Key D2C Trends In 2022 According to an Avendus report, India's D2C business is going to be worth $100 billion by 2025

D2C (direct-to-consumer) was the new buzzword in India's startup ecosystem IN 2020. In 2021, it became a household name. And, this year too, the segment has continued to be very promising, despite the unstable market conditions. While companies such as Mamaearth reached a 100 crore revenue in 2022, many others like SUGAR Cosmetics gained a strong foothold in the offline world. We also saw a rising interest in the 'house of brands' and Thrasio models that made scaling up easier for several smaller D2C brands.

According to a report, D2C brands in India are growing at a Compound Annual Growth Rate (CAGR) of 40 per cent and the combined revenue of D2C brands is expected to hit $60 billion by FY27 from $12 billion in FY22.

"The space has compressed concerns from 2021 and continues to enjoy growth led by increased consumption in the market. This keeps our perspective on the segment bullish," said Anurag Ramdasan, Partner, 3one4 Capital.

According to an Avendus report, India's D2C business is going to be worth $100 billion by 2025. The increased smartphone penetration and use of digital continue to help players to reach consumers across the country. Further, with the success of many of the early D2C startups in India, the ecosystem is also now able to attract quality talent, technology partners and capital.

"Several D2C brands in the RPSG Capital portfolio, such as mCaffeine, Plix, The Souled Store have been posting very strong growth numbers as well with 90 per cent of the sales coming online. So, the overall D2C ecosystem is thriving and expected to continue with the growth trajectory in 2023 and beyond," said Abhishek Goenka, head and chief investment officer, RPSG Capital Ventures.

Today, there is a very healthy pipeline of digital-first consumer brands that are witnessing tremendous growth. Dipanjan Basu, partner, Fireside Ventures, which has invested in 30+ D2C consumer brands claims, "We are witnessing healthy growth across the portfolio several of our companies have crossed INR 100 crore+ revenue run rate and several of them are nearing this mark. We are, therefore, seeing continued growth in companies that have a differentiated product/brand offering, agile in building an Omni channel GTM strategy, and are able to grow fast and efficiently. Such companies are also able to raise capital from marquee investors."

Trends that shaped 2022

2022 saw a growing emphasis on profitable unit economics, and strong business models. "This is leading to founders looking for sustainable growth instead of buying growth with increasing losses. We are witnessing a greater reliance on data and analytics to drive this growth and profitability," said Goenka.

Offline expansion has become a key focus area for many brands. "Building strong distribution offline is one of the main pillars for SUGAR's expansion plans. In tandem with that, we expect our offline presence to triple over the next two quarters," Vineeta Singh, CEO and co-founder, SUGAR Cosmetics, in an earlier interview.

Offline as a channel is also becoming more relevant quite early in a new age brand's journey and several offline distribution tech companies are solving the same. Moreover, while digital remains a great enabler and a strong kick starter for D2C brands to reach out to consumers through media as well as distribution, D2C startups are also adopting an omnichannel approach. This has helped brands to move into cities and towns beyond metros.

"Brands are using digital and e-commerce initiatives to enter the Tier II, Tier III, and Tier IV markets, and then setting up physical outlets to improve access and experience. Thus, they are able to reach out to the millennials in these cities, and cater to their aspirations that are similar to metros, but underserved previously," said Goenka.

Several of our companies now have more than 50 per cent of revenues from cities outside the top 30 cities and this is a very powerful trend that showcases the demand for democratization across India, added Basu.

We are also seeing sustainable and climate tech-focused propositions at scale which is supply chain-led. These startups are looking to integrate technologies, raw materials and ingredients that are sustainable which are being appreciated by consumers as well.

There has been an increase in the number of highly specialized, IP-driven D2C players who are here to offer more depth. "For example, Atomberg is now building fans enabled with motors that have a unique IP. You'll see similar approaches across product specifications for multiple D2C brands cropping up today, creating strong moats for D2C companies in the ecosystem," said Ramdasan.

Further, we are seeing a lot of innovation in health and wellness. Also, a segment that is fast emerging is the pet care industry. " There are more than 700 million smartphone users and the number is growing. With over 80 per cent of pin codes in India already serviceable for doorstep deliveries, there is a large market for D2C brands to continue their advantage of reaching customers directly using digital media," Goenka sums up.