Insights from India's top profitable D2C brands 🧠
Direct to consumer market in India will touch $100 billion by 2025.
Welcome to the 77th edition of the GrowthX Newsletter. Every Tuesday & Thursday I write a piece on startups & business growth. Today’s piece is going to 94,400+ operators & leaders from startups like Google, Stripe, Swiggy, Razorpay, CRED & more
Traditionally,
Business meant reaching out to manufacturers, retailers, distributors, supply chain managers - basically, oiling the full engine end to end to be able to send out even a single product in the market.And suddenly,
brands have started to unbundle the supply chain in the last 10 years.
50K digital brands in India
346+ funded D2C brands in India
$4.4 billion in total category funding
3 Unicorns
So what really changed?
First, need for ownership 🕋
Repeat after me, “You can’t build a multi billion dollar business without owning the customer”. A customer ordering your product through Amazon/ Flipkart/ Nykaa isn’t your customer, it’s theirs. Every time this customer searches in the amazon search box for a product, you are constantly in the rat race with every other brand on Amazon.
Second, need for data 💰
Marketplaces are known for their notorious behaviour of not sharing data. Know anyone who sells on Amazon? Ask them. So when brands go D2C way, they bridge this gap by using insights from first-party-mediums and their own to create an endless personalised experience to their customers. (Think about exclusive Sugar cosmetic deals)
Third, CAC to LTV ratio 🔁
D2C thrives on repeat purchase → Repeat purchase drives better lifetime value. If the brand has to make it big the LTV would have to look at 10s of multiples at the least. With no D2C play, you will keep fighting for LTV portion as covered in our first point.
So, What’s common between India's top profitable brands?
Influencer engine
WoW skincare, boAt, Nykaa, Sugar, Minimalist, mama-earth - all of them have an extensive social media presence not only through their own handles, but also through influencer’s reach.
Collectively, brands have spent close to $157 million in advertising in FY21, reaching their consumers directly where they were. Trust me, this is not money wasted. With repeated penetrations, brands have been able to identify key triggers and barriers & offer solutions.
63% of Indian brands invest heavily in influencers & allocate upto 20% of their overall spends.
Deep Omni channel presence
Nearly all D2C brands have a deep rooted omni channel presence in India for a wide distribution. Sure it is cheaper when users buy directly through its website, but the distribution, awareness, ease of use brands offer through marketplaces like Amazon, Myntra, Flipkart etc is huge.
A majority of brands, nearly 26% have over 5-8 mediums to sell their products. This comes out as a clear winner for distribution, awareness, and insights.
34% brands state that their biggest challenge is awareness & nearly 16% attribute this to the growing competition and digital marketplaces are a match made in heaven for this, especially Amazon.
This is how Amazon helps brands market their product & make a fortune out of it
A dream team
A poor math for running a profitable startup would be a low CapEx, i.e the amount a brand spends to make money. As for D2C, a majority of this cost gets allocated to on-road logistics of their products. Another trend that’s common amongst top Indian brands is choosing a 3rd party partner to own their distribution.
76% of total D2C Indian brands have outsourced this.
What’s in the future?
The current D2C setup is widely nimble. Brands have discovered new found ways to sell & recuperate from everything that was done wrong by traditional launches. Within the ecosystem, lies 4 models
Pure play D2C
Brands that offer native Ecommerce experience through our own channel and have zero offline presence, like licious or Bewakoof.Omni-channel D2C
Brands that go big in their Ecommerce experience, through their own mediums along with marketplaces. They have little or no retail exposure, eg SleepOwl.Omni-channel Ecommerce
This where a brand goes heavy in terms of retail experience, think of Nykaa, mixed with digital presence.Largely retail
This brands are somewhat traditional in their D2C attire. They have a massive offline presence & rely on marketplace for online distribution.
The future of D2C in India beholds many iterations, primarily to address user retention & high competition from legacy players. While having a omni-channel presence is plus to have, to be able to fully grow, brands need to move users to their own mediums to build a relationship.
Live commerce, virtual shopping experience through meta-verse, product trials, and live commerce remain one of the most highly betted areas by top brands.
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