Decoding India’s $100 Bn+ D2C Opportunity: Market Landscape And Trends Report, 2021 by Inc42 Media

Contents 04 Scope of The Report 05 Executive Summary 06 Ecommerce Market Opportunity 09 The Rise Of Online Shoppers 12 Inside India’s D2C Rush The D2C Landscape D2C Addressable Market Opportunity D2C Market Segmentation

43 The Competitive Scenario Operational Parameters Financial Parameters

73 Top Investors In D2C Space 75 Emerging Opportunities In Indian D2C Market 86 Methodology 88 Bibliography

Key D2C Categories Fastest Growing D2C Brands Startup Funding And M&A Trends Business Models

Scope Of The Report More than 800 new-age brands from India bade farewell to middlemen in the past few years and took the direct-to-consumer (D2C) route. The D2C model has witnessed a massive uptick across the country as it enables brands to bypass the intermediaries to reach consumers faster and cater to them more efficiently. The recent outbreak of the Covid-19 pandemic hit the traditional retail sector hard, making brands realise the importance of shifting towards a digital-first D2C model. The pandemic accelerated the growth of many major D2C brands and those with their dedicated websites recorded high consumer demand growth of 88% in 2020 compared to the previous year. FMCG giants such as Johnson & Johnson, Himalaya, Hindustan Unilever, ITC, Lakme and others, which have dominated the Indian market for decades, are now challenged by young startups like Mamaearth, The Moms Co, Bey Bee, Azah, Nua and Pee Safe, among others. Consider this. Popular beauty brands such as Revlon and Lotus took around 20 years to reach the INR 100 Cr revenue mark, but new-age brands like Mamaearth and Sugar took four and eight years, respectively, to cross the same milestone. In this report, we will decode India’s massive $100 Bn D2C opportunity, highlighting the following: The current market potential for D2C in India The D2C landscape and challenges Funding and revenue trends © Inc42 Media | not for distribution

Executive Summary $200 Bn+

$100 Bn+

800+

Estimated Value Of The Indian Ecommerce Market By 2026

Estimated Size Of The Indian D2C Market By 2025

D2C Brands In India

100 Mn+

$2.04 Bn

Lenskart

Online Shoppers In India In FY20

Funding Raised By D2C Brands Since 2014

D2C Brand With The Highest Funding In India

Sequoia Capital

INR 3,295 Cr

Most Active D2C Investor In India

Number Of D2C Brands That Got Acquired Till April 2021

Combined Revenue Of 10 D2C Brands In FY20

Estimated Market Opportunities In Key D2C Sectors By 2025 Fashion: $43.2 Bn

Consumer Electronics And Appliances: $30.6 Bn

FMCG: $20.8 Bn

Home Decor: $5.4 Bn © Inc42 Media | not for distribution

Ecommerce Market Opportunity © Inc42 Media | not for distribution

India’s Retail Market Is Poised To Reach $1.7 Tn By 2026 Growing at a CAGR of 7.8% during 2021-2026, India will beis the world’s fifth-largest global destination in the retail space 2,000

India's Retail Market Size In $ Bn

1,750 1,500 1,200 1,000

500

795

365

2011

2017

2021F

2026F

Source: Deloitte’s February 2019 report ‘Unravelling the Indian Consumer’ © Inc42 Media | not for distribution

Ecommerce Is Expected To Capture 11.4% Of The Total Indian Retail Market By 2026 Driven by the rise in digital infrastructure, ecommerce is poised to grow and reach $200 Bn by 2026

Ecommerce Market Size In $ Bn

200

150 7.0%

12.5% 10.0% 7.5%

100

3.0% 0.6% 2.4 2011

5.0%

2.5% 24 2017

Ecommerce Market Size In $ Bn

2021F

2026F

Ecommerce Penetration

11.4%

0.0%

Ecommerce Penetration

Note: Ecommerce penetration is a percentage share of ecommerce in the total retail market of India Source: Deloitte’s February 2019 report ‘Unravelling the Indian Consumer’

The Rise Of Online Shoppers © Inc42 Media | not for distribution

Online Shoppers Are Projected To Reach 350 Mn By FY2025 Online shoppers will be growing at a CAGR of 28.5% during FY2020-FY2025 400

350

300

272 212

200

100

165 100

FY2020

128

FY2021

FY2022

FY2023

FY2024

FY2025

Source: Bain and Flipkart Report © Inc42 Media | not for distribution 10

67% Of The Online Shoppers Belong To The 18-34 Age Group In 2020, Indians aged between 25 and 34 Years were the most active online shoppers 40%

30%

37% 30% 23%

20%

10%

1% 18-24 Years

25-34 Years

35-44 Years

45-55 Years

55-64 Years

Note: Based on a survey of 2,037 online shoppers in India Source: Statista Global Consumer Survey, 2020 © Inc42 Media | not for distribution 11

Inside India’s D2C Rush © Inc42 Media | not for distribution 12

India’s D2C Landscape FMCG

Beauty And Wellness

Cosmetics

Food And Beverage

Meat

Dairy Products

Health Supplements

Beverages

Tea

Snacks

Coffee

Food And Beverage

Meals

Fashion

Western Wear

Ethnic Wear

Eyewear

Activewear

Innerwear Footwear

Jewellery © Inc42 Media | not for distribution 15

Consumer Electronics Home Decor

Others

Source: Inc42 Plus

India’s D2C Enablers Website Builders

Logistics And Supply Chain

Payments

Marketing

Customer Support Source: Inc42 Plus

59% Of Indian Ecommerce Websites Are Built On WooCommerce Others

14% Open Cart

6% Wix Stores

WooCommerce

59%

8% Shopify

13% Note: Others include Magento, Ecwid, SuperLemon, Dokan Marketplace, PrestaShop and the likes. Based on the data of 87,388 ecommerce websites in India Source: BuiltWith © Inc42 Media | not for distribution 18

D2C Market Opportunity © Inc42 Media | not for distribution 19

Total Addressable Market Under D2C Is Expected To Reach $100 Bn In 2025 The D2C market will be growing at a CAGR of 25% during 2020-2025 100

