There are several macroscopic factors involved with the growth of the D2C sector and why it has become an investment pool for investors. Two major factors are the increased internet penetration in Tier-II, and Tier-III cities and the entry of many SaaS-based tech firms helping in the growth of the D2C brands. Consequently, the D2C sector has become one of the most attractive sectors for investment from the investors – in the FY 2019-2020 the sector saw funding of $187 million, $230 million in 2020-2021, and $543 million in 2021-2022, as per Tracxn report. 

If we especially look at the top brands, boAt, Mamaearth, Wow Skin Science, MCaffeine, and Wakefit have been profitable from a very early stage. Their P&L shows a definite RoI and growth path. From wellness, fashion, and personal care to audio and food, the pandemic even could not stop D2C brands (the addressable market size for this industry will be $100 billion by 2025), who were well poised to serve customers as they did not have physical distribution. 

In fact, even before the lockdown, D2C was steadily gaining momentum, but the pandemic made it a necessity rather than being just an option for the sellers across the country. There are several reasons or factors behind the popularity of D2C brands like the rise in usage of social media platforms for selling, marketplaces, e-commerce, and the pandemic spiked this need to the highest level for both consumers and sellers.

Secondly, earlier it took brands 20 years to reach Rs 100 crore in revenue. Today, brands can reach that in four years or sooner. It's because they can reach their core audience faster through their own websites, social media, marketplaces, and e-commerce platforms. E-commerce giants like Flipkart and Amazon provide massive reach, and these new-age brands have experimented with product launches better than legacy brands.

Role of SaaS-Based Companies

The rising competition in D2C has led to brands aggressively investing in technology solutions to solve various business problems across the operation cycle like order management, inventory management, warehouse management, logistics, and omnichannel solutions. Such solutions not only boost sales for these brands but also ensure the best of the best post-purchase experience for consumers The post-purchase experience is as important as the pre-purchase experience, and it plays a pivotal role in building a robust and sustainable business. 

According to a recent study conducted by Fredrick Reichheld of Bain and Company, increasing customer retention rates by 5 percent increases profits by 25-95 percent. Faster order processing, logistics automation, and inventory management play a crucial role in good customer service and a great post-purchase experience achieving a higher repeat customer rate which indirectly helps D2C brands drive business and scale.

Mandar Joshi, Partner, Digital Enablement, KPMG in India said, “Here are some of the technological solutions that brands are looking for solving their business challenges - Cloud and SaaS-based channel outreach solutions, ERP (Enterprise Resource Planning) for finance and logistics management, supply chain planning and automation, reporting, CRM (Customer Relationship Management) and field force solutions, branch POS-linking to billing/ ERP.”

Since the D2C sector is rapidly booming with new entrants every day, what should investors look for in a D2C company before investing to separate the wheat from the chaff?

“Investors should take a look at the company’s strategic customer outreach projects, ecosystem play, technology focus, channel play – data points that would be available in either earnings calls or similar literature before investing,” Joshi further added. 

Today when the world is trying to enter the new normal, the customers have continued the support brands they believe in and these brands have built reasonable heft in the sub-category by playing the role of category creators and disruptors. Brands like Mamaearth, boAt, SUGAR Cosmetics, The Man Company, etc have reached very household despite the challenges enforced and popularity of traditional companies that existed for several decades. Going forward, as more and more consumers adopt these brands, it is likely that the D2C sector is going to see more boom and which is expected to garner more eyeballs from a lot of early-stage, traditional and new-age investors. 

However, there is an additional view that the D2C boom has reached its peak point, and going forward there is likely to be a decline in the growth. Henceforth, investors may be skeptical about further investing in the sector. Consequently, there may be multiple consolidations on the cards for the D2C? The economic situation will decide everything doing forward.  

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