India's D2C (direct-to-consumer) market is expected to touch as much as $60 billion by FY27 from about $12 billion in FY22, according to a recent report published by e-commerce enablement platform Shiprocket in collaboration with CII (The Confederation of Indian Industry) and Praxis Global Alliance.
The tailwinds for growth are many: a young working population coupled with an increased participation of women in the workforce, the biggest buyers of personal care, apparel and jewellery products are likely to boost consumption. Consumer spending is in fact estimated to reach $4 trillion by 2030. Spending on categories like food, apparel, transport and communication and personal care is expected to double by 2030.
Keeping in line with the broader consumption trends, the growth of the D2C market will also be led by few key product categories including personal care, apparel and footwear and grocery and gourmet. "D2C brands are witnessing rapid growth and scale in India; several brands have crossed ₹100 crore in revenues rapidly," analysts said in the report. That D2C brands are making a dent in the market is reflected in the fact that companies are already gearing up for public debut. While Boat has already filed for a ₹2,000 crore IPO with SEBI, Mamaearth is eyeing an IPO as early as next year. Reports indicate that the new-age beauty and personal care firm is targeting a valuation of $3 billion.
D2C brands that are typically online first are also riding on the back of increasing digital adoption, thanks to cheap data tariffs and deepening penetration of the internet. Smartphone and internet users in India are estimated to touch 1.3 million by 2030. The number of online shoppers is expected to see a steep rise, reaching about 500 million by 2030 from about 190 million in 2021. The development of the wider startup ecosystem that has created established players across payments, logistics, app building and marketing has also helped the D2C market by birthing a host of enablers, lowering entry barriers in the process. D2C brands have been able to experiment with niche ingredients which were ignored by legacy brands, say analysts. "If you think about it, everything, whether food or cars, has been globally innovated and appropriated for India. Domestic D2C brands have Indianised products. That is why D2C is here to stay," Vivek Gupta, co-founder at Licious, had told Fortune India earlier.
The House of Brands approach is helping D2C brands scale up faster, analysts said in the report. The House of Brands is a strategy wherein companies either acquire other small to mid-sized D2C brands or build their own brands, thereby widening their basket of product portfolio. At times, firms deploy a mix of both models. The idea is to provide consumers with an array of propositions and get a larger share of the consumer wallet. While a brand like Mamaearth's strategy is to focus more on build rather than buy, Good Glamm Group has spent more on acquisitions. The Group spent nearly ₹2,000 crore on acquisitions last year. When there is no dearth of sectoral capital, it becomes easier to chart growth trajectories. Funding for D2C brands hit $2 billion in 2021 across 105 deals.
The personal care D2C segment is estimated to touch $7 billion by FY27 from $2 billion in FY22 while analysts are betting on the grocery and gourmet market to touch $25 billion by FY27 from $4 billion in FY22. "Natural, fresh and transparent product offering with subscription and customisation models helped D2C brands in gaining traction," say analysts. The apparel and footwear D2C segment is likely to touch $14 billion by FY27 from about $3 billion in FY22.
One of the challenges for the D2C players will however be to hold on to customer retention and loyalty. "Given the crowded space, customers will move towards product loyalty from brand loyalty resulting in reduced lifetime value of customer and high churn rate," say analysts.