D2C Addressable Market In $ Bn

100 80.7 75

66.4 54.8 44.6

50 25 6.6 0

2015

11.6 2016

15.7

2017

20.8

2018

26.8

2019

33.1

2020

2021F

2022F

2023F

2024F

2025F

Source: Inc42 Plus Analysis

Key D2C Categories Category

Estimated Market Size By 2025

FMCG

$20.8 Bn

$676.9 Mn

Fashion And Accessories

$43.2 Bn

$756.4 Mn

Home Decor

$5.4 Bn

$447.4 Mn

Consumer Electronics

$30.6 Bn

$115.9 Mn

Key Brands

Total Funding

Investors

Note: Funding data is till 16 April, 2021 Source: Inc42 Plus Analysis © Inc42 Media | not for distribution 21

Fastest-Growing D2C Brands

Number Of Years Taken By D2C Brands To Cross INR 100 Cr Revenue In India 8

7 6

6 4

4 2

ia Cl ov

ga r Su

y Fa bA lle

wa ko

t ka r

ise No

fry pe r

Pe p

al th

Ka rt

us io Lic

ht lig De

try

ae ar th Co

ak ef W

Years Taken To Cross INR 100 Cr Revenue Mark

Earwear startup boAt took the shortest time to reach the milestone in two years

Source: Inc42 Plus Analysis © Inc42 Media | not for distribution 22

D2C Market Segmentation © Inc42 Media | not for distribution 24

The Online FMCG Market Is Poised To Reach $21 Bn By 2025 Packaged food is the major category in terms of market potential

Addressable Market In $ Bn

25 20.8

20 14.2

15 10.4

10 5 0

1.2

1.4

1.9

2015

2016

2017

2.4 2018

3.2

2019

4.6

2020

6.1

2021F

2022F

2023F

2024F

2025F

Note: The FMCG market is calculated by adding packaged food, soft drinks, hot drinks, health and wellness, tissue and hygiene, consumer health and beauty and personal care markets. The online penetration data of all markets was calculated up to 2020, and the rest is forecasted. Source: Euromonitor International, Statista, Inc42 Plus Analysis

The Online Fashion Market Is Expected To Reach $43 Bn By 2025 Apparel and footwear will be the major fashion category, contributing about 77.6% of the total online fashion market in 2025

Addressable Market In $ Bn

43.2

35.3 28.8

30 22.7 17.8

20 10 0

0.8 2015

4.4

6.0

2016

2017

8.4

2018

10.1

2019

2020

2021F

2022F

2023F

2024F

2025F

Note: The total fashion market is calculated by adding apparel and footwear, eyewear and personal accessories markets. The values of online penetration are calculated up to 2020, and the rest has been forecasted based on the moving average of growth and estimation. Source: Euromonitor, Inc42 Plus Analysis © Inc42 Media | not for distribution 26

The Online Home Decor Market Is Estimated To Reach $5.4 Bn By 2025 Online home decor will be growing at a CAGR of 20.4% during 2020-2025

Addressable Market In $ Bn

5.4

3.8

2 0.8 0

2015

1.7

1.9

2017

2018

2.0

2.1

2.2

2.3

2019

2020

2021F

2022F

2.4

2023F

1.1

2016

2024F

2025F

Note: The home decor market is calculated by adding the furniture and the mattress markets. The market potential is calculated based on the moving average and estimation. Source: Statista, Redseer, Inc42 Plus Analysis © Inc42 Media | not for distribution 27

Consumer Electronics Is Likely To Account For 30.6% Of The Addressable D2C Market By 2025 The online consumer electronics market is estimated to reach $30.6 Bn by 2025

Addressable Market In $ Bn

40 30.6

15.4

3.8

4.7

6.1

2015

2016

2017

8.1

2018

18.5

21.7

24.7

27.4

11.5

2019

2020

2021F

2022F

2023F

2024F

2025F

Source: Statista, Inc42 Plus Analysis © Inc42 Media | not for distribution 28

D2C Funding Trends © Inc42 Media | not for distribution 29

Indian D2C Startups Have Raised $2 Bn In The Past 8 Years A total of 132 unique D2C startups from India have raised funding 500.0

300.0 347.2 200.0

428.7

290.7

28 262.5 207.7

223.1

216.8

Funding Deal Count

400.0 Funding Amount In $ Mn

100.0 0.0

65.4 2014

2015

2016

2017

Funding Amount in $ Mn Note: 2021 funding data till April 16 Source: Inc42 Plus Analysis

2018

2019

2020

2021

Funding Deal Count

Fashion D2C Brands Raised $756 Mn Between 2014 And 2021 In terms of YoY funding, fashion startups in the D2C space recorded a CAGR of 27.5% during 2014-2020

Funding Amount In $ Mn

800

600

123

125

116

756.4

100

676.9

75 400

447.4 30

200

50 115.9 6

Fashion

FMCG Funding Amount In $ Mn

Home Decor

Consumer Electronics

45.6 Others

Total Funding Deal Count

Note: 2021 funding data till April 16 Others include home and lifestyle, kitchenware, handicrafts, plants, bakery and more. Source: Inc42 Plus Analysis © Inc42 Media | not for distribution 31

Most Funded D2C Startups In India Lenskart is the most funded Indian D2C startup, with $359.4 Mn funding raised

Funding Amount In $ Mn

400

359.4

300 229.6 200 115.9 100

Lenskart

Pepperfry

boAt

67.7

57.8

Furlenco

Bluestone

WowSkin Science

Note: Funding data till April 16, 2021 Source: Inc42 Plus Analysis © Inc42 Media | not for distribution 32

D2C Fashion Startups Raised $756 Mn Between 2014 And 2021 Lenskart, Bluestone and Zivame were the most-funded fashion startups in the D2C space

Funding Amount In $ Mn

300.0

283.1

200.0 156.5

167.6

100.0 64.0

53.2 14.9 0.0

2014

11.7

5.2 2015

2016

2017

2018

2019

2020

2021

Note: 2021 funding data till April 16 Source: Inc42 Plus Analysis © Inc42 Media | not for distribution 33

FMCG Startups Have Raised A Total Of $677 Mn Funding Between 2014 And 2021 FMCG D2C brands witnessed a growth of 135% in funding in 2021 as compared to the previous year

