Decoded: Marico’s direct-to-consumer strategy

Marico was one of the early companies to hive off a separate vertical for e-commerce.

FMCG brands have been on a D2C shopping spree of late. Marico’s acquisition of Just Herbs is the second investment in a direct-to-consumer (D2C) brand by an FMCG major. Emami, had upped its investment in The Man Company late in June. Just Herbs is the second D2C company to be acquired by the maker of Parachute and Saffola. Earlier this year, Marico completed the acquisition of the male-grooming start-up Beardo.

The latest stake buyout ticks off two companies in Marico’s list as it eyes to “build a portfolio of at least three Rs 100-crore plus digital brands within the next three years.”

“The investment is in line with Marico’s strategy to accelerate its digital transformation journey through building scalable digital-first brands, either organically or inorganically, as well as to premiumise its play in personal care,” the company said announcing the move.

The bets on digital-first brands such as Beardo and Just Herbs, will also help the company in understanding the digital landscape.

“These acquisitions will help FMCG companies in getting direct feedback from the consumers and also acquire a digital know-how, which is vital for them as e-commerce becomes an important channel to reach out to small towns too,” said Amarjeet Singh, Partner, KPMG India.

According to a 2020 report by Avendus Capital, beauty and personal care will be a $30 billion market by 2025, out of which digital-first brands could have a $10-15 billion share.

Premium to mass 

In its attempt to tap e-commerce, the company launched several digital-first brands such as True Roots botanical hair tonic, Saffola FITTIFY Gourmet range, Coco Soul cold-pressed virgin coconut oil, Parachute Advansed Coconut Crème range and Set Wet Global Edition perfume sprays, as early as 2019. It was also one of the first FMCG companies to invest in the D2C story and had strategically acquired a 48 percent stake in Beardo in FY18.

Unlike its strategy for traditional channels, Marico’s digital-play is mostly focussed on premium products. But experts indicate it may also try to capture mass markets through these brands in the future.

“While currently, the range of products offered by Just Herbs fall in the premium category sold mostly through e-commerce with exclusive offline stores in select cities, Marico’s CEO has already stated his goal to make it reachable to critical mass over next couple of years,” said Vinit Bolinjkar, Head of Research, Ventura Securities.

Bolinjkar believes the same strategy will also be adopted in other digital categories. “The goal would be to start with premium products sold exclusively on digital channels and then move to mass offerings by creating brand extensions,” he added.

However, it remains to be seen how successful these companies will be in creating mass brands out of these niche categories.

Eye on digital 

Marico has undertaken several other initiatives to ramp up its presence in e-commerce, which it expects would bear fruit soon.

“Marico has been investing in expanding its distribution reach (ramped up direct reach in both rural and urban) along with a key focus on e-commerce channel,” said ICICI Securities in a recent note.

Marico was one of the early companies to hive off a separate vertical for e-commerce. The channel currently contributes 8 percent to the company’s sales, which is much higher than its peers in the industry. (chart below)

Last year as pandemic ravaged the country and lockdowns restricted movement, Marico hopped on the D2C bandwagon and launched its own D2C platform Saffola Stores. Though the platform has a small contribution to sales, the company expects it to pick up pace going ahead.  

 “In our endeavour to reach consumers directly, we also launched our e-store last year. Though it is still early days for the platform, it is slowly and gradually building up. So, we definitely see that this will grow. But at this point, it is not very significant. That said, we are focusing on it, and investing in it,” Pawan Agrawal, CFO, Marico, told Moneycontrol in an interaction in June. 

With this mix of digital-first brands, D2C acquisitions and its e-commerce website, Marico is trying to win over the consumers on the internet.