Updated: Mar 4
“Who would’ve thought it!”
This is the one recurring sentiment that has been running through all our minds when we look back at the year that was.
2020. A year that will surely go down in the history books. Never before has the entire world been impacted by one single event of such catastrophic proportions. Nor has the world ever been more closely united than it is now, as it races against time to build and distribute a vaccine. The COVID pandemic has completely changed the way we live, work and do business.
A lot has been said about how people have learned to cope, adapt and survive. So have businesses. And we’ve been lucky to have had a ringside view. As we wind down the year 2020, we take a look at the direct-to-consumer (D2C) space and the trends that defined it.
1. Shop to doorstep, D2C comes into its own
With increased internet penetration, access to cheap smartphones and affordable data plans, India has been seeing a steady digital transformation over the last few years. This year brought about a seismic shift – one in consumer behaviour. With the pandemic resulting in lockdowns, people turned to online to buy everything, from their daily essentials to gifts for loved ones. India today has an estimated 90 million online shoppers, many of them first timers.
Marketplaces saw phenomenal growth, with Amazon reporting over 4,000 ‘crorepati’ sellers (sales surpassing INR 1 crore or $135,000) on its platform in 2020. Brands, while recognizing this opportunity, also saw the challenges and constraints of marketplaces – this was the evolution of the direct-to-consumer model. In the early days, though, before they started their online store, they experimented with everything – Whatsapp-based selling, order via google forms, even stores on wheels taking their products to the apartment complexes.
As brands scrambled to set up their online stores, Shopify became a household name in India. Elsewhere, Shopify a giant in the D2C space saw some mind boggling numbers – sales of $5.1 billion from just the Black Friday/Cyber Monday weekend sales. Meanwhile, back home in India, brands on the Shoptimize eCommerce platform saw 6 million shoppers, and a whopping 182% growth in revenues during the Diwali festive sales month this year. Brand eCommerce or D2C eCommerce, call it what you will, had truly come into its own.
The pandemic and lockdown brought about a complete change in lifestyle. As people learnt to adapt to a new way of life, their needs changed too. Suddenly there was a demand for an entirely new category of products and companies pivoted to leverage this new demand. Apparel companies shifted to making masks and zoom friendly, comfortable, work from home clothes. CPG companies moved to selling sanitizers, even as health and personal care companies raced to bring out immunity boosters. As people stopped going out to eat, there was a huge spike in demand for ready-to-eat foods. And as they settled into this new way of life, they started experimenting more at home. Italian pastas, Asian curries and Middle Eastern dips were no longer an exotic, unattainable goal and the pandemic unleashed the baker in everyone. Manufacturers and retailers saw a huge demand for everything from easy to assemble and ready to cook, to exotic condiments, spices and sauces.
3. Large brands shift gears
Most large, traditional, offline brands have over the last few years dabbled in eCommerce, mostly through marketplaces. With online contributing as little as 5% of their overall sales, it had not really seen much interest or investment. But with offline shopping completely tanking this year, brands had no choice but to shift gears to D2C.
Many brands approached their own brand or D2C eCommerce store a little cautiously, keeping modest targets for themselves. “We thought that if our online store managed to get us the sales equivalent of one offline store, it would be a good start” said a well-known food brand with its own physical stores and a loyal customer base in the West. A sentiment echoed by many others, as COVID put a stop to many of their physical store expansion plans.
Others, especially in the home appliances and consumer durables sector, were more aggressive in their game.
With the increased demand for products such as dishwashers, washing machines and vacuum cleaners, one leading brand reported a 400% increase in revenues post lock down. What’s interesting though is the momentous shift in strategy, driven top down, that started happening behind the scenes - production, supply chain, branding and marketing – all now focused towards the D2C eCommerce channel. Brands began integrating their D2C store with their inventory in warehouses across the country, resulting in efficient order fulfilment and local distribution, thereby saving significant operational cost and time. For traditional brands, this sort of digital transformation has been phenomenal.
4. The rise of the digital first brands
A recent Avendus report that talks about the rise of the digital first D2C brands in India estimates that it will become a $100 billion addressable market by 2025. The year 2020 was the tipping point. With a strong focus on their brand identity and unique value proposition, and access to consumer data and insights, these brands have managed to build a strong customer base. With better operational efficiencies and an economically viable business model, these digital first brands have been able to move quickly from testing the market to launching the product in record time. With their agility and a loyal customer following, they are giving the traditional brands a run for their money.