Funding Amount In $ Mn

200.0

172.7

164.7

150.0 118.8 100.0

81.6

50.0 0.0

34.7

29.6

2015

2016

68.5

6.3 2014

2017

2018

2019

2020

2021

Note: 2021 funding data till April 16 Source: Inc42 Plus Analysis

D2C Home Decor Startups Raised $447 Mn Funding During 2014-2021 Pepperfry, Furlenco and Wakefit are major home decor brands in the D2C space

Funding Amount In $ Mn

200 156.0

150 100

70.9

64.3 50 0

36.2

2014

15.5 2015

2016

86.2

2017

10.7 2018

2019

7.6 2020

2021

Note: 2021 funding data till April 16 Source: Inc42 Plus Analysis © Inc42 Media | not for distribution 35

Mumbai Emerges The Top Hub For D2C Startups In India Mumbai is home to 40 funded D2C startups that raised $751.3 Mn till April 2021 Others

0.7% Jaipur

0.7%

Chennai

2.3%

Ahmedabad

7.7%

Mumbai

36.8% Delhi-NCR

26.5%

Bengaluru

25.2% Note: 2021 funding data till April 16 Others include Pune, Punjab, Hyderabad, Ranchi, Coimbatore and more. Source: Inc42 Plus Analysis © Inc42 Media | not for distribution 36

Delhi-NCR And Mumbai Account For 62.1% Of The Total Funding Deals In D2C Startups Nykaa, Purplle, boAt and Pepperfry were a few notable Mumbai-based D2C startups with a high number of funding deals between 2014 and April 2021 Others

5.1%

Chennai

Pune

2.4% Bengaluru

Mumbai

31.4% Delhi-NCR

30.7%

28.3% Note: 2021 funding data till April 16 Others include Pune, Punjab, Hyderabad, Ranchi, Coimbatore and more. Source: Inc42 Plus Analysis

No. Of Deals

Amount in $Mn

Mumbai

751.3

Delhi-NCR

542.0

Bengaluru

515.0

Ahmedabad

156.9

Chennai

46.9

Jaipur

15.0

Pune

5.8

$1.3 Bn Was Invested In Late Stage D2C Startups Between 2014 And April 2021 Seed stage D2C startups also gained investors’ attention, bagging as many as 104 funding deals during the same period 125

1387.9 104

93 1000

100

75 554.7

500

25 66.4

Late Stage

Growth Stage Funding Amount In $ Mn

Seed Stage

33.2

Funding Deal Count

Funding Amount In $ Mn

1500

25 0

Bridge Stage

Funding Deal Count

Note: 2021 funding data till April 16 Source: Inc42 Plus Analysis © Inc42 Media | not for distribution 38

Key M&As In India’s D2C Sector Startup

F2SO4

Acquirer

Western Wear

Acquisition Year

Delhi-NCR

2016

INR 20 Cr

Chandigarh

2016

Undisclosed

Chennai

2016

INR 99.9 Cr

Mumbai

2016

Undisclosed

Mumbai

2016

Undisclosed

Mumbai

2016

INR 362.1 Cr

Delhi-NCR

2017

Undisclosed

Bengaluru

2018

Undisclosed

Deal Value

Startup

Acquirer

Western Wear

Acquisition Year

Mumbai

2019

Undisclosed

Delhi-NCR

2019

INR 110 Cr

Hyderabad

2020

Undisclosed

Bengaluru

2020

INR 182 Cr

Mumbai

2021

Undisclosed

Hyderabad

2021

Undisclosed

Deal Value

Note: The table only includes publicly disclosed deals recorded between 2014 and April 2021 Source: Inc42 Plus Analysis

A Seamless Consumer Journey From Browsing To Purchase And After-Sales In D2C Model

Brick and mortar (Omnichannel)

Pureplay ecommerce

Research

Locate

Website, Mobile app Social Media QR Scanning

Check Inventory in store

Browsing research in-store

Reviews, blogs, advise on website/app

Website & Mobile App Social Media

Check inventory, options on web/app

Pure offline

Shop

Deliver

Bay in-store

Bay on web/app

Kiosks Mobile POS Bar-code Scanner

Specialist websites

Delivery at home Pick-up at store

Click and Collect ( Own/ Other)

Product comparison, reviews, purchase and checkout on web/app

Delivery at home

Post-purchase Returns to store/pickup from home Loyalty programme Online reviews Complaints Customer interaction

Returns-pick up from home

Brick and Mortar pilots; Collect+ models

Pure onfline

Online+Offline (Hybrid)

Source: Inc42 Plus © Inc42 Media | not for distribution 41

Subscription-Based Model This business model is mostly followed by D2C brands in categories such as beauty and personal care, fashion, snacks, packaged food and milk products, where customers usually place recurring orders.

Omnichannel Play And Its Benefits Amid the new normal triggered by the pandemic, consumers are not just looking for the best products but also demanding a seamless buying experience. Therefore, shopping is becoming a convenient mix of both online and offline platforms. The adoption of omnichannel solutions helps D2C brands ensure a seamless shopping experience, hassle-free, compelling and personalised, based on their data-driven insights into individual buyer behaviour. The rise in the use cases of ‘ship from store’ is also driving this model, as companies procure products from their offline outlets to fulfil their online orders at the earliest and reduce logistics costs. In essence, omnichannel play allows D2C brands to leverage the supply chain fully and offer faster delivery with better inventory utilisation.

