FMCG bigwigs turn to D2C lifeline as inflation bites

Kolkata: Leading consumer goods manufacturers are ramping up their direct-to-consumer (D2C) business through acquisitions and new launches to counter subdued demand and intensifying competition, buoyed by 20-25% growth of their digital-first brands.

Companies from Hindustan Unilever to Marico, Dabur, Britannia, AWL Agri Business and Emami plan to target the premium end of market with D2C brands, their chief executives told analysts in earnings calls held in the last three weeks.

The rationale for this strategic shift is clear. While FMCG firms have struggled amid high inflation and sluggish consumer income for the past 9-10 quarters, D2C segment has been booming, powered by rise of social commerce among tech-savvy consumers and influencer-driven marketing.

Hindustan Unilever's CFO Ritesh Tiwari said its digital first brands in the beauty and wellness segment is a ₹3,000-crore portfolio, growing at over 25% a year. The country's top FMCG company told analysts its digital-first strategy will target high-income consumers. It will have 'four levers' - acquisitions like it did of OZiva and Minimalist, build a new brand like Novology, launch a global Unilever brand like Simple or Love, Beauty & Planet, and extend one or more of its core brands.

Dabur's CEO Mohit Malhotra said the company is exploring acquisitions of new-age brands in wellness, food and health to plug gaps in the portfolio. He said Dabur is eyeing premium D2C brands so that margin is accretive to its base business.


Expanding Portfolio
These moves come amid sluggish urban demand. The rural market has outpaced urban areas for six consecutive quarters now, indicating a turnaround in consumption in smaller towns and villages. In the April-June quarter, rural FMCG growth reached 8.4% in volume as compared to 4.6% increase in urban areas, as per NielsenIQ data.

According to the market researcher, ecommerce is emerging as a key growth engine in urban areas, especially in the top eight metro. Southern metros are leading the ecommerce charge, with a higher share at 18.4%, compared to 15.8% in eight metros in the June quarter.

Even though ecommerce accounts for just 11–13% of FMCG value share in metros, it’s delivering more than half of the omnichannel growth, as per NielsenIQ.

Chief executives also acknowledged the stiff competition from D2C brands in categories like wellness food and health, male grooming, beauty and hair care, which has forced traditional players to rework on their portfolio.

Emami vice chairman Mohan Goenka said there is a lot of D2C competition in categories like male grooming and hair care. The company has relaunched its male grooming portfolio under a new brand, Smart and Handsome from its earlier avatar of Fair and Handsome, while its hair care portfolio Kesh King is also being relaunched this quarter.

Marico chief executive officer Saugata Gupta said the company is exploring digital-first brands in spaces like foods and personal care, with the company’s D2C brands growing at over 25%. He said some of the earlier D2C acquisitions such as Beardo and Plix have broken even, while Just Herbs and True Elements brands will get to the path of break even within the next 18 months.

“Our track-record for acquisition has been good. We now have a good playbook,” Gupta said. “We also believe that we see ourselves as a strategic investor of choice, because given that we have multiple brands, the kind of synergies, and the kind of cost and the kind of knowledge we can give and help a founder to grow his or her business is significant.”