Direct To Consumer Challenge

A GOOGLE SEARCH for anti-acne solutions in India throws up at least 100 brands from Minimalist, Derma Co and Foxtale to Plum Goodness, Kaya and Juicy Chemistry. A couple of decades ago, the only brand that specifically removed acne was perhaps Reckitt Benckiser’s Clearasil.

Not just acne. Today’s consumer is spoilt for choice with brands that address specific concerns such as pigmentation and under-eye circles. And these brands have enough takers, thanks to emergence of a plethora of start-up direct-to-consumer (DTC) brands that are expected to take the beauty and personal care industry to $30 billion by 2027.

The grass, however, isn’t all that green. A recent survey by MMS India and Publicis Groupe shows that 80% DTC brands are yet to become profitable; 63% are nowhere near profitability. Most are in beauty and personal care category. What ails the industry? “The beauty and personal care market has got cluttered. Differentiation has been washed away,” says Radhika Ghai Aggarwal, founder, Kindlife. The former Shopclues co-founder, who recently launched a beauty brands aggregator platform, says the market is flooded with me-too products.

“Cosmetic brands have taken a bigger dent,” says Vivek Biyani, founder, Broadway. “I haven’t seen brands being able to build a fresh narrative in colour cosmetics. There is a deep play of international brands (in the segment) and Indian DTC colour cosmetic brands are finding it difficult to scale up,” he says.

Not too far back, DTC brands had emerged out of nowhere to give a tough time to legacy FMCG majors such as Hindustan Unilever, Reckitt Benckiser, Dabur and Emami. The tables have turned since. HUL’s portfolio of new-age brands (Acnesquad, Happy Place, etc) is among its best performing. ITC’s DTC skincare brand, Dermafique, is popular among skincare aficionados, while Emami, with investments in start-ups such as The Man Company, has been disrupting the male grooming category.

DISTRIBUTION NIGHTMARE

A me-too product strategy is backfiring but the bigger challenge for DTC brands is ensuring their products are available in mom and pop stores. Legacy players have an edge here with their distribution might. Be it Acnesquad, Dermafique or The Man Company, all these are available in general retail, making them more accessible. Critics who wrote off general trade during the pandemic have been proved wrong. Start-up DTC brands are finding it beyond their means to follow a strong physical distribution strategy. “A start-up needs distribution before the incumbent gets innovation. In this race, the incumbent has got innovation before the start-up has got distribution. DTC players have realised that brick and mortar distribution is difficult. The likes of HUL and P&G learnt the innovation game between 2020-2022 much faster than DTC companies learnt to build scale through general trade-led distribution,” says Angshuman Bhattacharya, partner and national leader (consumer products and retail), EY.

Being omnichannel is extremely important, says Kindlife’s Aggarwal. “Consumers want to see products on shelves. Even quick commerce is dependent on offline as orders are fulfilled by local stores. Consumers may still buy online but presence in general and modern trade is of utmost importance.” DTC beauty brands such as Mamaearth, Sugar and Minimalist are doing a good job of physical distribution but have miles to go to reach the level of the legacy brands.

EY’s Bhattacharya says it is easy to launch a DTC brand. However, running a physical business needs a different mindset. “A digital business involves a centralised thought process where if I have a good product, I run some schemes, put it in right places, say five-six platforms, and sales happen. Offline is decentralised. It’s about going to 50-60 cities and making sure salesmen are visiting outlets, product is well merchandised and packaging is visible on shelves. It is not working out for DTC companies at the pace at which it is expected to,” says Bhattacharya.

ADVANTAGE LEGACY

The CEO of an FMCG firm says most DTC brands have taken a superficial approach to brand building. “Brands are not built in a year, they take generations. You can’t say I am going to spend ₹100 crore on performance marketing, buy audience and make revenue of ₹400 crore. Old-fashioned marketing, focus on product-market fit, all those principles still stand,” he says.

For Kolkata-headquartered Emami, ecommerce may contribute just 7-8% to revenue but data from ecommerce and insights from DTC investments have pushed it to premiumise its mass market portfolio. “E-commerce data gives us insights into gaps in the market. It can even be an ingredient that a consumer is looking for. For instance, rice water is becoming popular for hair care. An insight like this can be used to launch hair oil or shampoo containing rice water,” says Harsha Vardhan Agarwal, chairman and MD, Emami.

To fast-track growth, Marico (which bought Just Herbs and Beardo) and Emami (The Man Company) have adopted a strategy of acquiring DTC brands. “Our strength in general and modern trade helps DTC brands, as they don’t have the wherewithal to build this kind of distribution,” says Agarwal of Emami. In contrast, HUL and ITC’s DTC beauty and personal care strategy has been largely organic.

Aggarwal of Kindlife has a contrarian view. “What has worked for larger beauty and personal care companies is their distribution and logistics might, having stores in every nook and corner of the country. However, the earlier assumption that a Levers product will always have an advantage no longer stands. If the product is not differentiated, even HUL will have issues."

DTC companies definitely need more distribution muscle for next level of growth.