Brand

Own Ecommerce Website Marketplace

Offline Presence

Brand

Own Ecommerce Website Marketplace

Offline Presence

The Competitive Scenario © Inc42 Media | not for distribution 44

Who’s Who: A Quick Comparison Of D2C Fashion Brands In India Brand * *

* * *

Headquarters

Presence

Channel Partners

Product Category

Delhi-NCR

100+ cities

N/A

Eyewear

Chennai

28+ cities

N/A

Eyewear

Delhi-NCR

Pan-India

Amazon, Flipkart

Eyewear

Bengaluru

30+ cities

Myntra, Amazon, Flipkart, Paytm, Ajio, Nykaa, Limeroad, Tata CLiQ, Shoppers Stop

Innerwear

Delhi-NCR

50+ cities

Myntra, Amazon, Flipkart, Paytm, Ajio, Nykaa, Shoppers Stop

Innerwear

Mumbai

20+ cities

Myntra, Amazon, Flipkart, Ajio, Shoppers Stop, Innerwear Tata CLiQ

Mumbai

N/A

Amazon, Flipkart, Myntra,Tata CLiQ, Ajio, MensXP

Innerwear

Delhi-NCR

Pan-India

Tata CLiQ, Amazon, Flipkart, Shoppers Stop

Innerwear © Inc42 Media | not for distribution 45

Headquarters

Presence

Channel Partners

Product Category

Mumbai

Pan-India

Amazon, Flipkart, Myntra

Westernwear

Delhi-NCR

25+ cities

Myntra, Ajio, Nykaa Fashion, Shoppers Stop, Flipkart, Amazon, Limeroad

Westernwear

Delhi-NCR

Pan-India

Amazon, Ajio, Nykaa Fashion, Tata CLiQ

Westernwear

Mumbai

Pan-India

Myntra, Flipkart, Ajio and others

Westernwear

Delhi-NCR

5+ cities

Amazon

Westernwear

Jaipur

50 cities

Myntra, Nykaa Fashion, Flipkart, Amazon

Fashion Jewellery

Bengaluru

2 cities

Amazon and Flipkart

Precious Jewellery

Bengaluru

Pan-India

Myntra, Nykaa Fashion, Flipkart, Amazon

Precious Jewellery

Brand

Note: * denotes a brand’s offline retail store locations, Source: Inc42 Plus Analysis

N/A: Not available © Inc42 Media | not for distribution 46

Combined Revenue Of The Five Major Fashion D2C Brands Stood At INR 1,497 Cr In FY20 Lenskart was the only profitable company among the foremost fashion D2C brands in FY20 963.7

-945.9 215

-243.1

126.8

-130.8

101.5

-115.4

90.0

-150.6 -1,000

-500 Revenue In Cr, FY20

500

1,000

Expense In Cr, FY20

Source: Inc42 Plus Analysis © Inc42 Media | not for distribution 47

FMCG Brand *

* *

Headquarters

Presence

Channel Partners

Product Category

Mumbai

130+ cities

Shoppers Stop, Lifestyle, Central, Health & Glow, NewU

Beauty and personal care

Delhi-NCR

70+ cities

Amazon, Nykaa, Flipkart, Myntra and more

Beauty and personal care

Delhi-NCR

5+ cities

N/A

Beauty and personal care

Delhi-NCR

45+ cities

Urban Company, Syska, Times Prime, Amazon and others

Beauty and personal care

Mumbai

70+ cities

N/A

Beauty and personal care

Mumbai

50+ cities

N/A

Beauty and personal care

Brand

Headquarters

Presence

Channel Partners

Product Category

Mumbai

50+ cities

N/A

Beauty and personal care

Delhi-NCR

20+ cities

Amazon and Flipkart

Beauty and personal care

Delhi-NCR

Pan-India

Amazon, Nykaa, Myntra, Flipkart, Paytm, Tata CLiQ and others

Beauty and personal care

Bengaluru

16+ cities

Amazon, Grofers and BigBasket

Food and beverage (meat, seafood)

Delhi-NCR

7 cities

Direct supply to meat outlets

Food and beverage (meat)

Bengaluru

7 cities

BigBasket and direct stores

Food and beverage (Meat)

Delhi-NCR

8 cities

N/A

Food and beverage (meat)

Delhi-NCR

5+ cities

Flipkart, Amazon and others

Food and beverage (milk and dairy products)

Brand

Headquarters *

Delhi-NCR Mumbai Bengaluru Bengaluru Mumbai

Channel Partners

Product Category

37 cities

N/A

Food and beverage (health supplements)

Pan-India

Amazon, Snapdeal, Desertcart, 1mg and others

Food and beverage (health supplements

30 cities

Amazon, Flipkart, PayTM Mall, BigBasket and HealthKart

Food and beverage (snacks)

25+ cities

Amazon, Flipkart, Swiggy, Zomato and Dunzo

Food and beverage (snacks)

Pan-India

Amazon, BigBasket, Flipkart, HealthKart and others

Food and beverage (snacks)

Presence

Note: * denotes a brand’s offline retail store locations N/A: Not available Source: Inc42 Plus Analysis

HealthKart Earned The Highest Revenue Among D2C FMCG Brands In FY20 PurePlay Skin Sciences and Arata were the only profitable company among FMCG D2C companies In FY20 HealthKart Mamaearth Sugar PurePlay Skin Sciences Blue Tokai Soulfull Licious The Man Company Moms Co. Arata Country Delight

353.3 -381.5

112

-117.9 -126

105.1 -51.4 -51.3 -69.9 -69.9 -54.4 -32.8

53.2 40.9 39.4 39.4 39.3 22.3 -0.9

-6.9 -400.0

-200.0 Revenue In Cr, FY20

3.8 3.8

0.0

200.0

Expense In Cr, FY20

Source: Inc42 Plus Analysis Update: Numbers for Arata, Soulfull and HealthKart have been updated [19th June, 2021]

Home Decor Brand *

Headquarters

Presence

Channel Partners

Product Category

Bengaluru

12+ cities

Amazon, Flipkart, Paytm

Mattress

Mumbai

20 cities

Amazon, Flipkart, Pepperfry

Mattress

Bengaluru

Pan-India

Amazon, Flipkart, Pepperfry, Paytm

Mattress

Bengaluru

10+ cities

Amazon, Flipkart

Mattress

Jaipur

20+ cities

Franchisee model

Furniture

Mumbai

26+ cities

Franchisee model

Furniture

Bengaluru

10+ cities

N/A

Furniture

Delhi-NCR

N/A

Myntra, Flipkart, Pepperfry, Paytm, Tata CLiQ, Amazon

Mattress

Note: *Denotes a brand’s offline retail store locations, N/A: Not available Source: Inc42 Plus Analysis

Consumer Electronics Brand

Presence

Channel Partners

Product Category

Delhi-NCR

25+ cities

Flipkart, Amazon, Myntra, Nykaa, Tata CLiQ, Paytm, Croma, Reliance Digital

Smart wearables

Delhi-NCR

12+ cities

Flipkart, Amazon, Myntra, Paytm

Smart wearables

Hyderabad

N/A

Flipkart, Amazon, Paytm

Smart wearables

Delhi-NCR

N/A

Flipkart, Amazon, Paytm, CRED

Smart wearables

Headquarters

Note: Presence is based on service centre locations N/A: Not available Source: Inc42 Plus Analysis

