EMAMI STARTED its direct-to-consumer (D2C) journey in 2017 when it bought a stake in Helios Lifestyle, which owns men’s grooming brand The Man Company, and gradually raised it to 50.4%. The Kolkata-based consumer goods firm, which also invested in personal care brand Brillare Science in 2018, bought the remaining stake in both the companies this year. The Man Company and Brillare together contribute about ₹225 crore to revenue. This year, it is expected to stand at ₹275 crore, around 8% of total revenue, Emami said in a call with analysts in August.

Vice chairman and managing director Harsha V. Agarwal says D2C presents a huge opportunity, while agreeing that legacy companies faced challenges in tapping it earlier. “From the perspective of innovation, we didn’t do as much as consumers were expecting. There were limitations and challenges at that point of time before e-commerce had taken off,” he tells Fortune India. Now, e-commerce and modern trade contribute 20-22% to sales, he says. “It will go up. This is where growth is the highest. Growth in general trade is low,” he says.

E-commerce penetration, shift to digital platforms, rising disposable incomes of wealthier cohorts, increase in number of young shoppers, social media influence and competition from younger digitally-native brands are compelling FMCG companies to strengthen D2C offerings. Digital-first companies, including Mamaearth, SUGAR Cosmetics and Wow Skin Science, and online retailers like Nykaa, which has invested in D2C brands Dot & Key and Kay Beauty, are shaking up the growing beauty and personal care segment. In contrast, industry stalwarts such as HUL, Emami, ITC and Dabur are still to catch up. Mordor Intelligence says the Indian D2C e-commerce market is expected to grow at a compounded annual growth rate of 25% from $70 billion in 2024 to $270 billion in 2029. India’s beauty and personal care category was worth $16.4 billion in 2023 with online transactions of $1.5 billion, says Euromonitor; it expects the retail value to touch $18.4 billion by 2027. Anand Ramanathan, partner, consumer products and retail sector leader, Deloitte India, says D2C brands benefited from a spike in online buying by affluent consumers after the pandemic but larger FMCG companies were slow to adapt. “In the Indian FMCG industry, innovation was not happening as fast as it should have. Large consumer goods companies saw India as a geography where they could build a profitable business but did not invest back as much as they should have,” says Ramanathan, adding that the D2C brands benefited from innovations such as products suited for Indian skin tones and climate as well as a spike in demand from Tier II/III cities via e-commerce. “Consumers were also seeking variety and experimenting. They wanted a wider portfolio but larger companies were scared of inefficiency due to product proliferation.”

D2C brands grew quickly by targeting specific demographics or niches with tailored products, attracting consumers looking for unique offerings, says Devangshu Dutta, founder and CEO of retail consultancy Third Eyesight. “This can be tougher and more expensive for larger FMCG companies given their existing business structures, processes and resource commitments. The D2C brands are usually nimbler in product development, packaging, marketing and even pricing. They can also test and launch new products more rapidly,” says Dutta. Experts say D2C companies also benefited from availability of funding for the beauty and personal care segment as investors bet on lower penetration compared with developed or other emerging economies. India has 2,552 beauty and personal care product start-ups, second only to the U.S., which has 7,962 says Tracxn.

Getting On The D2C Bus

Digitally-native brands, including Mamaearth, have ridden the explosive growth in e-commerce to become household names, says Redseer Strategy Consultants. “As online sales increase, so will the power and share of digital brands,” it says, adding that traditional brands are less agile with online sales accounting for a small portion of their sales. The latest annual report of Honasa Consumer, the parent firm of Mamaearth, says 65% sales are online, even as the company is building an omnichannel presence. The eight-year-old company posted a 28.6% jump in revenue to ₹1,920 crore in FY24. Its reach jumped 30% YoY to two lakh retail outlets as of March.

However, FMCG companies have an opportunity to capitalise on the D2C opportunity via the organic route or acquisitions. The addition of D2C brands can help larger FMCG companies respond better to evolving consumer preferences for convenience, personalisation and sustainability, says Third Eyesight’s Dutta. “Bypassing traditional retail can bring higher margins, though much of that would be invested in product development and customer acquisition,” he says.

That is why, like Emami, big FMCG firms are investing in digital-first brands and channels. Consumer goods giant Hindustan Unilever (HUL) is using its D2C platforms, including Lakmé, Simple, Love Beauty and Planet as well as multi-brand destination UShop to directly engage with consumers. Its annual report says the premium beauty business unit, incubated three years ago to address the digital-first niche, has an annualised run rate of over ₹100 crore. It says the focus is “on building digital capabilities that include digital marketing, nano factories and influencer campaigns.” The company is also scaling up D2C brands. Last year, it launched Simple’s Active Skin Barrier Care range, which has trendy ingredients like ceramides and hyaluronic acid; this year, it launched a cleansing jelly oil that removes make-up without harming the skin’s natural barrier. In its September earnings call, the company said 70% of its business comes from general trade, 20% from modern trade, 6-7% from e-commerce and about 3% from other channels.

Consumer goods maker Dabur says it is expanding D2C offerings with products like body washes and face mists under the Gulabari brand. It has also added a range of ‘no nasties’ shampoos under the Vatika brand. “These have been doing well in e-commerce,” says Mohit Malhotra, CEO, Dabur India. The company also has a D2C channel, DaburShop, where consumers can buy its entire range, including ayurvedic medicines. It is targeting emerging trends but taking a cautious approach, says Malhotra. “Since some of the trends lose steam, we enter categories only with the right insights, products and go-to-market strategies. Building power brands on the basis of emerging consumer trends with right price points and new-age packaging has been working for us,” he says.

Going The Distance

Experts say FMCG companies have to shore up investments in research and development (R&D) and marketing to younger consumers interested in trends like “clean beauty” and sustainability. “Many D2C brands emphasise clean ingredients and eco-friendly or no-harm practices, which are not the selling points of most legacy brands. Taking a ‘portfolio approach’ allows larger FMCG companies to address evolving market needs without diluting each brand’s core strengths,” says Dutta.

While companies like HUL have invested in nano factories for digital-first products, experts say FMCG companies have to manufacture at scale for better cost economics and localise their offerings. “In personal care, companies still try to do a broad brush pan India. They need to be aware of regional nuances to make changes in products and supply chain to make the right SKU available in the right region. All of this requires a deep commitment of resources. [However,] there is a realisation that if you don’t invest in India, where else will you invest?” says Ramanathan.

D2C brands also have an edge in knowing what the market wants as they have access to huge consumer data. Large FMCG companies have built multi-tiered distribution channels over decades. Dutta says this puts them at a significant distance from consumers. “Creating or acquiring D2C businesses allows these companies to interact directly with consumers and get faster insights about preferences and behaviours which can help them create better product development and marketing strategies,” he says.

Meanwhile, FMCG players believe their experience in building brands and scaling them up will help them in the long term. Emami’s Agarwal says only players who build a strong, differentiated proposition and offer good quality will sustain. “Even earlier, it was not easy to build brands or launch successful products. You can get some sales by burning money. But building brands has become difficult because there’s so much clutter. There are thousands of brands fighting for the attention of consumers,” he says.