Avendes Capital, the leading investment banking arm of financial services firm Avedus Group expects, COVID-19 related restrictions will prompt consumers to discover new Direct-to-Consumer (DTC) brands that may collectively achieve $100 billion turnover by 2025. In fact, over 600 DTC brands have entered Indian market since 2016. These include: Lenskart, Zivame, Boat, Wow Skin Sciences, Mamaearth, among others. The sector is likely to witness consolidation in the next three-to-four years with many large consumer goods companies buying D2C brands.
An equal mix of retail channels
Starved for variety, Indian consumers have largely turned to online shopping, says Pankaj Naik, Co-head, Digital and Technology Investment Banking Practice, Avendus Capital. He feels, horizontal and vertical e-commerce players, social media marketing, plug-and-play supply chain and logistics options have created a strong ecosystem for these brands. However, to add more customers, they would have to reach more households and provide an equal mix of online and offline retail channels.
Growing at 4 per cent annually, the Indian e-commerce market is expected to be worth over $200 billion and shift to organized retail in the next five years, says Avendus. The market is currently dominated by unorganized small players. With COVID-19 accelerating the adoption of online shopping, DTC brands in the beauty and personal care category are emerging strong contenders.
Another category where DTC brands can make their presence felt is the foods and beverages category. Leading DTC brands in these categories have witnessed over 100 per cent growth to pre-COVID levels. The pandemic has accelerated sales of DTC brands in India. It has strengthened their entire ecosystem from logistics to warehousing.
Limited scale and false targets pose challenges
However, despite their popularity, DTC brands also face certain challenges. One of them is their limited scale. Indian consumers still prefer offline shopping over online purchases. For such consumers, DTC brands should open physical stores, once they achieve a certain turnover, adds Sreedhar Prasad, Bengaluru-based independent internet business expert.
Moreover, they should target the right group of consumers. With some brands being into nutrition or healthy food products, they cannot depend on earlier target groups which classified consumers on the basis of their age or socio-economic category.