BoAt Led Consumer Electronics D2C Brands By Generating INR 704 Cr In Revenue In FY20 BoAt reached the No. 1* position in the earwear space within four years of launch 704.1 -637.6 157.1 -132.5

69.4 -86.6

-750

-500

-250 Revenue In Cr, FY20

0.0

250

500

750

Expense In Cr, FY20

Source: Inc42 Plus Analysis © Inc42 Media | not for distribution 54

Money Spent On Logistics By Indian D2C Brands Brand

Logistics Cost In Cr In FY20

Logistics Cost In Cr In FY19

Growth In Logistics Spend In FY20 (In %)

38.6

30.8

25.3%

20.3

4.9

318.2%

15.5

5.3

190.2%

15.0

2.6

471.8%

12.5

2.8

341.5%

12.1

5.6

117.9%

8.4

2.2

286.4%

7.4

11.9

-37.6%

7.0

3.2

Brand

Logistics Cost In Cr In FY20

Logistics Cost In Cr In FY19

Growth In Logistics Spend In FY20 (In %)

6.9

36.2%

4.8

3.1

54.3%

3.3

1.9

72.3%

2.6

1.6

61.5%

2.6

0.8

233.6%

1.1

0.9

23.2%

1.0

0.8

29.1%

Note: Transportation/freight cost is considered as logistics cost Source: Inc42 Analysis

Bewakoof Spent The Most On Logistics As A Share Of Total Expense In FY20 Compared To Other Major D2C Brands 20.0 15.9 15.0

12.7

10.0

8.4

5.0

7.5

6.0

5.9

5.4

4.3

3.8

3.7

3.4

2.1

2.0

1.9

0.7

ko o wa Be

7.9

ae ar th W ak ef Th it eM om sC o. Th eM Ny ka an a Co m pa ny Cl ov ia Fa bA lle y Lic io us Su ga r So Co ul un try full De lig ht Le ns ka rt bo Pe At pp er fry Bl ue To ka M i elo rra

0.0

Logistics Expense As A Share Of Total Expense (In %)

Bewakoof’s logistics expenditure rose by 50.2% in FY20

Logistics Ecosystem In The D2C Space Parameters

In-House Fulfilment

Fulfilment By Marketplaces

3PL Providers

Who’s Doing What

Companies manage the entire process in-house without any help from 3PL providers.

Ecommerce marketplaces through which companies sell their products undertake all fulfilment activities.

Companies outsource the entire fulfilment process to these third-party logistics service providers.

Level of control

High

Low

Medium

Scalability

Low

High

Affordability

Low

Medium

Suitable for

Best suited for new D2C businesses or small ecommerce stores

Best suited for smaller or emerging brands

Best suited for large and growing ecommerce stores.

Key players

N/A

(aggregator) Source: Inc42 Plus Analysis

Logistics Cost Reduction Strategies For D2C Brands Though the Covid-19 pandemic hampered India's D2C sector’s growth in 2020, where investments declined by 48%, the future of the D2C market looks bright as the Indian ecommerce market is expected to grow to $200 Bn by 2026.

Saahil Goel

CEO & Co-Founder, Shiprocket

Under such a competitive environment, every company needs to strive for its own sustenance and growth. One way to achieve success is to offer the best quality of products and services that suits as per the requirements of the target customer. To provide quality services at a reasonable price, businesses have to emphasise from mere cost ascertainment to cost reduction strategies. There are a number of strategic cost reduction strategies available for D2C businesses like supply chain management, business process re-engineering, warehouse renting, inventory storage, and total productive maintenance

What Are Logistics Costs? Logistics costs are the summation of all expenditures undertaken to transport an available good or a service to the market or the end consumer. This includes the costs of storing goods in inventory, warehousing, depreciation, insurance, and taxation. Additionally, labor costs are also included in the physical handling of goods for tasks such as packaging and labeling. © Inc42 Media | not for distribution 59

For all these activities, D2C brands are willing to pay higher to take advantage of a service that offers transportation, next-day delivery, warehousing, tracking, and storing, which enables them to reduce transportation costs as well as improve their time responsiveness. Thus, logistics costs are the most important element of any D2C business, non-spatial components such as warehousing, inventory, courier, and labor costs, are also significant components that influence the supply chain management costs. Challenges associated with logistics costs optimisation have always been a burden on companies that are difficult to circumvent around. Here's an example of how logistics costs can become a burden if not optimised. Started in December 2016 by Gazal and Varun Alagh, MamaEarth manufactures non-toxic, baby-care; skin, hair, and pregnancy care products both for prenatal and postnatal women as well as skin and hair care products for men in India and abroad. MamaEarth expenditure on freight and transport grew 5.7X to INR 15.05 Cr in FY20. With this growing popularity and high number of orders, the company had to separate the inventory and operations for B2B (orders from large retailers) orders. This resulted in additional inventory costs and manpower for the business. Previously, the orders were processed from a single warehouse that resulted in delayed shipments, order cancellations, and led the brand to incur huge shipping costs. To overcome this, the brand launched regional warehouses for fulfilling the orders to reduce delays and save shipping costs. The AI-driven inventory forecasting was deployed by it to forecast inventory and purchase data between warehouses. This helped in managing high volume sales and reducing shipping and order fulfilment costs. Further, automated systems were implemented in the warehouses to manage orders based on artificial intelligence-driven algorithms. Further, it also eased the challenge of tracking different carriers. © Inc42 Media | not for distribution 60

7 Logistics Cost Reduction Strategies For D2C Brands Minimising General Expenditure Analyse buying inventory items in bulk that are deemed vital to the business. The same applies to redundant or unwanted inventory that may be in your warehouse and costing you more money. The cost of storing inventory can be high, understanding the right time to reorder inventory in the right volume is an easy way to make sure that you are not holding more inventory. To determine inventory reorder points, look at the history of sales data and what channels customers most often used for purchases. Additionally, you can look at how other D2C brands with similar sales models are setting up the reorder points. The cost spent on storing deadstock could be spent on new products to diversify your inventory. According to a study, 70% of retail and wholesale D2C brands saved a day by deploying AMRs to their warehouses. It helps a company grow faster by pulling real-time data on sales performance, and helps decide what is the next best step for logistics cost reduction strategy.

