Building a brand in the era of Quick-com

I recently had the pleasure of hosting a fascinating panel discussion on the Impact of Quick-Commerce on New-Age Direct-to-Consumer (DTC) Brands at our Annual Fund Event. We were joined by some incredible minds: Kedar Lele, now the Managing Director at Castro India and formerly with HUL; Arun Iyer from Spring Marketing Capital; Ravi Kapoor from PwC; and Arvind, the CMO at McDonald’s India.

Why does this topic matter?

Direct isn't what it used to be

The reason we took this topic was even though we’ve been investing in DTC brands since 2018, we believe India is at a juncture where ‘Direct-to-Consumer’ doesn’t mean as much as it used to. Brands used to believe that going ‘direct’ was a big enough differentiation by itself, that bypassing traditional distributors & retail channels was all that mattered. Driven by this, brands used to hold sales coming from their website over & above everything else. Unfortunately COVID ended up changing a lot of consumer behaviours and at around the same time, the privacy changes of Apple & Google, made Meta & Google ads insanely expensive. So the direct website channel, which was once considered to be the holy grail became least profitable.?

Changing Marketplace dynamics

Marketplace dynamics have become complicated, to say the least! While Amazon & Flipkart were trying to ace the horizontal game, vertical marketplaces like Nykaa, Myntra, Healthkart, Purplle, 1mg popped up and started winning market share. Then of course, as Quick-com started fading away globally, out of the blue, it started scaling in India - which initially looked like a vertical delivery platform for grocery & FMCG but now has expanded ambitions to everything that probably fits in a scooter? With of course, the original horizontal players fighting back (at least, Flipkart, thus far with Minutes). I wish it ended there, but as BlinkIt, Zepto become more horizontal, new vertical quick-com players focused just on Food, Fashion etc. are popping up.

Key takeaways

• What you sell in each channel matters?

What large FMCG companies have done really well is that they’ve created multiple SKUs of the same product and it’s distributed in such a way that each channel remains profitable. For instance, sachets and smaller packages at GT whereas larger wholesale packs works well at BigBasket and Dmart. However, most new-age brands usually try to reduce complexity and therefore limit their SKU to just few sizes, if that. Kedar explained how fragmentation of a distribution channel results in more profitability for a brand. Therefore, for brands to remain profitable across different channels, they would have to focus on differentiated products/packaging early on to match the consumer behaviour in that channel.

• Brands pay in the beginning & Consumers in the end

As the famous saying goes, History doesn't repeat itself, but it often rhymes! We can look at what happened in food delivery to draw parallels to Quick-com. Initially in food delivery, there were a lot of discounts and the neither the restaurants nor the platforms were making money. But given that it’s a duopoly, the platforms eventually stopped most of the discounts and also started charging platform fees (which is now increasing every year). The restaurants also made money, not as much as their dine-in of course, but profit nevertheless. We believe the next few years are going to be hard for brands (especially the non-VC funded) to survive in Quick-com.?

• Having a direct channel matters now more than ever?

While we used to look up to brands like AllBirds, Glossier, Casper, Bonobos in the US who pioneered selling directly through their websites, now actually most of these companies are a shadow of what they used to be. They’ve either been sold at a fraction of their value or if they are listed, their stock prices have crashed. At the same time, there are companies in India, which did go ‘direct’ but the old-school way via offline stores. Lenskart, Sleep company, WakeFit, Sugar & Giva are few great examples. What we learnt is slightly counterintuitive, while quick-com and other platforms have made distribution really easy - it’s important to balance these channels with your own direct channel to build a relationship with the consumer and like Arun said, you can only truly understand the brand loyalty and brand preference when a consumer walks into your store. ?

• Brand-building over performance marketing

Another aspect which has now changed is that, performance marketing on Meta or Google, which used to be the Go-to way to scale brands on DTC websites and Amazon, is no longer as relevant when you are scaling via offline stores or Quick-com. As in the case of quick-com you don't have real-time visibility of your products across pincodes and therefore consumers can’t just click an ad and buy. Therefore brand marketing becomes extremely important - however this is an abstract concept to many, especially early stage founders. While you could potentially take the help of an external agency to help you with building your brand, at the earliest stage, brands are usually an extension of the founders themselves. Therefore founders have to be very good at connecting with their audience in an authentic way.?

As a fund we continue to look for new-age brands which are taking a more pragmatic approach towards distribution, feel free reach out to me at [email protected].