A new outsourcing model

Large consumer goods marketers buying or investing in a raft of successful direct-to-consumer (D2C), digital-first brands is a trend that has been playing out for the past few years. Think Hindustan Unilever acquiring skincare brand Minimalist for around ₹3,000 crore last year; homebred fast-moving consumer goods major Marico taking over men’s grooming brand Beardo and herbal beauty line Just Herbs; Kolkata-based Emami taking a stake in The Man Company and cigarette-to-atta major ITC picking up strategic stakes in mother-and-baby care brands Mother Sparsh and Mylo. And last week, Wipro Consumer Care and Lighting acquired premium pharmacy skincare D2C brand Dermatouch.

 

Driven by a substantial consumer mass that is buying online, with estimates varying from 150 to 250 million people, over 11,000 D2C brands operate across categories including food & beverages, apparel & fashion, beauty and personal care, home & lifestyle and small consumer electronics and durables. The size of the D2C market is estimated to be around ₹1 trillion. The rationale for big consumer marketers like HUL, ITC or Marico to buy a controlling or strategic stake in such brands is also clear — to grow in areas that are not served by existing products among consumers buying primarily online on ecommerce marketplaces or on quick commerce sites. For D2C brands, too, partnership with a deep-pocketed legacy player is a win-win, allowing them to grow their brands in the traditional, offline markets.  

But what the $20 billion, New York-based Colgate-Palmolive announced last week was unique in the world of corporate-startup alliances. Back in 2018, the Indian arm of the American firm had taken a minority 14 per cent stake in D2C brand Bombay Shaving. Last week, it announced that it is handing over the D2C and ecommerce business of its own mainline Palmolive personal care brand to Bombay Shaving Company (BSC). Under this new arrangement, BSC will handle all D2C and ecommerce advertising and consumer relationships for Palmolive, with Colgate-Palmolive India (CPI) left to manage the brand across general and modern retail. In a rare admission of a big consumer marketers’ own shortcoming when it comes to the mechanics of D2C marketing, CPI’s Managing Director & Chief executive Officer Prabha Narasimhan has reportedly said, “We did try it on our own, and honestly, I don’t think we are best in class.” 

To be sure, outsourcing in consumer businesses is not new. Nike and Apple have ruled their respective markets and categories without feeling the need to put down a single factory, focusing instead on what they defined as the core elements of their business — research & development, design, and managing the brand — with manufacturing outsourced to partners across the globe. In the initial years of the Indian Premier League (IPL) cricket tourney, many brands like mobile brand Micromax, Karbonn and IT brand Intex outsourced complete manufacturing to foreign partners, primarily in China, and focused solely on building their brands and business by leveraging IPL’s advertising reach and managing the retail channels. 

Acqui-hiring, where firms buy other firms not so much for their brand or product but for talent to run their own enterprise too has been common — from Google’s DeepMind and Character. AI acquisitions to the example closer home with Facebook and Instagram parent Meta taking a strategic stake in credit-card managing firm CRED and making its founder Kunal Shah global head of one of its core businesses in WhatsApp. 

What makes CPI-Bombay Shaving arrangement of last week sui generis is the virtual takeover of a key marketing function across the fastest-growing channels — D2C and ecommerce — of a big marketer’s mainline brand by a partner who is supposed to be better at it. The CPI-Bombay Shaving arrangement was announced just last week and we need to watch how Palmolive performs under it, but there may be a kernel of an idea here for the business world. The manner in which Apple’s outsourcing helped spawn billion-dollar businesses globally, from Taiwan’s Foxconn to India’s Tata Electronics, could there be another big opportunity here if and when more big marketers choose to rethink or redefine their core functions, a la CPI?  

The contours of the commercial arrangement between CPI and Bombay Shaving are not known, and maybe the opportunity is not as big as outsourcing manufacturing, but still the deal must surely have sent shivers down corporate hierarchies’ spines, given the boldness with which an erstwhile core operation was separated and given away to an outsider with expertise and a mindset thought to be lacking and, crucially, undevelopable within its own ranks. It’s one brand from CPI today, and if the experiment delivers, tomorrow it may be hundreds for India Inc. Why, even hundreds of thousands for World Inc!