In the last few years, there have been several deals in which FMCG majors bought D2C brands at an early stage. HUL bought Minimalist, Oziva, and Wellbeing Nutrition. Marico has lapped up Satiya Nutraceuticals, True Elements, Beardo, and Just Herbs. ITC has recently taken over Yoga Bar, Mylo, and Mother Sparsh. Even Emami has acquired Trunativ, Brillare, and The Man Company in recent years. The buyers are all established FMCG companies with a long history of profitable operations and piles of cash. The purchases are all start-ups, who are built on a single idea and single brand. What is driving this interest for such established FMCG companies? Such buys are really dominant. 

In the last 5 years, nearly 70% of the acquisitions made by the large FMCG companies have been in the D2C (direct to consumer) space. One of the big advantages of the D2C model is ensuring top-of-the-mind and direct consumer feedback; something not possible in the traditional wholesaler-retailer model. For the FMCG companies, they are not just buying customer insights, but also top line growth. While most FMCG companies have been growing top line at 8-9%, these D2C players are growing top line at 40-45%. It may be on a small base, but it is the model that matters. Also, such growth can be magnified and replicated with more capital infusion; which FMCG players have. 

It is not just the FMCG companies, but even the D2C players appear to be enjoying the attention. Large FMCG companies were flush with cash, but starved of direct customer insights. The D2C players are rich on customer insights, but are mostly running short of cash. That is where the entire acquisition appears to make sense to both sides. Apart from the consumer insight, FMCG players also get quick and assured access to premium brands catering to niche markets. That is essential to sustain their already rich valuations. For D2C companies, the big challenges had been scalability and profitability.  Both these issues get resolved when they are bought out by the big FMCG names. 

According to a CRISIL report, 60% of the D2C acquisitions by FMCG players were in the personal care segment while 40% were in the food & beverage segment. Nearly 85% of the acquisitions were done to enter the premium market segment. The preferred segments were health & wellness, organic & herbal ingredients, and men’s grooming. FMCG players have hit two birds with one stone; diversification and premiumization. The niche segments have enabled the FMCG companies to expand total addressable market of their existing mass-market products. The strong customer feedback loop will sharpen innovation cycles. Overall, FMCG players have hit bull’s eye this time around.