Reevaluating Your Courier Prices Re-evaluating courier prices could provide your business with substantial savings and can save 30–60% logistics cost annually. D2C businesses can get locked into using a single courier company. But there are a wide variety of services available with characteristics that make it a more cost-effective option for shipments. You may use Fedex, but for certain types of shipments that could give you that exact service level for 15% or less. For example, one carrier company was shipping heavyweight packages nationally from five different warehouses and charges for home delivery and fuel. A shift to DHL courier service can save the delivery surcharges, and provide the right service for this set of heavy products and distribution requirements.

Fedex

DHL

Known for its quick delivery of time-sensitive shipments domestically.

DHL’s heavyweight shipping options are great for international shipping and also include expedite shipping.

Priority is given for quicker delivery than the price

Offers Air Freight Services and Ocean Freight Services with door-to-door delivery for too heavy, bulky, and big items.

Charges extra for home delivery and next-day delivery

1-2 Delivery option is also available with no surcharge on delivery. Offers urgent air freight service for heavy items and special cargo service in controlled temperature for international shipments.

Review Your Operations Metrics Planning for operations such as production scheduling, transit times, delivery routes, delays, and missed deadlines, can affect your company’s reputation and may ultimately cause a potential loss. A lot of companies agree that if shipping consignments were packaged differently, the cost of transportation would be low for the organisations. Over-packaging can greatly increase costs from both — packaging cost point of view and charges paid to courier companies. Though a lot of shipping consignments require proper wrapping, and bracing to prevent damage during shipment, there are more sustainable options that provide additional layers of security. For example, shipping boxes with wooden pallets can help keep products secure during transit, but with all the extra weight. Without adding wooden pallets to small or large corrugated boxes also allows for adjustable configurations and provides the same level of protection. © Inc42 Media | not for distribution 62

Additionally, D2C brands can face internal pressures for managing the demands of the consumers, calls for more frequent deliveries, warehouse management for a wider assortment of merchandise. All this requires optimisation of the supply chain that enables the organisation to manage its logistics costs, optimise the distances that have to be covered by transport services, and streamline its retail operations.

Reducing Transportation Costs One of the best ways to reduce transportation costs is to have multiple suppliers in one area or in a country. Similarly, the distribution of inventory across multiple fulfilment centres allows you to keep it closer to your customers. It helps to reduce the order delivery time and save on the transportation costs. Having multiple warehouses at different locations helps you store inventory closer to your customers and lower shipping costs. For instance, it’s cheaper to send a package 30 miles than it is to ship it 1,000 miles to different cities or countries.

Investing In Automation Logistics operations using automation software can determine the appropriate location of vehicles, packaging, the right courier service, and route planning. This can get your orders to the customers in the shortest time possible. The usage of robots has increased in warehouse facilities, as robots can arrange shipping pallets without any additional help. Robots can work with or without staff members to shift or place items in the warehouse for storage. Automated equipment easily carries shipping parcels from one to other locations in a warehouse, using sensors, IoT, and the RFID tags. Using AI systems can help in testing numerous demand forecasting models and automatically adjusting to new products and supply chain disruptions. Amazon, for instance, optimises its fulfilment system with the multi-robot in Amazon warehouses. © Inc42 Media | not for distribution 63

In India, ecommerce giant Flipkart and fashion website, Myntra uses AI-powered robotics firm GreyOrange’s warehouse execution platform called GreyMatter. It enables them to manage warehouse operations by automating order picking, inventory optimisation, path planning, inventory storage, and order fulfilment.

Managing Cargo Insurance Expenses Cargo insurance provides coverage for international freight shipments. It is the most common type of insurance used to protect the value of your goods from damage or theft. The cost of cargo insurance is decided according to the type of insurance that you purchase. The two major categories of cargo insurance are open coverage and single coverage. Open Coverage

Single Coverage

This is a good option for brands with large-volume shipping requirements.

This is for small-business owners who ship occasionally and need single coverage from arrival to departure of shipments.

Policy is issued for a period of 12 months or more.

Policy is issued before the transit starts and on the completion of voyage, the coverage will cease immediately.

Pay Annual Premiums

Pay Monthly Premiums

Coverage until the plan is terminated

Covers freight on a per shipment basis

The policy can be renewed after a shipment is delivered

Non-renewable policy

The policy can be used for unlimited shipments within a specified time frame

Limited shipments with a specific coverage policy

Provide Coverage For Collision, Jettison, Explosion or Fire, Earthquake, Sinking, Spillover, Damage during loading or unloading of shipment, SRCC and war conditions and washing overboard Cost of Insurance It include — type of shipping - is it hazardous or safe, Packing and Palletisation; Container and Carrier costs; The size, weight, and dimensions of the freight; Where the cargo is being shipped from and to and Documentation costs Calculation of Insurance Premium First, the insurance premium that was quoted by the insurance provider, agent or broker. Then add 10% for the escalation costs Then multiply the total value obtained with the shipment value or the cost of freight. The final value is thus the amount to be payable as the insurance premiums. For Example: Value of Goods: $3000 & Insurance Rate: 0.5% Multiply these numbers ($3000 X 0.5% = $15) Then, assume Shipping Cost is: $1,000 Add ($3,000+$15+$1,000 = $4015) Total Insured Value is: $4,015 Multiply it by extra 115% costs: ($4015 x 115% = 4617) Now, multiply this number by insurance rate: 0.5% $4617 x 0.5% = $23.085 is the final cost of insurance © Inc42 Media | not for distribution 65

Collaborating With 3PLs 3PL firms will likely have more relationships with the carriers and shippers, which influence during negotiations, and will also be able to get you better discounts on services. It can also help in saving on huge warehouse infrastructure investments as it can provide warehouse space with experienced staff, the right tech-stack, and transportation.

Final Words Intense competition, rapid advancement in technology, customers demands, all these factors are changing the business environment and making it harder than ever for businesses to reach their full potential in the D2C space. The traditional cost reductions strategies are not enough to keep pace with the evolving business complexity. Minimising logistics and last-mile costs helps improve customer satisfaction. These logistics cost reduction strategies also offer the benefits of having reliable methods of managing your supply chain operations in various conditions and at your stores and distribution centres.

