Premium coffee, tea, specialty food and beauty; 2021 marked legacy brands' entry into D2C

From Dalgona coffee and single-estate tea to meal-replacement protein shakes and specialty personal care products, 2021 saw FMCG majors launch premium yet niche products - something they probably would never have done had it not been for the pandemic-driven adoption of e-commerce.

Be it ITC’s Dalgona coffee, Tata Consumer’s range of single-estate teas (1868 By Tata Tea) or Marico’s Fittify, which offers meal replacement shakes and soups, none of them would have dared to launch these products a few years ago when the concept of direct-to-consumer or serving consumers directly through their own websites was alien.

The rationale for not launching these products has always been that they are niche and unit economics would not make sense if they were sold through regular brick-and-mortar distribution chain. After all, over 80% of FMCG sales still come from ₹2 sachet of shampoo or ₹5 pack of chips or namkeen. The likes of Parle Products still believe in democratising a premium product like Hide & Seek Fills (their breakfast offering) by selling them in ₹10 packs in the general trade. The idea is to position the product both as a healthy breakfast option as well as a snack, in order to generate volumes. For, having cereal for breakfast is still a far-fetched concept in most parts of the country.

However, most FMCG companies realised they could no longer ignore the discerning Indian consumer, who is seeking specialty food or tea and coffee or even specialised skin care. The needs of these consumers were increasingly being catered to by start-ups, who started their journey as D2C-first brands. These include brands such as Vahdam and Teabox, which are into specialty teas or the likes of Sleepy Owl and Blue Tokai, which serve single- estate coffees. Similarly, personal care and beauty brands such as MyGlamm and Mamaearth, with their differentiated product portfolio, have even achieved the status of unicorn.

Sanjiv Mehta, Chairman and MD, Hindustan Unilever, during the company’s Q2FY22 results had said that the FMCG giant is building digital brands and getting ready to face not just existing competition but also new-age competitors. It has launched D2C brands such as Baby Dove, Simple, Love and Beauty. In fact, over 30% of HUL’s colour cosmetics brand, Lakme's sales have started coming from its D2C platform.

While the likes of HUL and ITC invested in building brands organically, Marico did a mix of organic and inorganic. It acquired D2C brands such as Just Herbs and Beardo in addition to launching brands such as Fittify.

E-commerce for most of these legacy companies has started contributing anywhere between 8-15% (it was barely 3%-5% in the pre-pandemic era) to their overall revenues. Though D2C is still in its infancy, all of them have aggressive growth targets. According to Kannan Sitaram, venture partner, Fireside Ventures, for legacy companies D2C is an opportunity to segment consumers. “How do I meet requirements of women between the age of 18 and 25 stepping out to work for the first time? Can I segment more finely and create brands which may not be selling in every retail outlet but are profitable in their own right? These are some of the factors that come into play in their D2C strategy.”

“D2C allows us to target consumers without scattering resources across the space. It allows us to bypass execution issues and reach the consumer in a targeted way,” said Sunil D’Souza, MD & CEO, Tata Consumer Products, in an earlier interview with Fortune India.

So, will D2C grow at the expense of the legacy companies traditional distribution network? It will not, but it is certainly poised for a decent growth as a parallel platform.