India Doesn't Really Have A D2C Industry And Shopping Habits Are To Blame

When Devidutta Dash started Lemme Be, a women’s menstrual products brand, in 2020, she hoped to grow and scale it as a direct-to-consumer (D2C) venture that sold products only through its site. “We thought we would crack the website,” Dash told The Core.

But reality hit not long after. Dash realised that getting audiences to the brand’s website is difficult and costly. “When we were aggressively focused on revenue generation through the website, we spent on performance (marketing), Meta, and influencers… it affected our profit margins,” she said.

The popularity of marketplaces and quick commerce prompted Lemme Be to expand beyond its website. 

Today, Lemme Be does only 10% of its business through its website and the rest comes from e-commerce, quick commerce, and modern and general trade. “We are not adamant [about] identifying as a D2C brand anymore,” Dash said. “Our focus is now on growing our quick commerce, and D2C is just an additional channel that we are on. We aren't spending on performance marketing anymore. We run a few Google ads focused on SEO and blogs on Quora and Reddit.”

Lemme Be isn’t alone. Most of India’s much-hyped D2C industry comprising fancy food, creams, and clothes is hardly direct. Consulting firm KPMG estimates (pdf) it was worth $12 billion in 2022 and will grow to $60 billion in four years. A D2C brand, by definition, sells to its customers through its own website, app, or brand-exclusive store. But look through your own purchase history: how many D2C brands did you buy from directly over the past year? 

Just like Lemme Be, most of India’s D2C brands have realised there is little value in remaining direct. In conversations with brand owners and their backers, The Core found that for all the noise it generates, the D2C industry barely exists in India. What’s more, some may have never intended to build one. 

To Be Or Not To Be D2C

When skincare brand Minimalist launched in October 2020, it called itself  D2C but was available on third-party platforms such as Amazon within a month. “We saw 8x growth in no time on marketplaces when we listed,” Minimalist’s co-founder Mohit Yadav told The Core. ”Due to that, our direct channels did not perform as well compared to marketplaces.”

By 2022, Minimalist was making merely 10% from D2C channels such as its website and app. Today, that share stands at 20%.

However, Yadav maintains he wants to scale Minimalist as a D2C brand. “We firmly believe that scaling in India as a purely direct-to-consumer brand is not only possible, but also strategically advantageous. There are relatively less challenges if you start first as purely D2C,” he said.

Yet, there are contradictions. Consider what he says next:

“As we have scaled in the last two years, we are present in key retail channels and are aiming to expand continuously.”

In other words, for Yadav, D2C is not so much about selling directly to consumers as much as it is about directly interacting with them.  

Consider Mamaearth, among India’s oldest D2C brands. When parent firm Honasa Consumer Ltd filed (pdf) for an IPO last year, it called itself a “digital-first beauty and personal care company” comprising six brands. Cut to today, Mamaearth is barely a D2C brand. As per a report by brokerage firm Jefferies, D2C channels contributed 34% of Honasa Consumer’s total revenue in FY21; by the first quarter of FY24, this fell to 23%. Mamaearth, now making Rs 1,000 crore in revenue (pdf), has largely grown on the back of offline sales, co-founder and CEO Varun Alagh told investors in a call this February (pdf).

“Starting off as DTC allowed the brand to build active engagement with the consumer,” Kannan Sitaram, co-founder and partner at Fireside Ventures, told The Core “But having done that, and established, let's say, a franchise of loyal customers, there is no customer who says ‘I'm only a D2C customer’.” Fireside Ventures is a venture capital firm that has invested in multiple consumer brands including Mamaearth, Bombay Shaving Company, The Baker’s Dozen etc. 

Here, There, Everywhere

Therein lies the rub. Being purely direct-to-consumer in India was never an option, because there aren’t enough consumers who only buy directly. The idea of being D2C has been around since the mid-2010s but got its biggest push during the pandemic when rich, urban Indians began furiously shopping online.

By this time, American D2C counterparts were already getting listed, but with discouraging results. Eyewear brand Warby Parker was listed in September 2021 but has traded well below its issue price since. Razors maker Dollar Shave Club was sold to Unilever in 2016 and then acquired by a PE firm last year. Mattress brand Casper had a poor public listing in 2020 and was acquired by another PE firm just two years later. 

But in India, the pandemic-driven change in consumer behaviour was short-lived. Beyond the rich, urban customer, most Indians shop both online and offline, scoping out discounts, sampling expensive products, or comparing alternatives. For brands trying to shore up sales from D2C channels, Indians’ shopping habits throw up several challenges.

“There are many people who may never buy things from a DTC brand’s website,” Fireside’s Sitaram said. “Especially when you think of it as not exactly cheap. You find things for like a couple of 1,000 rupees. For Indian consumers, that's a lot of money. So you want some more conviction that I'm not going to be cheated out of my money.”

