Inside India

D2C and the brand opportunity in India

I recently re-read an interview from a few months ago with Kunal Shah, founder of CRED (a consumer lending unicorn fintech). He has a very interesting take on the Indian consumer’s attitude towards brands. In his opinion, consumer trust in India is very hard to obtain - harder that in many other markets- because of the lack of institutions (laws, agencies, etc) that can offer formal recourse and compensation to a bad customer experience. And, more interestingly, this leads to that consumer trust becoming either hyper-local (you trust your family and extended group only) or very concentrated (you trust Tata and Reliance and Shah Ruh Kahn and MS Dhoni only). That second factor has a huge impact in the consumer markets in India. For instance, product endorsement is incredibly concentrated, with the same few Bollywood and cricket celebrities endorsing an inordinate number of brands. And for the same reason, large traditional conglomerates (Bajaj, Tata, Godrej, etc) are able to sell anything from cars to salt to insurance policies to clothes. The product matters less than the brand.


On the other hand, there seems to be a powerful trend of premiumisation in Indian consumer markets. Premiumisation refers to the consumer’s large-scale conversion from unbranded versions of products like pulses, spices, clothing, beverages, etc (what is know as the “disorganised” market) to a branded version, as they see their income grow. It is a reality that the number of consumers in India and their purchasing power are growing very fast. This past year there were an estimated 33 million additional Indians joining the consumer middle class, a figure slightly above China’s. Moreover, the average consumer spending per capita is expected to more than double by 2030. This is a lot of new consumers, all hungry for branded products. And in a country where trust is so concentrated, premiumisation should provide an absolute boon to the traditional brands, which would benefit enormously just by “being there”. That is indeed the case, with the current growth of many of those businesses being largely driven by such momentum.


However, another very interesting phenomenon is occurring in parallel. The rise of new brands, most of them using a direct-to-consumer (D2C) model and capturing the hearts and the wallets of a significant number of users. Start-ups like Mamaearth and Firstcry in personal care, Licious and ID Fresh Food in food, GoodGlamm and Sugar in cosmetics, and Boat and Wakefit in lifestyle have experienced explosive growth paired with a fierce customer loyalty, with a good number of them achieving unicorn-level valuations. D2C brands in India generated $12 billion in revenue in 2022 alone and their market is expected to grow at a 40% annual rate to reach $60 billion in 2027. What is it about these brands that is allowing them to break through the traditional brands’ monopoly on consumer trust?

D2C success factors

I would argue that the biggest factor for D2C to gain so much trust and so fast from their target consumers is the organic nature of their development. So many of these brands have a similar story. They are not a product of a corporate’s market research or strategy, but rather an idea from someone sitting at home being dissatisfied by the way a certain product was being offered by the traditional companies. Not enough safe baby products, not enough reliable fresh food, not enough variety in cosmetics, etc, etc. So each new D2C brand was born to solve a specific problem for a usually very specific group of customers and, with the benefit of focus, did it pretty well. This is absolutely key, gaining the trust of a small homogeneous group of customers because you solve their very concrete pain point.


A second organic factor was COVID, which pushed a great number of consumers to buy from home through digital channels. This moment was a perfect fit for D2C brands, with their native direct delivery model and, most importantly, their digital closeness to the customer. For months, people’s eyes and minds were fully on the screen and small new brands took advantage. Once that period ended, people’s attention went somewhere else but the trust in those brands which had served them well in the pandemic remained.


A third aspect of D2C brands’ ability to gain consumer trust is the innate customer centricity in all their operations. They just seem to have an additional gear when it comes to service and execution. As companies that outsource most of their operations (procurement, manufacturing, order fulfillment, etc), lack experience and operate at a sub-optimal scale, they could easily be messing up on a frequent basis. And yet they do not. For instance, I regularly buy chicken from Licious and I still have not had to return a single piece. The delivery comes in a couple of hours like a clock. Payment is seamless. And any customer concern is rapidly resolved. Part of this success again is their focused nature and their customer orientation. And part is also that the ecosystem they rely on (home delivery providers, B2B procurement, payments and e-commerce software, etc) has become hyper-reliable and efficient. All of this builds trust.

Are they a threat to traditional brands?

Both types of brands (traditional and D2C) are bound to grow fast in the coming years in India thanks to the market momentum. But should traditional brands worry about substitution down the line? I think the answer is yes and no.


“D2C is something different, much more focused, so it does not represent a real threat”. There is some truth to this. We are currently witnessing the pains of D2C brands to grow outside their initial cohorts. If focus is their strength, growth obviously becomes harder and harder as their saturate their relatively constrained TAMs (in India there are still not so many online consumers with regular and significant spending). This would still leave hundreds of millions of people as the exclusive space for traditional brands to grow through the premiumisation trend.


Nothing wrong with that, except that the segments that D2C brands naturally compete in are also the more affluent ones. So while D2C brands might not be a serious threat to traditional players’ growth, they might be to their profitability. I doubt traditional brands want to willingly abandon the segments with least price sensitivity, so a fight must be had. And that fight in the more affluent part of the market will be won cohort by cohort, as customers there require customisation and a value proposition that fits them like a glove. In a sense, D2C brands, which are born precisely on that premise, have already tilted the playing field to their advantage.