D2C – An Opportunity for MSMEs in India

While we have already witnessed fourth industrial revolution also known as Industry 4.0 or IR4, the expanding and strengthening internet ecosystem in India is giving rise to the new business models.  It is also helping explore the new ways of doing business. Internet is the fuel that propelled e-commerce in India and the world. The growing number of internet connections, smartphone ownership is further enabling small and big companies reach out and engage with their customers digitally. Today in India 36% is the online market penetration i.e. 36% of the Indian population have bought at least one product online in 2020. And the potential is huge.  Amazon and Flipkart are the two major multinational e-commerce players dominating Indian e-commerce market.

The digital ecosystem, supply chain management, contract manufacturing have evolved and matured so much so that you don’t need to own a set up to be a full-fledged entrepreneur in FMCG or even in durable segment. You just need to identify the suitable need gap, right product, develop a brand, tie up with right manufacturing partner/s, open an e-commerce store and you are ready to do the business. You don’t need to own warehouse and there is no need of a retail store too. Your website becomes your retail outlet and you sell your product online only. Either register your products with existing e-commerce player or have your own online store, your e-commerce website. Demand generation and prospecting for the customer’s needs to be initiated now. To have the visitors on your website and therefore the demand, the website can be promoted through various ways on different search engines and social media platforms. There is a whole new science of digital marketing to take care of that.

This new way of doing business is termed as Direct-2-Customer or D2C. Here you reach out to your target audience directly and sell your products, completely cutting away the traditional distribution channel (distributor, stockist, C&F and retailers). This results in huge cost saving and money thus saved can be passed on as discount to customers or invested in building efficient delivery mechanism or new product development or all of that.

In last couple of years a lot of companies have adopted this new way and in fact there are companies doing business in this new D2C way only. They promote their brands online through social media and generate traffic on their website/e-store and sell directly from there.

Such companies and brands are called D2C companies or D2C brands. As per Avendus, a financial services firm, India is witnessing the rise of D2C brands across categories. India is estimated to have a USD 100 billion addressable market by 2025. Changing consumer behaviour (of Millennials, Gen Y & Z) and with over 700 million internet users, the D2C space is witnessing disrupting trends in India. Big Brands are being built only on D2C platform drawing millions of customers and revenue.

With the digital ecosystem, measurement of almost every performance parameter is possible that further strengthen the whole process and the efficiency. From the point when somebody clicking on your ad/post on social media to visiting your website and to finally becoming your customer, this person leaves behind his/her.

digital footprints at every step. A lot of data gets generated and saved at every step. The data thus generated is then cut, sliced, diced and minced to generate insights and information useful for more efficient planning and decision making in future. Consequently, with the help of this massive trove of data, the entire lifecycle of the customer can be tracked and efficiently managed, thereby offering them better products and services. In the conventional business scenario this thing is almost impossible. This is the power of internet and digital data.

With just 700 million internet connections and around 42% of smartphone penetration in India (2020), we are able to reach a value of approx. USD 46 bn ecommerce revenue in 2020. And, with the ever increasing internet penetration, smartphone ownership, 5G around the corner, the e-commerce sector is set to boom in the coming time.

As per India Brand Equity Foundation (IBEF, a trust established by Dept of Commerce, Ministry of Commerce & Industry, GOI), India E-commerce will reach USD 99 bn by 2024, growing at a 27% CAGR over 2019-2024, with grocery and fashion & apparel likely to be the key drivers of incremental growth. India’s ecommerce order volume increased by 36% in the last quarter of 2020, with the personal care, beauty & wellness (PCB&W) segment being the largest beneficiary. Tier 2&3 cities accounted for a 90% YOY incremental volume and value growth in the e-commerce market in the last quarter of 2020. Also these cities reported significant gains in share of the overall e-commerce sales volume (from 32% to 46%) and value (from 26% to 43%) in the last quarter of 2020.

This momentum in the e-commerce space will surely give rise to more D2C brands in India, a field where MSME’s can play a vital role and be benefitted from it. Currently there are around 600 D2C brands in India and this numbers will significantly grow in next five years. What is important to note here is that over 16 D2C brands have an annual turnover over USD 60 mn. Rising income, rapid internet adoption, changing consumer behaviour and buying preferences are some key factors giving rise to the digital-first brands.

Some D2C Brands in India

1. Bombay Shaving Company is the men grooming brand, closed FY20 with gross annualised revenues of ₹40 Cr and expect to close FY21 with gross annualised revenues of ₹105 Cr
2. Wakefit a Bengaluru-based home solutions brand generated a revenue of INR 199 Cr in FY20
3. boAt, a fashionable consumer electronics, including an extensive catalogue of headphones, earphones, speakers etc, Crossed Rs 500 Cr in revenues in FY 2020 and is expected to double the number in FY2021. 
4. MyGlamm, one of India’s fastest growing beauty brand has been witnessing tremendous revenue growth and generated Rs 200 Cr ARR in FY20.
5. Mamaearth is one of India’s fastest-growing brands in baby care segment, crossed the Rs 100 Cr turnover mark in just four years and Asia’s first brand to get the MadeSafe certification for its toxin-free products.
6. Fit & Glow (WOW Skin Science) is in wellness and personal care space that uses organic ingredients. In 2016, WOW became a top-five brand in the health segment on Amazon India.
7. Super Smelly is India’s first and only certified zero toxin personal care brand that offers products specially formulated for the teenage skin. Revenue INR 12 Cr (FY 20-21)

Lenskart, Licious, Zivame, Healthkart, Country Delight, Namhya Foods, Ustra, Bombay Shirt Company, Yayy! Naturals, Upakarma Ayurveda, Sleepycat, Bewakoof etc, are Some other D2C brands are operating in niche segments, becoming aspirational and generating amazing value. Some brands, after tasting success on online, are adopting the omnichannel strategy too to expand their footprints, both on ground as well as in consumers’ mind.

The E-commerce industry has been directly impacting micro, small & medium enterprises (MSME) in India by providing means of financing, technology and training and has a favourable cascading effect on other industries as well. Indian E-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second largest E-commerce market in the world by 2034. Technology enabled innovations like digital payments, hyper-local logistics, analytics driven customer engagement and digital advertisements will likely support the growth in the sector as stated by India Brand Equity Foundation (Govt. Of India).

Internet is no more the luxury in the hands of few but is now democratised and has reached to almost every individual. It’s the oxygen that the new businesses are breathing on and more importantly the brands that are doing business on internet, the D2C brands. Unlike that of old times when entering into the field of business used to require a lot of capital, today, that entry cost is low, making it suitable for small entrepreneurs.

Today with the help of technology generating demand, reaching out to new consumers, getting real-time consumer feedback, smart logistics are all possible to build new business. Investors too are inclined towards the D2C category because of the growth they are envisaging in the sector. There seems to be enough room for small & large players to be accommodated, for the sheer size of the market and its fragmented nature.

The entire ecosystem is conducive too, therefore, start it small and make it big!

NOTE: This article published on SME World AUG 2021 Vol. XIV, No. 08