D2C Startups The Next Big Opportunity

The D2C market is burgeoning enormously in India and around the world. There are over 1.35 billion potential customers from diverse cultures and regions in a market like India. As per a report by KPMG, India currently has more than 800 D2C brands, with the area being roughly worth $44.6B in 2021 and projected to reach $100B by 2025. The interest in these online-first brands has been increasing continuously. 

Estimates indicate that there are nearly 600 prominent D2C brands in India today, a number that is expected to increase sharply in the years ahead. The D2C sales channel is also growing in sync and is expected to reach $100 billion by the same year. Additionally, the number of online shoppers is estimated to go up from 75 million in 2017 to over 220 million in 2025. "One of the biggest factors for the growth of D2C brands in India is rapid digitization. This combined with low penetration of organized retail in India, access to innovative products at affordable prices, and delivery of great quality products to the remotest corner of India are catapulting this segment ahead." Saroja Yeramilli, Co-Founder & CEO, Melorra.

The major factor that will separate D2C winners from others is their omnichannel approach. Per capita disposable income is rapidly rising and is currently at $2100 per annum. Women’s participation in the workforce is growing and is set to reach 470 million in India by 2030. 

The last few years have been incredibly active for the D2C startup ecosystem, being among the top 5 funded eCommerce subsectors in 2021. So far, this space has raised a whopping 2.04 BN in funds since 2014 with categories like fashion, home decor and consumer electronics leading the charge. ''As the industry begins to grow astronomically, with businesses across verticals realising the significance of efficient, seamless logistics and fulfillment services, investments are expected to pour in to fuel innovations," adds Saahil Goel, Co-Founder & CEO, Shiprocket. 

The D2C Revolution 

D2C, as per industry estimates, will grow 10-15 times more in 2022 followed by a 9-10 percent growth in 2023 and a 10-11 percent growth in 2024. As far as investment flow is concerned, half a billion can be raised over in 12-18 months by FMCG in India.  

Commenting on this surge, Tarun Sharma, Co-Founder and CEO, mCaffeine says "India is definitely making a mark with the tremendous D2C disruption. With pandemic accelerating the digital transformation and triggering the D2C / ecommerce turning point, Indian start-ups have been given a wider field to grow their customer base through digital penetration followed by offering a diverse yet solution based / effective product portfolio."  

He adds that the market also eases the process to understand consumers’ wants, needs and the feedback within a short span of time.

The sector registered this massive growth due to factors like increasing first-time internet users and evolving consumers’ expectations. These factors have changed the game as new-age digital-first brands emerge. During the pandemic when most sectors witnessed a slump, the D2C industry grew by leaps and bounds.  

This evolution of perception and behaviour has given rise to the new-age customer who is product savvy, quality-conscious and is aware as well as willing to research, compare product material and technology in order to make informed decisions. "Given the rise in cases again and the consumer shift to online, D2C is here to stay. In fact, 2022 will see D2C becoming the mainstay for even more consumers," mentions Pradeep Krishnakumar, Co-Founder and COO, Zouk.   

It has prompted customers to develop new habits, swift adoption of digital channels and accelerating social and online purchasing trends that have been on the increase for years.  

The rise of digital platforms to enable brands to reach customers directly has built the foundation for long-term D2C brand growth. "The online-offline split will stabilise in the second half of 2022. While the online proportion has definitely increased as compared to pre-Covid levels, offline channels will again become important so that customers can be addressed at all points of sale," says Sneh Jain, Co-Founder and MD, The Baker's Dozen. 

New-Age Customers 

The D2C industry is still evolving, providing brands with multiple opportunities to experiment with the growing market and consumer expectations. The new age expectation solely lies in using a product/following a brand that gives them an experience to remember, stick around and be proud of. A large number of customer base today expects brands to be conscious and cruelty-free while giving seamless experience wrapped in an innovative manner.  

Brands have to develop purely digital-first, mobile-first ways to make ‘Gen Z’ experience their products. "Reaching out to the younger and digitally connected audience requires a different approach that focuses on capturing their attention within the first 8 seconds. The younger population of our country is looking for brands who engage in open conversations and are able to create a sense of interest in their minds," says Aarti Gill, Co-founder & CEO of OZiva. 

A Capgemini Research Institute report, titled ‘What Matters to Today’s Consumer’ has revealed that nearly 68 per cent of Gen Z and 58 per cent of millennials prefer buying directly from brands citing better purchase experience as the primary factor. With last-mile delivery and fulfilment services, as well as loyalty and reward programs becoming more important than in-store experiences, the key determining factor for the D2C ecosystem will be pegged on the enhancement of the brand-customer relationship.   

Potential Market: Tier 2 And Tier 3 Cities 

From fashion and consumer electronics to beauty and lifestyle, new-age digital-first brands have achieved a tremendous uptick in recent years and are now competing with legacy brands via the direct-to-customer (D2C) approach. These brands are focusing on a rising segment of internet buyers across markets in Tier 2/3 cities or metros, engaging with them directly to identify gaps and develop premium products. It is expected that 2022 will be the year to discover these large markets in Tier-2 and Tier-3 cities. 

As indicated by Unicommerce’s ‘Arising E-Commerce Section Report’, D2C brands are relying on venturing into Tier 2 and Tier 3 cities and are hence expected to open up numerous warehouses to meet this demand. 

For the D2C ecosystem, "Brands that are able to offer the most engaging customer experience, with products that have a proven value addition and are unwavering in their delivery of both will be the ultimate deciding factor of success in the future," says Priyanka Salot, Co-Founder, The Sleep Company.

As tech-first solutions continue to be highly favored by Indians, traditional retailers and businesses are shifting towards the D2C model and technology. 2019-2021 was about the need to grow engagement, attract customers etc., 2022 will primarily be concerned with retention and minimization of losing customers making it one of the most crucial years for all the D2C brands. "With AI and ML giving real-time user data and helping in understanding the needs of their target group, D2C brands must provide personalized attention to the users using chatbots and virtual assistance that will eventually help in strengthening their relationship thereby grabbing their maximum attention." Manthan Dhameliya, Founder, Kreeva