5. Out with the generic, in with the niche
With access to the internet and information, the average consumer has become more aware. Having spent a lot of time researching and educating themselves, they have become more discerning in their purchases, leading to the rise of the “niche”. This was especially evident in the beauty and personal care sector. The last two years have seen a big boom in skincare and cosmetics, and COVID merely accelerated this. The interesting trend was that even as generic brands were hit, niche segments emerged. For example, people were more conscious of the benefits of skin routines and brands that were certified by dermatologists saw a spike in sales. The socially conscious as well as religious and ethically inclined drove the growth of vegan and cruelty free cosmetics. Many new brands emerged whose whole identity was built on unique concoctions – from niche ingredients like caffeine, to super ingredients like ginseng, to the age old Ayurveda. Almost all of them are digital first brands.
6. Data driven insights become growth drivers
As the average consumer became more savvy, he began looking for more unique and one of a kind shopping experiences. And for the first time, brands were able to offer it to them on their D2C eCommerce store. Technology, data and analytics made it possible for brands to capture shoppers’ interests and buying preferences. Depending upon their demographics, location, products they searched for and other interests, brands were able to offer personalized recommendations and experiences to shoppers. Soon enough, brands saw their conversion rates increase and more importantly, saw their repeat business grow. This kind of advanced insights, segmentation and personalization, built using Machine Learning and Artificial Intelligence, became accessible to even the smallest of brands.
7. Ad spends on the rise
As brands began to see the fall in offline and the uptick in online sales, they began diverting 60-80% of their marketing budgets to online. According to Rajat Rastogi of Haldirams, “We are planning to shift major spends of our offline marketing budget to online marketing.” In general, online ad spends saw a 6x increase from the previous year, with improved ROAS and increased sales.
8. Democratization of deliveries
Consumer facing brands have traditionally relied upon their extensive distribution and retail network to get their products to the consumer. When it came to direct-to-consumer, where consumers bought from the brand website and the brand delivered directly to the consumer, only the large brands had the luxury of reach. The economics of supporting logistics was out of the grasp of smaller brands. This was one reason why smaller brands preferred marketplaces and were reluctant to run their own D2C eCommerce store.
This year, one of the sectors that has seen exponential growth in logistics. With an increasing network and reach, technology enabled infrastructure, and integrations with eCommerce platforms, up and coming logistics partners have made fulfilment possible for D2C brands of all sizes. Hyperlocal deliveries, rural pincodes, and international shipping (in fact, international sales accounted for almost 30% of food category sales during the festive season) – all of this was possible. As was the ability to offer shipping rate calculators and real time tracking on their D2C store. Competitive pricing made these solutions easily affordable and within the reach of every brand.
9. Buy now, pay later
The last few years have seen the increased adoption of digital payments, triggered first by the government’s demonetization move in 2016. This year, with COVID and safety concerns around the use of physical currency, these contactless payments have seen a significant growth. Cards, digital wallets and bank transfers together account for almost 80% of eCommerce transactions today. The big game-changer, though, has been the emergence of flexible payment options. With COVID also impacting people’s income and affordability, the big trend that has emerged is the flurry of payment options such as “Buy now, pay later”, “No-cost EMI”, “Zero interest EMI” etc. With banks and NBFCs rushing to tie up with manufacturers and merchants, and eCommerce platforms enabling integrations, brands have been able to offer these options on their standalone D2C eCommerce stores.
10. VC funding – A mixed bag
Investments in D2C brands in India declined by 69% from the previous year. This, however, was more a result of the general COVID impact than any decline in interest in the space. With $117.6 million invested till Q3 2020, brands across early, growth and late stages saw investments. This trend was visible across sectors, for example, brands such as boAt (consumer electronics), Sugar Cosmetics (personal care), Mamaearth (baby care), Melorra (jewelry), Furlenco (furniture). The enablers of D2C also saw a lot of interest with companies like Pickrr and Shiprocket (logistics), Pine Labs, Navi Technologies (fintech), Shoptimize (D2C eCommerce platform) attracting investments.
According to the Avendus report, “We expect high levels of funding activity in this space, increasing with passage of time, as more successful D2C outcomes will validate the hypothesis for newer capital deployment.”
Looking ahead - Predictions for 2021
As we look ahead at 2021, here are the key trends that we think will emerge.
Many new, digital first, D2C brands will emerge. Large brands too will launch digital first brands.
D2C brands who don’t leverage insights from data to drive traffic, engagement and conversions, will see their growth stagnate.
There will be more enablers in the market, from website technology and marketing technology to logistics and supply chain providers and fintech companies.
Rising aspirations and increased purchasing power will drive growth in the tier 2 and tier 3, semi urban and rural markets.
Technology and innovation will be key to success. AI-enabled decision-making. Advanced forecasting and recommendations. Localized content and native regional language interfaces. Conversational commerce and social commerce. The list of what is to come is endless.