Which Sector Contributes Most To The Shiprocket's Business Sector

Clientele Contribution

FMCG

32.3%

Fashion

32.1%

Consumer Electronics And Appliances

18.5%

Home Decor

17.1%

Major Clients

Source: Shiprocket

Advertising And Promotional Expense Of D2C Brands Brand

Advertising And Promotional Expense In Cr, FY20

Advertising And Promotional Expense In Cr, FY19

Growth In Advertising & Promotional Expense In FY20

128.9

170.1

-24.2%

110.9

64.6

71.8%

54.2

20.0

170.7%

50.9

15.1

237.4%

49.4

18.8

162.0%

45.8

8.7

427.4%

41.0

19.4

111.1%

40.3

48.3

-16.5%

28.4

16.1

Brand

Advertising And Promotional Expense In Cr, FY20

Advertising And Promotional Expense In Cr, FY19

Growth In Advertising & Promotional Expense In FY20

26.5

3.9

586.1%

25.7

12.8

100.3%

23.3

14.7

58.2%

19.7

13.6

44.5%

16.2

4.9

233.9%

13.9

12.0

15.8%

13.3

3.7

256.2%

10.6

6.3

68%

1.4

0.4

232.4%

Note: Advertising and business promotion expenses have been considered here Source: Inc42 Plus Analysis © Inc42 Media | not for distribution 69

The Moms Co. Spent The Most On Advertising And Promotion As A Share Of Total Expense In FY20 50 40.5 38.9

40 30

33.6 33.4 22.6

20 10

19.5

17.4 17.1 16.9

14.4

12.2 11.7 10.6 10.6 10.4 8.5

8 2.7

ae ar th M elo r Pe ra pp er f So ry ul fu Th ll eM Su ga an r Co m pa ny Lic io us Cl ov ia Be wa ko W of ak ef it No ise Le ns ka Fa rt bA l He ley al th Co ka un rt try De lig ht Ny ka a Bo Bl ue at To ka i

Advertising And Promotional Expense As A Share Of Total Expense (In %)

At 586.1%, Wakefit saw the biggest increase in advertising and promotional expense among D2C brands in FY20

Source: Inc42 Plus Analysis

Top Investors In D2C Investor

Number of invested D2C startups

Notable Bets In D2C Brands

Investor

Number of invested D2C startups

Notable Bets In D2C Brands

2 Source: Inc42 Plus Update: Companies under few investors have been updated [19th June, 2021] © Inc42 Media | not for distribution 72

Women And Kids Apparel Brands In India Were Relatively Underpenetrated In 2020 Women’s apparel market is expected to grow at a CAGR of 12% and outpace the men’s apparel market by 2025 200 Market Size In $ Bn

$153 Bn 150

$94 Bn 100 50 0

20 36 38

2020

2025 Kids

Women

Men

Western Wear Accounted For 65% Of The Indian Apparel Market In FY20 The market for western wear is estimated to grow at a CAGR of 11.1% during FY20-25 100%

35%

32%

31%

28%

Men’s wear dominates the western wear market In India and accounted for 56% in FY20 ( $26 Bn).

75%

50%

65%

68%

69%

72%

Women’s wear accounted for 82% of the ethnic wear market in FY20, ( $16.9 Bn). Women’s ethnic wear market was dominated by saree (51%) in FY20, followed by salwar kameez/kurti (42%). Around 21% of women’s ethnic wear brands focus on the online business model.

25%

Indian Apparel Market: Key Highlights

FY2015

FY2018

Ethnic Wear Source: Wazir Advisors

FY2020

FY2025

The innerwear market, another emerging category, stood at $6.5 Bn in FY20, with women accounting for two-thirds of this market.

Number Of Online Beauty Shoppers Is Poised To Reach 122 Mn By FY25 The number of online beauty shoppers is estimated to grow at a CAGR of 45.1% during FY20-25

19 Mn

122 Mn

FY2020 FY2025 Source: Bain & Company, Inc42 Plus Analysis

D2C Brands Can Easily Leap To Premium Products By Filling The White Space In The Category’s Price Spectrum Category

Start-Of-The-Range Offerings

Value Offerings To Fill The Price Gap

Premium Products By Traditional Companies At Higher Prices

Hair Care Shampoo

Daily-use shampoo

Sulphate-free shampoo

Price of 250 ml

Hair Care Hair Oil Price of 300 ml

Cosmetics Foundation Price of one unit

Cosmetics Lipstick Price of one unit

Skin Care Moisturiser Price of 50 ml

Garnier Ultra Blends INR 135

Nyle Volume Enhance INR 250

Mamaearth Onion Shampoo INR 325

Daily-use hair oil Bajaj Almond Drops INR 166

Hair fall control and strengthening oil 2

Parachute Coconut Oil INR 116

INR 147

Maybelline Creamy Matte INR 179

Ponds Light Moisturiser INR 96

Sugar Matte Attack Transferproof Lipstick INR 699

Godrej Keracare Recharge INR 891

Indulekha Bringha Hair Oil INR 971

L’Oreal Ever Pure Shampoo INR 1,295

M.A.C. Studio Fix Soft Matte INR 2900

Bobbi Brown Foundation Stick INR 4250

Premium lipstick MyGlamm Lit Creamy Matte Lipstick INR 595

Mid-Range offering

M.A.C Retro Matte Lipstick, 3 gm INR 1700

Bobbi Brown Luxe Mat Lip Color, 4.5 gm INR 3700

High-end expensive products 5

Mamaearth Oil Free Face Moisturiser INR 299

L'Oreal Professionnel X-Tenso Care INR 875

Stick foundation

Long-lasting lipstick

Budget-friendly Nivea Soft Light Moisturiser INR 90

Sugar Ace Of Face Foundation Stick INR 999

Maybelline Fit-Me INR 500

WowSkin Science Onion Shampoo INR 399

Hair fall control and regrowth

Stick foundation

Everyday lipstick Lakme Cushion Matte INR 275

mCaffeine Naked & Raw Coffee Scalp & Hair Oil INR 299

Mamaearth Onion Oil INR 599

Liquid foundation Lakme Liquid

mCaffeine Naked & Raw Coffee Shampoo INR 374

mCaffeine Coffee Oil-Free Face Moisturiser with Hyaluronic Acid INR 337

BodyShop Vitamin E Intense Moisture Cream INR 1195

Note: 1 denotes the quantity is 400 ml; 2 denotes the quantity is 250 ml; 3 denotes the quantity is 200 ml; 4 denotes the quantity is 75 ml; 5 denotes the quantity is 80 ml. Source: Company Websites, Marketplace Listings

Forest Essentials Light Day Lotion INR 2250

Success Factors For Beauty And Personal Care D2C Brands Unique offerings: Most consumers look for exclusive, made-for-me products or personalised offerings. So, a well-performing product in a niche space brings in more traction and credibility to the brand.

