🤔 Why Are FMCGs Going the D2C Way?

The up and coming D2C brands are inspiring age-old FMCG companies. Here's how.

Neem, tulsi, turmeric: these are a few common kitchen ingredients that are pretty popular in the world of cosmetic products.

And now a new kitchen ingredient is gaining traction in this industry.

Onion.

Onions: The Secret Beauty Sauce?

Onions prevent hair fall and increase growth.

And so, more and more brands are pumping out onion and onion seed oil nowadays.

But this information has been available for years. And it's not just any old wives' tale. Even scientific research has verified this long back.

So, why is this surge in onion oils coming just now?

Thanks to D2C brands.

Direct-to-consumer brands like Mamaearth and Wow were the first to launch Onion oil hair care ranges in India.

They were soon followed by a host of other D2C brands.

And soon, FMCG brands like Marico, Emami and Bajaj also followed.

But why did these brands, that have been selling oil for years, never venture into onion oil?

FMCG's D2C Play

Simple: FMCG brands have tried to avoid products like onion oil, which are costly and niche, as they would not be a profitable venture.

You see, because of the whole FMCG wholesaler-distributor-retailer model, profit margins for products are very low. The profits mainly come from mass sales, so creating niche products doesn't make sense.

That is why these companies have traditionally focused on creating cheaper products that more people will buy. 80% of FMCG sales come from products that cost less than Rs. 10.

But with increasing urbanisation, the purchasing power of Indians (at least the growing middle class) is also rising at a 4.39% annual rate.

Because of this, more and more Indians are gravitating towards D2C brands that offer premium products.

Coffee enthusiasts are now choosing Rage Coffee or Sleepy Owl instead of Nescafé and those worrying about their hair are going for natural organic hair oils instead of the regular coconut and amla hair oils.

The D2C created the market and the FMCG brands are now milking it by entering the category. 

Onion hair oil is just one tiny example.

ITC launched a new product range Dalgona Coffee to catch up with the growing D2C coffee market, while Tata launched its range of single-estate tea.

Marico tried to compete by buying out competing D2C brands like Beardo and Just Herbs.

Meanwhile, HUL tried to take over the growing skincare market by launching brands like Baby Dove, Simple, and Love and Beauty.

What's more, these traditional companies have even adopted the D2C way of sales: the internet. 

This has made it affordable for them to launch premium products and has also increased their online sales.

You see, hardly anyone was going online to buy Parachute oil or Rin soap. 

So, these companies had been seeing dismal e-commerce sales so far. But by adding products that appeal to the up and coming internet savvy "niche" crowd, they have actually managed to increase their online revenue.

Plus, introducing products online has also made trials easier for brands. They can do a soft launch and get clear and prompt metrics about whether or not the product is working out.

The D2C model has truly changed how business works in India. And this now poses a threat to the budding D2C brands. 

Back to Onions?

This whole conversation started with an abundance of onion oils. So, we decided to look into exactly how popular onion oil is. And, we were surprised!

The global onion oil market was worth $40.2 million in 2020 but is set to grow at a 10.9% CAGR to $112.6 million by 2030. 

And with the skincare and haircare industry growing and taking cues from Indian Ayurvedic treatments, the market could become much much bigger in the coming years.

This is a huge opportunity for India and Indian farmers as we are the second-largest producer of onions.

This growing market could turn onions from food crops into cash crops.

In fact, India should further work on identifying such crops and herbs that could be useful in the beauty industry and promote their growth.

This could not only increase our exports but also make India a potential leader in the beauty industry.

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