Over the past decade, India’s F&B sector saw a huge growth as consumer were exposed to global cuisines and started experimenting with new food varieties. Moreover, food delivery services coupled with cloud kitchens brought delicious food directly to the home dining table.
The pandemic dealt a big blow to the entire industry, forcing many restaurants to pivot to a delivery only model. However, not all food types can be delivered, as the taste and experience enjoyed at a restaurant can’t be replicated at home. This has compelled many entrepreneurs employ to adopt out of the box strategies to transition to becoming omnichannel players.
Deb Mukherjee, Founder and CEO, Ceres Foods shares his insight on this evolution in the food industry and how these stakeholders can make their mark in a dynamic sector.
What factors have propelled the rise in a new class of Direct to Consumer (D2C) food companies in recent times?
Globally D2C companies have already started making a mark especially in consumer goods segment. They typically bypass third-party retailers, wholesalers, or agents and only sell online, although some brands have created pop-up shops or other physical locations to compliment their omnichannel journey.
As consumers demand a better experience, brands are bypassing traditional practices to meet their needs and are taking control of the customer experience themselves. Most D2C brands are offering a differentiated product or a service for a particular consumer type which fulfils a certain need. Once that market gets established, then the brands tend to branch out to other associated target groups (TG).
What nuances have these D2C business models adopted?
Newer brands typically use third party supply chain and direct distribution through web interface and branded stores to reach the customer. Supply chain plays a critical role in this equation, especially in India. The easiest route however that most brands actually follow is to work with marketplaces or digital aggregators like Amazon, Flipkart or Instamart to make their product available to a larger audience.
The flipside is not having access to customer data. Generating traffic on the brand’s own website or app is an expensive process and unviable until the brand is at least popular within a certain TG.
Licious, Fresh2Home and Meatigo are three brands that successfully scaling up in the D2C space by latching on to a untargeted category – fresh meat. However, they invested a fair bit on their supply chain given the temperature sensitivity of the product and the nonexistence of a reliable cold chain on a large scale.
In the restaurant space, almost all brands generate their sales from either Swiggy or Zomato. Dominos is an outlier that successfully owns its infrastructure. Even if a customer places the order on Swiggy, the final product is most likely delivered by a Dominos customer executive. This has helped Dominos control its customer experience very effectively.
How can entrepreneurs devise a design-led, digital first approach to differentiate themselves in a market where newer brands come up constantly?
In this crowded market, the hallmark of a successful brand is the product itself. A customer-centric design approach is equally critical for its success. A digital-first approach is the most cost effective and fastest way to scale up a brand in India. Traditional distribution models are very cumbersome and difficult to deal with. There are a large number of companies which can provide these services to a new brand and help it scale up.
How often do these business need capital infusion to scale their business?
D2C requires a fair amount of investment and a brand can be successful only if they control a large part if not the entire supply chain. Marketing plays a very important role. However, it is also important not to run after scale from the start.
Ultimately, what is important is the niche the brand is targeting. If the product is acceptable to that niche then the job is done. Otherwise no matter how much marketing one does its water down the drain.
How can entrepreneurs map their financial plans to keep pace with their ambitious goals?
DTC brands typically raise capital in stages. Reaching a INR 100 cr GMV is the first major milestone and it is important for founders to reach it without diluting a lot of their equity. Once they hit this scale then scaling becomes relatively easier and less taxing. Brands need to be flexible with their offering and adapt to customer changes quickly during this part of the journey.
How can these brands protect themselves from a performance plateau?
A raving customer base can take a fledging brand mainstream in record time. To get that big boost from word-of-mouth marketing, it needs to become an expert listener and constantly seek answers to the following:
•Who is my real customer?
•What is my customer looking for?
•What isn’t working for them?
•What can I improve on?
Customers today are very vocal and constantly communicate through product reviews and social media. Companies need to constantly monitor and analyse the same.
Brands like Licious have adapted to their customers’ needs well. While they sell chicken, which is a commodity product, they promise consumers a safe product, which led to their popularity. If one sees their portfolio today, they have created a huge selection of ready-to-eat product category making the customer’s life easier, which is promoted through high decibel ad campaign.
Such is the lure of D2C that even conglomerates like ITC have entered the fray with a host of ready to cook products under ITC Masterchef brand. It is smartly leveraging its experience in the hotels segment and transferring it to D2C via its ITC eStore while also selling through popular ecommerce platforms. It has a well-established, pan-India distribution network to complete the omnichannel loop to reach out to its customers.
What strategies can entrepreneurs employ to scale their digitally native brands and navigate the transition to omnichannel players?
Since offline retail still forms 90% of Indian retail sector, it means there is more space for online to grow. Depending on the product and the TG, brands need to evaluate whether they should adopt an omnichannel strategy.
Several companies have moved to omnichannel including Nyaaka, Amazon and Big Basket. Organisations should explore this business model only after scaling up to a sizable level with sizeable revenues.
It is always advisable to test and prove yourself in select regions and add more markets, customise your product, promotion and placement best suited to these new regions. This will also ensure economy and best deployment of your limited resources.
How can they focus on profitability and increase their margins through integration of value delivery?
Generally DTC brands are not profitable in the initial days of scaling up. It is important to also keep the margins in check while growing. If the Brand gives up a lot of margins on day 1 to the distribution channels, it will be very difficult to revert to a lower margin when the brand becomes bigger. Profitability will ultimately come from the perceived value the Brand is able to create in the mind of the consumer. If the Brand can maintain its positioning then generating profitability at scale should not be an issue. Ultimately if the Consumer sees value in the brand, nothing can stop them from making money.
.jpg)