Why is ABRFL keen on the D2C route?

In recent years, many large corporations have acquired a healthy stake in D2C brands. Notable being
TCP – Soulfull, Marico – Beardo, Emami in rival The Man Company, and ITC – personal and baby care
Mother Sparsh. D2C is primarily seen in the light of consumer goods. But ABFRL & RRL have been on
a spending spree to acquire new age digital first brands to add to their fashion and lifestyle segment.
Why this craze? It because they do not want to miss out on what is no longer a passing fad or is it
because of fear. Let’s find out.

If we analyse the FMCG industry, HUL is the market leader in India with a market cap of Rs. 5.25 lakh
crore. They run a 50,000 Cr business every year with a 10% annual growth rate, essentially adding
5,000 Cr each year into the business. Compare it with likes of Mama Earth, WOW Skincare who add
around 300-400 Cr each year. The amount is insignificant compared to what HUL is adding.
Behemoths like HUL and P&G cater to mass market, D2C doesn’t fit into their portfolio. Now, they do
have brands who cater to niches but given their size and operating modus operandi, by very nature
they crave for scale. Hence the blindspots, when it comes to anticipating these shifts or maybe they
are ignorant and do not care. Most of them are also trying to build their own online portals, trying to
venture into D2C, however I think there isn’t much scope there. In an average Indian consumer’s
basket, 75% is made of up foods, in which 2/3 rd is unbranded items like rice and pulses. Home care
and personal care makes up the remaining 25%. So essentially, likes of HUL and P&G are competing
only for 50% share of consumers wallet.

Coming to the fashion & lifestyle industry, consumers usually think of offline and online retail
differently. A consumer who goes to Pantaloons for offline shopping won’t consider visiting its
website to buy something and would prefer checking sites like Myntra, Ajio, Amazon or Flipkart.
Herein lies the problem, ABRFL sells through 27,000 MBOs, 3,000 EBOs and has 16 different websites
up for its brands. But if someone wants to buy Allen Solly, there is a higher chance that they would
prefer marketplaces. It will be safe to assume that majority of the e-comm sales of ABRFL would
come from the 10 marketplaces it is listed on. Changing consumers habits is though and it will be
hard for ABRFL to make consumers switch from these marketplaces to its own website, especially
when the latter offers a great user experience.

Now we all know the consumer’s stickiness for a brand they love. Be it beverages, fashion, or
consumer goods they will mostly purchase from the brands website if they have discovered the
brand online and like it. Most marketplaces also do not have entire offerings of the brand, hence
they are better placed to get users purchase from their own website. Therefore, the need to build
digital first brands, be it building it from the scratch or acquiring those with potential.