Over the past five years, approximately two-thirds of acquisitions made by Fast-Moving Consumer Goods (FMCG) companies have been in the Direct-to-Consumer (D2C) space. This trend is driven by the desire of established players to boost growth, expand into premium segments, and gain access to personalized consumer insights. According to Crisil Ratings, notable acquisitions include Hindustan Unilever’s purchase of Uprising Science Pvt Ltd (Minimalist) for Rs 2,706 crore, Marico’s acquisition of Satiya Nutraceuticals Pvt Ltd (Plix) for Rs 380 crore, and Emami Ltd’s takeover of Helios Lifestyle Ltd (The Man Company) for Rs 272 crore.
These acquisitions provide FMCG companies with access to unique features of digital channels, such as accelerated feedback, rapid innovation cycles, and targeted marketing. The modest size of these acquisitions has not impacted the credit profile of acquirers, with the average consideration for acquisitions being less than 5% of the net worth of the acquirers. Crisil Ratings notes that the acquisitions have strengthened the business profiles of traditional FMCG players by providing entry into niche product categories, aiding diversification and premiumisation of the overall product basket.
The majority of acquisitions (60%) have been in the personal care segment, with the rest in the food and beverage segment. About 85% of the acquisitions were undertaken to enter niche and premium segments, with 35% in the health and wellness segment and 20% in the specialized ingredients segment. The acquisitions have enabled D2C companies to mitigate challenges of scalability and profitability, with less than 15% of D2C companies crossing Rs 250 crore in revenue and only a third reporting operating profits prior to acquisition.
While the acquisitions have not dented the financial profiles of acquirers, Crisil Ratings notes that the ramp-up of the acquired D2C brands post-acquisition to a much larger scale will bear watching. The ability of FMCG companies to improve profitability over the medium term will be crucial in determining the success of these acquisitions. Overall, the trend of FMCG companies acquiring D2C startups is expected to continue, driven by the desire for growth, premiumisation, and access to personalized consumer insights.