How Can FMCG Companies Overcome the D2C Hurdles

As direct to consumer (D2C) brands start to become sizable, many traditional FMCG companies are eyeing the space and taking the digital way: Either the incumbent players acquire existing D2C brands to enter new niches that these brands were present in or they invest in them. However, there are challenges abound as traditional FMCG companies have to navigate hurdles such as marketing costs, clear value proposition, return management, best in class customer management, to name a few.

Brands like Marico, ITC, Wipro Consumer Care & Lighting, among others, are very active in this space. Traditional FMCG companies are entering the digital space either by launching their own D2C brands or foraying into e-commerce with their existing brands. Almost all listed companies are exerting efforts to improve their e-commerce mix. ITC, a conglomerate with a diversified presence across industries, has invested in D2C brands such as Mother Sparsh, Mylo and recently in YogaBar. Wipro Consumer Care – Ventures is the venture capital arm of Wipro Consumer Care & Lighting. Since then it has done 10 investments, including MyGlamm (BPC), Ustraa (male grooming), Power Gummies (vitamin supplements), The Ayurveda Co (Ayurveda based personal care), Soulflower (natural personal care), Gynoveda (women’s health). Marico has made strategic investments in companies such as Beardo and Just Herbs, and last year, we acquired a majority stake in True Elements.

Dabur India has soft-launched its own D2C channel called DaburShop. DaburShop has currently been launched with a limited assortment of products and the company intends to use DaburShop as a platform to launch special digitally curated or digital first brands and products from the House of Dabur. ITC has launched its own D2C platform ITC store, through which it is operational across 20,000 pin codes. FMCG major Nestle India launched its own D2C platform, foraying into the fast-growing online channel.

The D2C e-commerce is when the manufacturer/producer sells its products directly to consumers from their web store. The D2C websites/ platforms, marketplace operations, are various means to build the fundamental capabilities which has its own pros and cons in terms of investment (time & money), control (data & operations), scale-up time, etc.

Key challenges remain to deliver best in class consumer experiences in terms of UI/UX interface (AR, VR as well), payment options, delivery and returns SLAs. “The opportunity to build a sustainable business lies in the companies’ ability to get the pricing right and garner higher average order value, reduce cost of goods sold (COGS) percentage, build a cost-effective supply chain for omnichannel and realize the right return on (digital) marketing,’ said Ravi Kapoor, partner and leader, Retail & Consumer, PwC India.

While the D2C space offers FMCG brands great opportunities to build their own customer base, it also requires significant investment in marketing and advertising to drive consumers to these channels. The space also faces challenges in creating a clear value proposition compared to offline or marketplace channels. Handling returns is a challenge in D2C as there is a high cost incurred on logistics while it is outbound for the consumer and there is then an additional cost of it being returned by the consumer. Similarly, providing exceptional customer experience is a challenge for D2C businesses, as it requires catering to unique needs of each individual consumer through digital channels. However, corporates have found their own ways of dealing with it. “Corporates have leveraged their brand name and targeted activations to drive customers on their D2C channel. They have curated their product portfolio for D2C – focussed on large pack size and premium products. Some corporates have also taken inorganic route and acquired relevant D2C brands, these measures help the companies to overcome the immediate bottlenecks in the space,” said Anand Ramanathan, partner, Deloitte India.

Developing a D2C website also helps FMCG companies overcome some of the existing challenges. A D2C website offers advantages such as greater control over branding and messaging, real time access to valuable customer data such as customer preferences, purchase history and quicker feedback loops. “It also provides Innovation opportunities such as hyper-personalization and an overall better customer experience which builds greater customer loyalty. A D2C website can be a strategic move for Indian FMCG companies looking to grow and compete in a dynamic market,” Ramanathan added.

Additionally, the supply side revolution of better digital and physical infrastructure is fueling brand adoption and increasing comfort with purchases on digital channels. It helps companies build better connections in regions beyond urban areas and create a preferred consumer experience. “Consumers in Tier II and Tier III are value conscious and do not mind the incremental effort to shop on brand D2C sites to secure better deals. The other advantages of consumer connect continue to be relevant in these markets as well.”

The Covid-19 pandemic has accelerated digitization and Tier-II/ III cities are the strongest force behind this thrust in the digital economy. “Tier II cities will account for approximately 80 per cent of the online shoppers between 2020 and 2030. Brands are keen to explore the untapped user base present in Tier II-plus cities. However, retailers and distributors may struggle to keep premium products in stock due to limited pockets of demand. D2C channel enables corporates to service the end consumer in these geographies,” explained Ramanathan.