase views of their products. By building their own D2C websites and platforms, companies can develop greater awareness among consumers about all their brands, unique features of the products and can offer several schemes and offers. By providing them with a seamless experience and superior service, companies can build consumer loyalty and strengthen identity of their brands.

As it enables companies to engage directly with consumers, D2C channel provides invaluable insights into consumer behavior. This in turn, enables companies make data-driven business decisions. With virtual elimination of middlemen, companies can earn higher margins through the D2C channel.

What are the disadvantages of D2C?

Companies will need to make several changes in their operating model to incorporate D2C. Prominent among them is training of employees or hiring experts, as required. Investments will be needed to ensure that the company’s D2C platforms and/or tie ups are up and running in a quick and efficient manner. D2C involves a significant shift from the way in which traditionally-run organizations work, wherein companies are taking complete ownership and responsibility of their customer experience. They also need to ensure that the services provided by them measure up to customers’ expectations.

Success of D2C depends on companies’ ability to respond with agility, maximize the potential of data and technology and put in the right effort, time and investments needed. More importantly, larger companies will have to find the right balance needed to converge D2C with their traditional operations to make the most of this opportunity.

The author of this article is Sheetal Agarwal, AVP-Content and Communications, IIFL Group

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