WowSkin Science A range of onion black seed oil hair care products

Mamaearth Natural, toxin-free personal care

Mamaearth Skincare range of Vitamin C-based products

Plum Goodness 100% vegan and cruelty-free proposition

mCaffeine Coffee-infused range of personal care products

Arata All-natural, plantbased, zero-chemical personal care product

The Ayurveda Experience 100% natural and ayurvedic formulations

MyGlamm Celebrity-backed premium proposition

Sugar Cosmetics Small SKUs, long-lasting cosmetics

Bare Anatomy Personalised haircare and skincare products

Ruby’s Organics 100% organic ingredients in its makeup range

Social media and influencer marketing: Direct engagement with customers and rapid gain in followers and popularity are effective for products that require customer education. It also enables brands to understand customer preferences and fulfil their personalised needs.

Emerging Trends In Food And Beverage D2C Brands Meat And Meat Alternatives Top requirements include chemical-free, tender and non-chewy fresh meat. Due to a fast-paced, evolving lifestyle, consumers prefer doorstep delivery within 24 hours of ordering and require variety, including custom-cut, marinated and ready-to-cook meat products. With rising awareness, consumers now focus on product traceability and transparency (including sourcing data, livestock health, disease control and more). Customers highly prefer consistent cuts and portions for a standardised cooking experience

Milk And Dairy Brands Focus on subscription-based model: D2C brands follow a monthly subscription model to focus on higher purchase frequency. Category expansion: Milk brands also offer fresh dairy products (yoghurt, cheese and more) by using the existing cold chain set up to procure fresh milk. Premium pricing: D2C brands position their products as aspirational and charge a premium of 20-30% compared to regular dairy products. Customised products: D2C milk brands offer both healthy and tasty products and focus on product variety (flavoured milk, milkshakes and premium milk products) to attract an evolving customer base. © Inc42 Media | not for distribution 80

Snack And Health Food Brands Advanced techniques for taste and value: Processes such as vacuum drying and advanced cold storage help packaged food brands preserve taste and nutrition. Supplementary value-added services: A host of value-added services such as online consultation and diet planning offered by health-focussed D2C brands ensure better health benefits for consumers.

Home Decor D2C brands operating in this space have seen significant growth as: Most companies, especially mattress makers, offer user-friendly, customised solutions for all target segments. D2C mattress brands focus on research and development to offer ergonomically beneficial sleep products. These products also address a number of wellness issues related to sleep disorders and stress. Money back guarantee by brands helps maintain credibility and gains consumer trust.

Consumer Electronics Most of the D2C consumer electronic brands are focussing on audio devices like bluetooth earphones and smart wearables such as smartwatches and fitness bands. Brands such as Noise have in-house design and R&D teams to create differentiated offerings (Bluetooth earphones, smart wearables, action cameras and more). Interestingly, boAt, a major D2C brand in this category, has developed sophisticated but affordable products based on user feedback and in collaboration with designers to catch the fancy of the digital-first generation. © Inc42 Media | not for distribution 81

Methodology The report presents the study of data sets related to the D2C market in India, including major categories such as fashion, FMCG, home decor, consumer electronics and others. The data sets are collected from primary and secondary sources. The market opportunity is calculated based on the bottom-up approach. In each of the four categories (fashion, FMCG, home decor and consumer electronics), the market opportunity has been calculated by adding up all its sub-categories based on their respective online penetration and then aggregated to calculate the entire D2C market opportunity for that sector. The data has been taken from Euromonitor, Statista and Redseer, and the future forecast is calculated using the moving average method and analyst estimates. Funding in the Indian D2C market has been calculated by taking into account the list of investors and the investments they have made. In this case, only the data available in the public domain has been considered. The default base year for calculating the growth rate (CAGR %) is 2020 unless mentioned otherwise. The segregation of funding stages in this report is based on the following: Seed stage (Angel or pre-seed investment), bridge (transition funding rounds like Pre-Series A/B/C), growth stage (Series A and B) and late stage (Series C and beyond).

Glossary D2C Brands: Brands that manufacture, market, sell and ship their products to customers without relying on middlemen like distributors or traditional stores. These are almost always ‘digital-first’ businesses. It means they have either started digitally or built their presence in a way that digital channels act as their primary point of engagement with customers. Fashion: The fashion market includes three major categories — apparel and footwear, eyewear and accessories. FMCG: The FMCG market covers a number of major categories such as packaged food, soft drinks, hot drinks, health and wellness products, tissue and hygiene, consumer health, beauty and personal care items Home Decor: Home Decor market includes two major categories — furniture and mattress. Consumer Electronics: The consumer electronics market includes electronic and digital devices used privately for entertainment, communication, fitness or other home and office activities. Others: This includes home and lifestyle products, kitchenware, handicrafts, plants, bakery and more categories.

Bibliography https://www.avendus.com/india/d2c-brands-report http://www.abfrl.com/docs/investors/rights-issue/Indian_Fashion_Market_by_Wazir_Advisors.pdf https://res.cloudinary.com/ddenh0smb/image/upload/v1597998175/UC_Ecommerce_Trend_Report_Aug2020.pdf https://redseer.com/reports/overview-of-mattress-market-in-india/ https://www.statista.com/outlook/cmo/furniture/india https://www.euromonitor.com/packaged-food-in-india/report https://www.statista.com/outlook/cmo/non-alcoholic-drinks/soft-drinks/india https://www.euromonitor.com/hot-drinks-in-india/report https://www.bain.com/globalassets/noindex/2020/bain_report_how_india_shops_online.pdf https://www.euromonitor.com/health-and-wellness-in-india/report https://www2.deloitte.com/content/dam/Deloitte/in/Documents/consumer-business/Unravelling%20the%20Indian%20Consumer_web .pdf https://trends.builtwith.com/shop/country/India © Inc42 Media | not for distribution 84

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