The recent boom witnessed by the retail industry coupled with the increasing digitization of product and service delivery for consumers has fuelled the rise of a novel trend in entrepreneurship – direct-to-consumer or D2C brands. Despite the availability of a plethora of brand options before a consumer for any given product, these companies have been able to garner devoted customer loyalty. As the Indian retail market expects to reach USD 1 trillion by 2025 according to the Retail 4.0: Winning the 20s report by Boston Consulting Group, decoding and replicating the success of these D2C brands will dictate the future of India’s long term consumption growth.

So what are these disruptive D2C brands?

Described as “the next big thing in the retail industry”, Direct-to-Consumer (D2C) brands are the companies that sell their products and services to consumers directly through digital marketing, thereby obviating the need for a middleman, wholesale supply chain and, at times, even the existing big e-commerce platforms. Their ‘digital-first’ as opposed to ‘digital-only’ approach to target consumers is touted as the bridge between traditional and e-commerce retail channels. According to a recent Avendus report, there are more than 600 D2C brands in India with 16 of them clocking in annualized revenue run rates in excess of USD 50 million.This D2C niche industry is poised to turn into a USD 100 billion addressable market by 2025. 

And what are the key differentiators on which the D2C industry is thriving?

While the extraordinary growth of D2C brands across categories may give the appearance of a stroke of luck, there is a recognisable pattern in the customer targeting and growth strategy adopted by these brands that is responsible for their recent boom across industry verticals, as detailed below:-

• Creating a brand narrative – The slower brand launch rate by traditional players provided the much needed leeway for D2C brands to create their own niche brands, relying heavily on social media presence and influencers to tailor a targeted brand creation and promotion strategy.
• Deploying reverse psychology – Due to heavy online presence, D2C brands have readily available customer insights. This offers an unprecedented opportunity to these companies to come up with products which are already based on the current preferences and needs of the end consumer. This expedites the brand’s journey towards profitability due to the presence of an assured market.
• Adopting omnichannel approach – While focusing on being “digital-first”, the D2C companies provide consumers the freedom to order online through e-commerce platforms or social media channels like Instagram along with the traditional route of in-store purchases. By building their own online stores through platforms like Shopify, most D2C companies have been able to penetrate the hitherto underserved customers, especially in tier 2 and tier 3 cities.
• Focusing on enhanced customer experience – D2C brands have focused on a dedicated customer-first strategy to tap into the benefits of having a devout user community for continued sales. This includes getting validation of products through customer feedback and reviews, and tweaking the brands’ offerings quickly according to product perception in the market.

Some success stories

The seemingly sector agnostic direct to consumer selling trend has yielded massive gains for D2C brands across categories like beauty and personal care, electronics, apparel, furniture and even segments like lifestyle and leisure goods. Take for instance, the unprecedented success of D2C companies in the cosmetics industry like Sugar Cosmetics and Nykaa. These companies identified and predicted the emerging beauty needs of a very specific market – women belonging to middle class income strata who now constitute 44% of the total online shoppers and have an increasing spend per purchase. By using a creative marketing strategy to increase their online and offline touchpoints, launching apps to engage users on a daily basis and using social media influencing techniques, these brands have managed to create a loyal community of repeat users. Online presence has also helped in reducing the customer acquisition costs to almost zero by inculcating trust and confidence through verified buyer reviews.

The Peculiar Case of D2C Brands in the Instant Snacking Industry

Being the largest retail category in India, the food and beverages sector is estimated to reach a market size of USD 1 trillion by 2025. Within this sector, the packaged food industry is experiencing a steady growth of 14% on the back of changing dietary preferences and offer of convenience. With gross margins of nearly 50% and constituting 35% of an average buyer’s annual expenditure, it was no surprise when D2C companies started leveraging the white space opportunities in the sector introduced by the pandemic restrictions and the growing health consciousness among the youth – the largest demographic section in the country. Fairly new D2C brands like Licious and Country Delight have been able to make a distinguished mark for themselves in the market on the back of such strong macroeconomic tailwinds and their innovative models for supply chain monitoring and control.

