Why are FMCG majors bullish on their e-commerce channels?

At a time when an increasing number of D2C players are setting up brick-and-mortar businesses to widen their distribution mix, legacy FMCG players like Procter & Gamble (pgshop.com), Hindustan Unilever Limited (theUshop.com) and ITC (ITCstore.in) have either launched their Direct-to-Consumer (D2C) sales channels in the recent past or are in the beta-phase to launch one. To fortify their D2C presence, they have started their own digital-first brands and are also on an acquisition spree. 

The move has already started giving them a dividend. Nestle’s online shop, for instance, contributed to 6.5% of the quarterly sales in June quarter. The company had launched their e-shop (mynestle.in) in October 2022. Marico expects 15% of its overall revenue over the next couple of years to come from its online business—from 9% at present. To achieve the target, the company has acquired ayurvedic personal care brand Just Herbs and healthy snack brand True Elements. Joining the bandwagon, Dabur has also soft launched its D2C channel-DaburShop.com- with a limited assortment of products in December 2022. The company is eyeing Rs 100 crore revenue from the sale of digital-first brands by the end of FY23. 

“Dabur shop will become a one-stop shop of the entire Dabur range, including our ayurvedic medicines portfolio that’s not easily available on the e-commerce marketplace,” CEO Mohit Malhotra says. 

Amul, which reported a turnover of Rs 72,000 Cr in 2022-23, which is much higher compared to HUL and Nestle India, is next in the line. The dairy major, which already has a massive network of distributors and retailers across India, is set to launch its e-shop soon to boost its sales from 5 percent at present to 10 percent in next one year, Jayen Mehta, MD of Amul, told e4m. 

“We are already within a radius of 200 kms of every single city in India. Now all this is being made e-commerce compliant. If you order something in the morning, you will get it by evening. The entire range of products would be easily available through this format,” said Mehta, who is eyeing to propel Amul into the league of “very large e-commerce players”. 

At a time when legacy firms are adopting the D2C model, the leading D2C players are entering into brick-and-mortar businesses for growth as marketers increasingly believe that omni-channel is the way forward, especially when the consumption environment in India is under pressure, given high inflation. 

Booming e-commerce 

Through their own platforms, the FMCG companies seek to grab a large piece of the burgeoning ecommerce market in the country. As much as 15-25 percent of their total sales comes through various ecommerce platforms as of now. 

The sector, which is currently valued over USD 100 billion, is expected to reach USD 350 billion by 2030, consultancy firm RedSeer said in its 2021 report. The government’s own estimate pegs it at US$ 350 billion by 2030.

According to ONDC website, India has the third largest online shoppers base globally, with 14 crore e-retail shoppers in 2020, only behind China and the US.

E-commerce is the second-largest contributor to India’s advertising expenditure pouring Rs 7,000 crore in a year with over 14 percent contribution in the overall advertising spend.

Profits and more

The move reflects companies’ commitment to resilience in the digital landscape, where online retailers and digital-first brands have gained prominence, says Shashank Rathore, Vice President, E-commerce, Interactive Avenues (the digital arm of IPG Mediabrands India).

Rathore explains, “Diversifying sales channels through e-commerce allows access to new markets and increased revenue. Direct sales on e-commerce platforms also ensure higher profits compared to traditional retail collaborations. Adopting an omnichannel approach enhances customer satisfaction and loyalty. Efficient product launches and promotions are facilitated through e-commerce platforms, reaching a wider audience with real-time performance evaluation.”

A survey by Invesp reveals 53% of online shoppers prefer to buy directly from a brand's website. This enables them to engage directly with customers, building brand loyalty and trust, Pranjal Rai, VP-Key Accounts at Magnon eg+ points out. 

Eye on first-party data?

In the dynamic landscape of digital transformation, traditional FMCG brands are recognizing the value of direct-to-consumer (D2C) channels. By establishing their own websites and apps, these brands not only secure a direct relationship with customers but also gain invaluable first-party data. This wealth of insights enables them to understand consumer behaviour, preferences, and trends, fuelling personalized experiences and informed decision-making, says Anil Solanki, Senior Director of dentsu X. 

Solanki noted, “Embracing D2C platforms also empowers traditional FMCG brands to navigate the evolving market, foster brand loyalty, and deliver tailored offerings that resonate with their target audience.”

Rai echoes the sentiments. “One important outcome of this strategy is “Personalized Offering”; data helps marketers to innovate with personalized offers, promotions, and product bundles. They can experiment with new concepts and tailor experiences for different customer segments,” he noted, adding that as per an EY report, 89% of organizations in India believe that data is essential for delivering a superior customer experience. 

“M&A sector to see a rejig”

The gradual shift of sales from retail to D2C channels will have profound implications for the ad and media sector. It results in heightened competition for advertising space in both traditional and digital channels, Rathore points out. 

According to him, “Advertising budgets will shift as D2C brands allocate more resources to traditional channels for promoting physical stores, while legacy firms focus on digital and social media to establish direct connections with consumers. 

Data-driven advertising becomes more prominent as both types of firms gather consumer insights through direct interactions, leading to personalized campaigns. Influencer marketing gains importance for both D2C brands and legacy firms entering the D2C space. Advertisers must develop new strategies to create seamless omnichannel experiences, while ad agencies need to adapt their expertise to cater to changing demands. Measurement and attribution challenges arise due to diversified advertising channels and touchpoints. Overall, the trend necessitates adaptation and agility in the advertising and media industry to optimize the opportunities presented by this evolving landscape, he says. 

“All big tech companies and large publishers will get additional revenues not only due to  increased competition but legacy companies will have much deeper pockets with mainline media budget movement on digital,” Rathore says. 

Impact on Amazon & Flipkart

The trend may also have notable implications for major ecommerce players such as Amazon and Flipkart, experts speculate. 

With brands now directly competing with them on their own turf, these marketplaces may face increased competition and a potential reduction in sales for certain FMCG product categories. Additionally, the FMCG companies' focus on building strong brand loyalty through personalized experiences may result in some customers shifting their allegiance from general ecommerce platforms to the brands' dedicated online stores, experts say.

Launching their D2C platforms also enables FMCG companies to extend their product portfolios beyond what is offered through traditional retail partners. This diversification allows them to introduce exclusive products and unique bundles, catering directly to specific customer segments and capturing niche markets that may have been overlooked in the past.

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