homebusiness NewsTough road for young D2C brands as sector watcher says 'only 5% expected to survive'
Tough road for young D2C brands as sector watcher says 'only 5% expected to survive'
The rise of D2C brands in recent years has been a disruptive force in the retail industry, with many companies leveraging the power of social media and online platforms to reach consumers directly. However, as the market becomes more crowded and competitive, it's becoming increasingly difficult for smaller D2C brands to survive.
Diversified conglomerate ITC on Tuesday announced the acquisition of Sproutlife Foods Pvt Ltd (SFPL), which owns the Direct-to-Consumer (D2C) brand Yoga Bar. Yoga Bar has a product portfolio that includes Nutrition Bars, Muesli, Oats and Cereals.
However, the acquisition also raises the question of scalability challenges for the young direct-to-customer (D2C) brands. When asked about this, Abneesh Roy, Executive Director of Nuvama Institutional Equities, said that he expects a mere five percent to eventually survive.
The rise of D2C brands in recent years has been a disruptive force in the retail industry, with many companies leveraging the power of social media and online platforms to reach consumers directly. This in turn has meant that the market has become more crowded and competitive, and it's becoming increasingly difficult for smaller D2C brands to survive.
According to Roy, the future of D2C brands is not as bright as some may think. In an interview with CNBC-TV18, he stated that he expects the majority of D2C businesses to either shut down or be acquired by larger, listed fast-moving consumer goods (FMCG) players.
While predicting that out of the current crop of D2C brands, only 5 percent will survive in the long term, he also mentioned that 70 percent of D2C businesses will eventually shut their doors, while the rest 25 percent will be acquired by larger companies.
“I think 90 percent of the D2C in FMCG is available for grabs. I would expect 70 percent to shut shops in the next two years,” he added.
He believes the key to success in the D2C space is to have a strong brand and a unique value proposition. He also believes that larger FMCG players will continue to look for ways to acquire D2C brands that have a strong customer base and a unique product offering.
In terms of the Yoga Bar acquisition, he said, “It is a small acquisition but in the last few years it has doubled. Our view is in the next three years, it will have very strong growth.”
He expects more such acquisitions by most of the listed FMCG players in the coming quarters.
ITC said that it will acquire 100 percent of SFPL over a period of three to four years. It also added that 47.5 percent stake in SFPL will be acquired, in tranches, by March 31, 2025; and the balance stake will be acquired, basis pre-defined valuation criteria, subject to other conditions agreed to in the binding documents.
For more, watch the accompanying video
(Edited by : Abhishek Jha)
First Published: Jan 18, 2023 1:02 PM IST
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