Over the last few years, the narrative driving India’s retail and D2C (Direct-to-Consumer) sectors has been heavily anchored to one word: premiumisation. However, a harsh macroeconomic reality is beginning to rewrite that story.
As highlighted in a recent report by ETtech, D2C brands across snacks, beverages, fashion, and personal care are facing a brutal margin squeeze. Driven by the West Asia conflict, a weakening rupee, and rising inflation, both raw material and logistics costs are soaring. Simultaneously, consumer demand is rapidly cooling.
Arvind Singhal, Chairman of The Knowledge Company (TKC), recently shared his perspective with ETtech on how this dual pressure is fundamentally altering consumer behavior.
The Hit to Premiumisation
To cope with global uncertainties and rising logistics costs, major FMCG conglomerates like Hindustan Unilever (HUL) are hiking prices by 8-10%. For the everyday consumer, this means a larger portion of their wallet is being consumed by bare essentials, leaving little room for discretionary purchases.
“When consumers start to downgrade, the story around premiumisation gets hit,” Arvind Singhal told ETtech. “We could see a 5-6% drop in consumer spending on a quarterly basis.”
This drop is already materializing at the ground level. Founders across the D2C ecosystem are reporting a reduction in Average Order Value (AOV). Customers who previously purchased two or three premium items per transaction are now downgrading to single purchases or prioritizing strictly essential goods.
The Input Cost Avalanche
The pressure on D2C balance sheets is immense. Recent weeks have seen the cost of aluminum cans and glass bottles surge by 25-30%. With local logistics also under pressure due to rising fuel prices, brands face a difficult choice: absorb the costs and burn through critical working capital, or pass the costs to an already cautious consumer base.
Many brands are evaluating price hikes of up to 10%, a move that analysts warn could further suppress demand, particularly for cash-burning players lacking deep funding support.
The “Discount Fatigue” of the Modern Shopper
Historically, retail brands have relied on mid-year e-commerce mega-events—like Amazon Prime Day or Flipkart and Myntra sales—to inject life into sluggish quarters. However, relying on discounting as a silver bullet may no longer work.
According to Arvind Singhal, the sheer frequency of online sales across e-commerce and quick-commerce platforms has permanently altered buyer psychology.
“I think consumers are very smart now. They realise that there is a sale around the corner — you miss this one, you go to the next one,” Singhal explained. “They are also getting cautious about spending money; they would rather conserve it.”
While promotional events will undoubtedly drive short-term traffic, the quality of that demand is highly questionable. Consumers are using sales to stock up on essentials at a discount, rather than splurging on the discretionary premium products that D2C brands rely on for high margins.
Navigating the Margin Crunch with TKC
The Knowledge Company’s Retail & Consumer Goods advisory practice helps brands navigate macroeconomic volatility and protect their bottom line during periods of suppressed demand.
Is your brand’s pricing strategy resilient enough to survive the drop in discretionary spending? Connect with TKC’s Advisory Team to bulletproof your retail operations.
