Many established fast-moving consumer goods (FMCG) companies are acquiring direct-to-consumer (D2C) players with fundamentally distinct business models in terms of distribution and marketing. The upshot here is a clear boost to growth and expansion into premium segments for FMCG companies.
These acquisitions provide FMCG companies with access to personalised consumer insights, a unique feature of the digital channels that can drive accelerated feedback, rapid innovation cycles, and targeted marketing. Thus far, the modest size of these acquisitions has not impacted the credit profile of acquirers.
A study of 82 FMCG companies in the Crisil Ratings-rated portfolio and 58 D2C companies indicates as much. The rated FMCG companies account for a third of the sector’s revenue.
In the past five fiscals, around two-thirds of the acquisitions (refer to the table in annexure enumerating the D2C acquisitions by FMCG companies over the last 5 years) of FMCG players have been in the D2C space. D2C companies gained prominence post-pandemic owing to their differentiated products and unique marketing campaigns, enabled by internet and smartphone penetration.
Accordingly, further enabled by the premium positioning of D2C brands sold through online channels (with pricing 1.5x 4.5x higher than established alternatives across categories), revenue of D2C companies logged a ~40% compound annual growth rate (CAGR) between fiscals 2021-2024, albeit on a low base. Meanwhile, established FMCG players clocked a more moderate ~9% CAGR during the same period.
Consequently, says Anuj Sethi, Senior Director, Crisil Ratings, “Acquisitions of D2C brands by FMCG players have led to a win-win for both sides. FMCG firms have been able to enter new and premium categories as well as gain access to consumer insights, accelerating feedback loops. On the other hand, D2C companies have been able to mitigate the challenges of scalability and profitability. Prior to acquisition, less than 15% of the D2C companies in our sample set had managed to cross Rs 250 crore in revenue, and only a third reported operating profits.”
The acquisitions have further strengthened the business profiles of traditional FMCG players by providing them entry into niche product categories, aiding diversification and premiumisation of the overall product basket.
They have provided growth avenues, particularly in highly penetrated categories, while expanding the total addressable market through adjacencies such as specialised ingredients. For instance, the introduction of pineapple and jamun-based variant in the body wash segment and onion and rosemary ingredients in the hair oil segment.
The acquisitions have also enabled entry of FMCG companies in segments with rapid innovation cycles and access to select customer cohorts with unique preferences. These include sustainable categories or specialised ingredients with health and beauty benefits.
Says Aditya Jhaver, Director, Crisil Ratings, “About 60% of the acquisitions by FMCG players have been in personal care and the rest in the food and beverage segment, supporting their premiumisation journey. About 85% of the acquisitions were undertaken to enter niche and premium segments, with ~35% in the health and wellness segment, ~20% in the specialised ingredients segment, including organic and herbal inputs, and ~10% in the men’s grooming segment amongst others. A few acquisitions were also undertaken to manage competition.”
The acquisitions have not dented the financial profiles of acquirers, as D2C players are in early stages of scaling up and hence acquisition costs have not been material relative to the size of the FMCG players. The average consideration for acquisitions has been less than 5% of the net worth of the acquirers, indicating negligible strain on bthe alance sheets of FMCG companies and, thereby, keeping their credit profiles stable.
The ramp-up of the acquired D2C brands post-acquisition to a much larger scale, while improving profitability over the medium term, will bear watching.
Annexure
Key acquisitions by FMCG companies in the D2C space over the past five fiscals
| Sl no. | Acquirer | Target company/ brand | Segment | Stake bought (%) | Acquisition/ investment value (Rs crore) |
| 1 | Hindustan Unilever Ltd | Uprising Science Pvt Ltd (Minimalist) | Personal care | 90.5 | 2,706 |
| 2 | VLCC | Happily Unmarried Marketing Pvt Ltd (Ustraa) | Men’s grooming | NA | NA |
| 3 | Marico Ltd | Satiya Nutraceuticals Pvt Ltd (Plix) | Beauty and wellness products | 60 | 380 |
| 4 | ITC Ltd | Sproutlife Foods Pvt Ltd (Yoga Bar) | Food and snacking (healthier alternative) | 47.5 | 225 |
| 5 | Ghodawat Consumer Ltd | To Be Healthy Foods Pvt Ltd (To Be Honest/TBH) | Food and snacking (healthier alternative) | NA | NA |
| 6 | Hindustan Unilever Ltd | Nutritionalab Pvt Ltd (Wellbeing Nutrition) | Health and wellbeing; beauty and personal care | 19.8 | 70 |
| 7 | Hindustan Unilever Ltd | Zywie Ventures Pvt Ltd (Oziva) | Health and wellbeing; beauty and personal care | 51 | 264 |
| 8 | ITC Ltd | Blupin Technologies Pvt Ltd (Mylo) | Mother and baby care | 10 | 30 |
| 9 | Marico Ltd | HW Wellness Solutions Pvt Ltd (True Elements) | Food and snacking (healthier alternative) | 100 | 306 |
| 10 | Emami Ltd | Tru Native F&B Pvt Ltd (Trunativ) | Health supplements | 20.65 | 95 |
| 11 | ITC Ltd | Mother Sparsh Baby Care Pvt Ltd (Mother Sparsh) | Baby care | 26.5 | 45 |
| 12 | Emami Ltd | Brillare Science Ltd (Brillare) | Personal care | 100 | 35 |
| 13 | Bikaji Foods International Ltd | Bhujialalji Pvt Ltd (Bhujialalji) | Traditional namkeen snacks | 49 | 5.1 |
| 15 | Wipro Consumer Care Ltd | Soulflower | Organic beauty and personal care | NA | NA |
| 16 | Marico Ltd | Apcos Naturals Pvt Ltd (Just Herbs) | Ayurvedic beauty products | 100 | 145 |
| 17 | Emami Ltd | Helios Lifestyle Ltd (The Man Company) | Men’s grooming | 100 | 272 |
| 18 | Tata Consumer Products Ltd | Kottaram Agro Foods Pvt Ltd (Soulfull) | Food and snacking (healthier alternative) | 100 | 155.8 |
| 19 | Marico Ltd | Zed Lifestyle Pvt Ltd (Beardo) | Men’s grooming | 100 | 157 |
