Will D2C brands like Mama earth, The Man Company kill Marico, Emami?

Will D2C brands kill FMCG companies

by 5paisa Research Team Last Updated: 2022-05-23T13:11:34+05:30

Unless you live under a rock, you must have noticed that D2C brands like Mama earth, Beardo, Wow Skin have taken the personal care market by storm. With half of our population under 25, increased use of social media, the rise of Instagram influencers, D2C brands are currently having their moment.

These D2C brands have gone too soon from people’s Instagram feed to their bathroom shelves. They have everything for Indian customers be it Retinol solution or Ayurvedic Face Wash 

This D2C party is just getting started as according to a report by HDFC securities, D2C products currently account for just 3% of India’s total FMCG revenue—pegged at $55 billion in the year ended March 2021. But that could rise to 8-10% in the next few years.

Any guesses, who would be affected the most with the boom of D2C companies? Our old school FMCG companies!

While these D2C brands are growing their topline by 400% to 500%, these FMCG companies are struggling to manage their personal care segment, For instance HUL, India’s largest FMCG company grew by 7% between 2016 to 2021. Personal care is its largest segment, while it contributes only 40% to its revenue.

Rise of D2C brands

If we talk about Emami, its topline has been stagnant in the same period as it grew only by 2%.

While HUL is a behemoth in the FMCG sector and it may be immune to the D2C boom due to its vast line of products, smaller companies like Marico and Emami need to pull up their socks in order to compete.

Why Compete when you can buy?

Now, you would ask, why these companies cannot operate like these D2C brands, they are well funded, have better R&D team, better resources, what is holding them back from crushing these small players?

Well, for starters, Their huge size is the problem. So, there is a huge difference in how both these industries operate, while a D2C brand can launch 100 products in a month and can have 1000s of SKUs, these brands have to stick with what works for all. 

Here, the problem is the sales channel for these FMCG companies are kirana wala’s and supermarkets and to launch a particular product, they have to spend crores of rupees to have the required stock and market it.

While, all these D2C brands have to do is manufacture and market it on social media.

Another major problem is it takes months for FMCG companies to figure out which product is working and which is not, as they operate in a lot of different layers consisting of distributors, wholesalers, retailers.  

In case D2C brands, they get this information within a month or so from their website statistics, if there are repeat purchases for a product or not. And this feedback helps them in deciding if they have to manufacture a product or not.

So the sheer nature of operations is a hurdle for these FMCG companies to compete with D2C brands.

So, Is this a Death bell for companies like Marico and Emami?

Probably not, These companies have invested heavily in these D2C brands, Marico (the company which owns brands like Parachute and Saffola oil) has acquired D2C brands like Beardo, Just herbs, Coco Soul and Pure sense.

Emami, known for Boroplus, has acquired stakes in TruNativ and The Man company.

These companies are willing to ride on the D2C boom, through these acquisitions.

D2C brands acquired by FMCG companies

Acquisitions of these brands is for the good, as manufacturing and launching 1000s of SKUs comes at the cost of not just money but a lot of reputational risk as well. 

The whole personal care market is undergoing a major change. The pandemic was just a cherry on the cake, FMCG companies have to look beyond kirana stores to boost their sales, Acquisition of D2C companies is just one way of that.

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