However, as part of the larger packaged food industry, the nuanced instant snacking industry makes for an unusual case study. The snacking market in India is poised to reach a whopping INR 28,000 Crores by 2024. While the double-digit growth projections for the sector would have served as an incentive for new brands to challenge the incumbents well entrenched in the sector, emerging D2C brands in this sector have been few and far between. The segment is still heavily dominated by traditional FMCG players like Pepsico, Nestle, ITC, Coca Cola, etc. who are venturing into the sphere by launching their own D2C lines to cater to the growing demand for direct to home delivery amidst the pandemic.

To give due recognition, a few companies like Forbidden Foods and SLAY Coffee have been able to make a name for themselves through affordable premium positioning. But their selling proposition has been driven by a retail-first approach in the case of the former and cloud kitchen based services for the latter. While both these companies have been able to provide customers purchasing options both online and offline through aggregator platforms and retail stores (including SLAY coffee’s own cloud cafes), more direct customer selling accessible touch points have been lacking which, to a large extent, have become the hallmark of D2C brands and come with its own set of distinct perks in terms of sustained revenues.

There are certain factors that offer a plausible explanation for the non-replication of the tremendous success amassed by D2C brands in other categories. In the case of industries like beauty products and electronics, the continued push strategy to nudge customers to buy a product through social media engagement works wonders. However, success in the snacking industry pivots on providing instant gratification to the customers. People indulge in snacks to satisfy their sudden hunger pangs and cravings. They are also, at times, lured after seeing the snack item to make an impulsive purchase. Thus, a nudge strategy through social media is not as effective, especially in the absence of retail points within the buyer’s reach. Additionally, in the absence of real-time insights into customer purchase analytics, the snacking industry suffers from delayed feedback for new product launches which has hindered the surfacing of many D2C brands in the sector.

Smart Vending Machines as a Distribution Channel for D2C Snacking Brands

Fortunately enough, smart vending machines work around the above problems by providing D2C brands in the snacking industry a distribution channel which is easily accessible by the customers and provides real-time insights into purchase volumes and consumer behaviour. This enables the launch of new products in a time bound manner to gauge the popularity of a product and its preference in the targeted consumer segment. Smart vending machines obviate the need for manual collection of feedback from retail stores which is a slow, if not cumbersome, process and can prove to be detrimental for the profitability prospects of a brand.  

In addition to providing an inherently phygital user experience – a requisite for a snacking brand’s success, smart vending machines also provide a win-win solution to the vending machine operators (VMOs). As opposed to the incumbent players, providing shelf space to D2C brands yields higher product margins owing to their niche products for which the customers are ready to pay a premium. A smart vending machine, hence, plays the role of an ideal bridge between traditional retail stores and e-commerce platforms as a sales channel in terms of convenience and quick accessibility.

Investments in smart vending machines can, therefore, have a multiplier effect on the revenues of both VMOs and D2C brands in the instant snacking industry. Being an IoT SaaS provider for automating the entire supply chain, Vendify helps VMOs in scaling their business by providing cloud based logistics and inventory management, ensuring high order fill rates. Our hardware and software solution can be incorporated into existing non-digital vending machines and enable remote monitoring, digital payments and an interactive touch interface for providing an enhanced consumer experience. Our phygital solution also comes bundled with a consumer app which offers sales analytics into user behaviour and provides that instant nudge to customers by recommending products based on sophisticated machine learning algorithms. 

Vendify’s solution allows VMOs to improve their operational efficiencies as manual intervention is only needed for monitoring. This leaves them free to focus on expanding their business through onboarding new partners like the innovative D2C snacking brands, who, in turn, are in a dire need of increasing their touch points due to rise in discretionary incomes and heightened health awareness during the pandemic. Vendify provides a one stop solution to cater to the needs of both these entities. To know more about our innovative solution available for highly disruptive monthly subscription prices, please contact our team at sales@vendify.in.