The direct-to-consumer (D2C) space has turned into a business hotspot, driving home substantial investments with a growing number of companies drawing up plans to enter the market.
Mamaearth, a D2C brand, is about to enter the stock market on November 7 after its public issue captured the attention of the entire D2C investment community.
“Mamaearth is indeed a signal for opportunity in the D2C space. Public markets have loved brands like Gillette, Colgate and Jockey. And, have given very high valuations. It will remain to be seen if Mamaearth reaches those numbers similar to the listed brands like a 10x revenue multiple in a few years,” said Anand Lunia, general partner at early-stage venture capital firm IndiaQuotient that has invested in D2C startups like Sugar and FabAlley.
Traditional brands too get a whiff of the potential of the D2C market and are making moves to tap into it. Dabur CEO Mohit Malhotra, for example, mentioned in an earnings conference call on August 3 that venturing into the D2C space would help the company grow in high-end markets and strengthen its presence in urban areas. These traditional brands have the financial means to explore acquisitions, enhancing their positions in the D2C sector.
Read more: D2C surge: Traditional brands pivot for next-gen wallet share
Analysts noted that acquiring D2C brands offers these established companies a unique advantage. When they introduce new products, consumers naturally associate them with the brand's existing values. In contrast, D2C brands are often seen as more innovative and appealing to younger demographics.
Acquiring a D2C brand allows traditional companies to create a distinct value proposition, fuelling their growth and providing a fresh dimension to their business portfolios.
Some traditional brands such as Hindustan Unilever Limited (HUL) have taken a different approach by launching their own D2C platforms to directly serve consumers. HUL boasts of a diverse D2C portfolio that includes the UShop platform and 11 other brand-specific websites. Additionally, HUL's IC Now platform enables customers to order ice cream for home delivery through local delivery applications.
D2C has the added advantage of cost-efficiency. “In case of D2C, the channel itself provides some bit of branding and you get a capital avoidance over there. For D2C, the performance can also be judged based on their reviews.” said Ajay Thakur, an analyst at Anand Rathi Institutional equities.
The D2C sector is abuzz with potential IPOs as a host of companies gear up to go public. While consumer electronics brand Boat delayed its IPO due to market turbulence, reports suggest that baby product retailer FirstCry is exploring the option, and eyewear retailer Lenskart is readying for a stock market debut after reaching a valuation of $4.5 billion in its recent funding round.
Rishabh Mariwala, who is poised to gain over 50 times his initial investment in Mamaearth's IPO, believes that Mamaearth sets a crucial example for D2C startups. It showcases how to strike a balance between burning cash and ensuring business sustainability.
"There is a negative narrative around D2C companies burning cash, where people question sustainability, but Mamaearth has shown the way. Its IPO is a watershed moment for the startup ecosystem, demonstrating that D2C, along with marketplaces and offline channels, can crack the code," said Mariwala, who serves as the managing partner of Sharrp Ventures from the Marico family.
The Mamaearth IPO is not just a milestone for the company itself but a guiding light for the entire D2C sector, illustrating the potential for growth and profitability in this dynamic market. As the D2C space continues to evolve, Mamaearth's journey into the public market hints at a promising future for both investors and the brands themselves.
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