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D2C brands are considering a phygital approach after reaching out directly to consumers during the pandemic. The goal is to enhance penetration and volume, lower client acquisition expenses, and increase sales by establishing a physical presence.

The COVID-19 epidemic has boosted e-commerce adoption, resulting in a rise in direct to consumer (D2C) brand growth.

D2C firms have grasped the huge opportunity presented by customers seeking safety and convenience for the past year and a half, focusing on user input, R&D, and a variety of business models to introduce niche products.

Sugar Cosmetics, a Mumbai-based cosmetics firm with a 60% retail presence and 40% revenues coming from internet channels till March 2020, has completely changed its strategy in the face of the epidemic. The brand shifted its attention to digital platforms and paused its retail expansion.

Tanmoy Mukherjee, who previously co-founded the beer brand Bira, created Forbidden Foods, a food company, in 2018. He intended to sell a line of BRB popped chips through retail outlets. When the storefronts closed, Tanmoy began selling through online markets such as Amazon.

Many digital-first brands thrived during this period, including plant-based nutrition brand Oziva and three-year-old niche skincare company Dot and Key, as more individuals began buying online, resulting in brand discovery.

India now has 190 million online shoppers, up from 110 million last year, according to Statista. While going online may have benefited D2C brands, they are now reconsidering their strategy.

The phygital method

Many companies are attempting to implement a hybrid strategy, in which they sell through both traditional and internet channels. A handful of them are trying to increase their retail presence or enter the market for the first time.

Sugar Cosmetics, which generated Rs 100 crore in revenue in FY20, intends to increase its retail footprint. Oziva, which grew from 150 outlets to 350 stores in just two months, feels the same way.

“In India, the vast majority of people still shop in physical stores. Online is an excellent sales medium, particularly given that more people are shopping online. However, selling through retail offers its own set of advantages, such as making it easier to scale the brand,” says Archana Jahagirdar, Managing Partner, Rukam Capital.

Among the companies backed by the Delhi-based venture capital firm are D2C coffee brand Sleepy Owl (which is offered both online and in stores), ecofriendly products business Beco, and food tech firm Burger Singh.

The founders of Kolkata-based Dot and Key, who wish to sell outside of big cities, expressed similar thoughts. For the first time, the digital-first company, which began by selling pre-swim lotions and other speciality products, is moving offline. The company is concentrating on specialised items and targeting lower-priced Tier II and III markets.

In the following months, the company plans to enter 600 outlets in 14 locations.

Why would you want to go offline?

Both channels have their own set of advantages and disadvantages. For example, a company that chooses to have a physical presence must pay a fee to store owners in exchange for shelf space and products. However, it is not required to pay separately for advertising, which is required for digital networks.

Vineeta of Sugar Cosmetics adds, “Having your store is a terrific approach to publicise your brand in and of itself.”

People will have “seen” your brand if they notice a brand store or a product on a supermarket shopping aisle, even if they don’t buy your stuff. Brand discovery does not necessitate the creation of separate impression-only advertising or the purchase of expensive web real estate.

Tanmoy of Forbidden Foods notes that even for new products, volume tends to increase offline.

“Online, people don’t normally buy a lot of things from a single brand. If the brand isn’t well-known, the prospects of bulk purchases are slim. There are a lot of walk-in clients in physical stores. I’ve sold a significant volume in a day even if everyone only buys one packet of chips,” he says.

“There is a fee to be paid to marketplaces on an online store, and then the delivery itself is incredibly expensive,” he continues.

With a digital-first strategy, businesses must build a good website, which is no longer a difficult task thanks to platforms like Shopify.

They must be present on online marketplaces, which carry a 20-30% commission, attract traffic through Instagram and Facebook ads, and then construct the last-mile delivery channel.

Startups can either work with a delivery partner or build their own channels of distribution. For many businesses, perfecting this has proven difficult due to low order quantities and expensive delivery costs.

When it comes to particular products, such as apparel and footwear, brands are also responsible for the cost of returns.

By avoiding single products, brands that solely sell through digital channels can improve their volume. Instead, they bundled discounts on their website, combined various products into a single package, or raised price points by offering larger variations.

Customers who want to return or exchange their purchases will be charged a courier fee by the vegan footwear brand CAI. This type of action aids in increasing volume while eliminating unwanted returns.

This is huge business potential.

India has around 600 direct-to-consumer brands, and according to Avendus Capital, the addressable market size for this industry would be $100 billion by 2025.

Top direct-to-consumer brands including boAt, Wow Skin Science, MCaffeine, and Wakefit have already proven lucrative. Others, such as Licious, Wrogn, Mamaearth, and Mom’s Co., are rising at a breakneck pace. Many more, including NuttyGritties, Itsy Bitsy, Cosmix, and Captain Zack, are poised to take off.

These enterprises are attracting the attention of investors as well. There have been almost 30 fundraising deals in the D2C industry alone in 2021.

Ankur Bisen, Senior Vice President of Technopak Advisors, a Delhi-based business consultancy organisation, says, “D2C, which implies reaching out directly to your consumer, can just be a starting point, however, if a company wants to expand its reach, a multi-channel strategy is required.”

“Sales from online channels are increasing every quarter for FMCG brands like ITC and Marico. However, this does not rule out the use of Kirana stores and other conventional outlets. They’re making an effort to improve in places where they don’t currently have a presence. Niche direct-to-consumer (D2C) businesses must also follow suit,” he adds.

The necessity for retail shelves does not appear to be going away anytime soon, forcing new-age firms to adopt a phygital approach to scale volumes, sales, and profitability.