Indians also don’t tend to shop directly from a brand’s website because they’re often buying several kinds of goods in one go, such as groceries for the month.

For example, VS Mani & Co., a fast-moving consumer goods (FMCG) brand that sells South Indian packaged foods and beverages, was established during the pandemic, when its only sales channel was its own website. But the brand later decided to list itself on marketplaces and quick commerce as it became more popular. “We realised that we need to be available wherever the consumers want to shop. For our category, volume is very important,” Yashas Alur, co-founder of VS Mani & Co. told The Core. 

“We can't really expect a consumer who wants coffee or snacks to come to a single website and make the purchase. They would rather add it to a larger grocery order.”

The brand currently does 20% of its sales through its own website, 25% through marketplaces and quick commerce, 20% from institutional sales, and the remaining through offline retail.

Age is also a factor in India, Fireside’s Sitaram shares. Older people are more likely to purchase from a marketplace than young Indian consumers, who are open to buying directly from brand sites. That’s because when buying from quick commerce apps and online marketplaces, consumers can compare multiple products, have a certain amount of trust in the marketplace, and also get much faster deliveries.

A Losing Game

So why did venture capital (VC)-funded, fast-growing consumer brands in India go D2C in the first place? 

There are major benefits to being able to sell to customers directly. First, it allows a brand to own all customer data, from personal attributes (name, phone number, address, pin code) and buying behaviour to other information acquired from performance marketing ad campaigns that may have brought the customer to the website in the first place. Smaller, still-growing brands often rely on the feedback of their D2C websites and app customers to grow the business, because they’re seen as loyalists. 

“We utilise multiple analytics platforms to understand user behaviour, their search trends on our website, and how they interact with our touchpoints. With this data collected along with the sales data, we make changes to improve our conversion rate and attract a similar audience in our promotional campaigns. This also helps us to understand how to forecast the demand,” Minimalist’s Yadav said. 

In comparison, both e-commerce and quick commerce marketplaces offer much less data on a brand’s customers. Besides, their commissions and fees eat into brand margins. 

A D2C website also allows brands to showcase their entire range of products. Of the 30-35 stock keeping units (SKUs) that condiments brand The Gourmet Jar sells on its platform, it lists only six to seven SKUs on quick commerce, modern, and general trade channels. “They [quick commerce and other marketplaces] do not list so many SKUs because dark stores and retail stores have limited space,” Apeksha Jain, the brand’s founder, told The Core.

Farmley, a brand that sells dry fruits, nuts, and seeds, also collects feedback and samples its products through website consumers. “Although Farmley does only 2-2.5% of its sales directly, this data helps us decide which products to list on marketplaces,” Akash Sharma, co-founder and CEO, told The Core.

Consumers who shop directly are also a loyal lot. For example, The Gourmet Jar’s direct consumers have a repeat rate of 30-35%. The company isn’t sure about the repeat rate on third-party platforms because it claims they do not share such granular data.

Verdict

The only kind of consumer that a purely D2C brand can cater to is one who is experimental, tech-savvy, loyal, and has an incentive to shop directly from the brand. 

“If we take the total market, it's definitely a small percentage, because, you know, offline retail for most consumer goods is still 90% of business,” Fireside’s Sitaram said, adding that most brand communication and customer acquisition still happens online, but fulfilment depends on where the consumer wants to shop from. 

Mamaearth isn’t alone in pursuing offline sales for its ‘digital-first’ brand. Most of its contemporaries are now pursuing the traditional FMCG path of appointing distributors and negotiating margins with supermarkets and e-commerce platforms. “There was never really any D2C brand in India,” said a senior executive of a VC-funded D2C brand on condition of anonymity. “Everyone has to sell wherever the customer is. The D2C website is a channel to get customer data. But look at all the so-called D2C brands, and the majority of their expenses are now going into running ad campaigns on Amazon, Blinkit, and Zepto and in margins to general trade. That requires a lot of cash.” 

It’s the sort of cash that large, listed FMCG companies have spent for decades building nationwide networks of distributors, stockists, retailers, and kirana stores. Now, they’re using it to acquire so-called D2C brands. 

Over the past few years, Marico Ltd has acquired men’s grooming brand Beardo, natural skincare brand Just Herbs, and healthy food brand True Elements. ITC also acquired food brand Yogabar and a stake in the baby care brand Mother Sparsh. Tata Consumer bought the millets-based food brand Soulful, and Hindustan Unilever Ltd (HUL) bought stakes in health supplements brands OZiva and Wellbeing Nutrition. Besides, HUL launched its own ‘digital-first’ personal care brands such as Simple and Love, Beauty, and Planet. 

Both D2C and legacy FMCG brands are changing track to sell via any channel they find a critical mass of customers in. Where does that leave the original D2C promise of selling premium goods at affordable prices by cutting out the middleman?