Direct to consumer (D2C) - a whole lot of people, brands & companies have done this that is cut the middleman and go to the consumer directly.
A traditional retailer would manufacture the product, sell it to a wholesaler, who would then have to rope-in a distributor, and finally get their products at a retail store from where the consumer would buy.
However, the D2C e-commerce model quite literally "cuts out" the middleman. It starts with having the product -- advertising it on the internet via social media, other platforms and selling to the consumer directly.
So, it is the magic of the internet! Nearly two direct-to-consumer or online-only brands have raised money every week on an average since the pandemic started last year after e-commerce helped them reach people. That's about 146 firms cumulatively raising half a billion dollars since the start of 2020.
This almost equals the amount raised by them over the previous five years, according to the latest numbers by Tracxn. It took 20 years for Revlon and Lotus to reach the Rs 100 cr mark! While the internet only brands like Pepperfry etc took only 2-6 years to reach that Rs 100 crore market. That is the magic of the internet.
To talk in detail about the D2C market, CNBC-TV18 spoke to Arjun Vaidya -- Ventures Lead - India, Verlinvest. Arjun is one of the key driving forces behind Dr. Vaidya's becoming India’s largest Ayurveda brand online. It was recently acquired by the RP Sanjiv Goenka Group making it one of India’s first D2C exits.
When asked what made him think of going D2C versus the traditional route, Vaidya said, I quit my private equity job in 2016. And to call my age-old family legacy of Ayurveda, I wanted to repackage for modern consumers.
“At that time, I saw that there was a disconnect between ancient Ayurveda and modern consumers, the internet was happening, ecommerce was happening and I thought that there needed to be an opportunity to use online to bridge this gap. I started B2C before D2C was a term in 2016. When we launched our website we used to say, online first, digital-only brands, and today we are so excited to see the euphoria with D2C but at that time, it was really about convincing a consumer to buy online. So when you talked about the amount of funding, the brands reaching Rs 100 crores, it's just music to my ears for someone who started earlier to see the proliferation and the power of what's happened."
Ingredients to run a successful D2C business
Vaidya said there are three things - the first thing is you have to think digital, first. You have to think of the digital consumer, you have to think of the seamless digital experience. The second thing you have to think of is agility. The great power of D2C brand is to be able to bring products to consumers at a very quick pace. And the third and the most important thing is the seventh mantra of our philosophies at our Dr. Vaidya s was customer our reason for being. The power of D2C is to be able to listen to the customer and to be able to react to those customer insights. That are the three ingredients, which according to me, for a successful D2C business.
The D2C opportunity in India is a function of 3 things! Growing retail market, faster growth in e-commerce within that retail market & fast-growing internet users & usage!
The retail opportunity in India is huge! Almost a trillion dollars now and slated to go up to 1.7 trillion by 2025. In this, the e-commerce penetration at 4 percent, which can actually increase to 11percent, when there are more things being sold at a faster clip online, some exclusively so, more users are tempted to join.
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So the number of online shoppers stands at 100 million and is expected to grow to 350 million by 2025. What could the size be? Well, INC42 estimates it to triple from the current levels to a 100 billion dollars by 2025; that's nearly half of the total ecommerce market by 2025!
To talk about that, CNBC-TV18 also spoke to Kanwaljit Singh, the founder & managing partner - Fireside Ventures. He has been investing in the early-stage ecosystem in India for the past 17 years.
Singh had a better hit ratio at identifying D2C winners earlier than others. When asked what differentiates his gauge in these companies from others. He said, “I would not say that, we had some premonition or something very unique as a model, we just felt that there was this very exciting convergence. On one side of the millennial consumers looking for more choices, looking for more brands, and the evolution of the digital infrastructure, which allowed entrepreneurial activity, which allowed young brands to build more efficiently and with much better trajectory of growth."
So we identified probably as a thesis a lot earlier than the others. But right now, as you know, it's become a pretty hot space, said Singh
For more interesting conversation, watch the accompanying video