Why India’s D2C Brigade Is Facing Its Toughest Test Yet

by · Inc42

SUMMARY

  • Manufacturing facilities in India are reeling under the stress of raw material shortages, fluctuation in commodity prices, fuel deficits, and a labor exodus amid the current geopolitical crisis
  • Contract manufacturers are absorbing part of increased cost, and have passed on the rest to D2C brands, which in turn have been reluctant to increase the price of their goods
  • D2C startups are now navigating cash flow issues, frequent price negotiations with vendors, extended delivery timelines and squeezed balance sheets
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Long-standing terms between manufacturers and D2C brands are getting altered amid a whammy of forces stressing manufacturing facilities.

The conflict in West Asia, which has induced worker exodus and labour shortages in India due to rising commodity prices, is affecting retail manufacturing operations every step of the way. Dwindling fuel supplies in the grey market have led to workers returning from cities and shuttered factories in key manufacturing hubs such as Gujarat’s Morbi and Surat, Ferozabad in Uttar Pradesh and Haryana’s Bahadur among others across India.

The stress on manufacturing has had an outsized impact on brands and new retail startups primarily in categories like beauty and personal care, apparel, home decor and

At the heart of the issue is the affordability crisis created by a hike in the price of commercial LPG cylinders in India to ₹1,303. While petrol and diesel rates have remained relatively stable due to oil companies absorbing much of the difference, there are fears that such subsidising won’t continue for long.

As Inc42 reported earlier, the supply chain issues have hit packaging costs of D2C brands besides derailing contract manufacturing operations.

Besides this, prices of many commodities are fluctuating relentlessly, causing an atmosphere of fear and confusion among workers in manufacturing units. The mass protests in Uttar Pradesh in April 2026 is just one instance of such fear resulting in strikes and protests.

But beyond workers, the fluctuations in price of raw materials and key formulation ingredients are resulting in brands having to renegotiate the terms of agreement with their manufacturing partners. Several manufacturers that Inc42 spoke to highlighted a 15-20% increase in their overall costs resulting from a sea of interconnected issues, which are mostly being passed on to the brands.

Manufacturing Contracts Under Review

“When the relationship between a brand and its supplier is well established, negotiating terms may not be as tough. But if you are shopping for a new vendor for a new product line, or because your existing supplier has shuttered its factories, it is tough to build trust,” according to Ritish Garg, cofounder and CEO of home appliance startup Longway.

Brands need to be extremely well versed about their product lines, the materials that go into making them, the prices at which the raw materials are being sold right now, and ask a lot of questions to ensure the manufacturer doesn’t try to squeeze margins, he added.

One major change is that founders of larger brands are now going into these meetings themselves rather than sending procurement agents, and vetting multiple suppliers before deciding on which one to partner with.

However, for smaller and newer brands, even this hands-on approach might be a tough sell.

Manufacturers are now requesting a cash and carry model, where brands have to pay upfront rather than work with the 45-60 day credit lines that existed earlier. Others are asking for a part of the payment upfront and the rest at the time of delivery. Nevertheless, this is causing cash flow and working capital management issues for brands that work on thin margins and depend on revenue from selling their stock to pay back vendors.

“It really depends on the relationship you have with the brand. If it’s a big or very old client, you can’t ruin that relationship over a temporary hiccup. For newer clients, we may prioritise those that pay upfront, but we are not following such aggressive terms for existing relationships,” said Jasdeep Chadha, founder and CEO of Sage Apothecary, a Gurugram-based contract manufacturer for beauty and personal care brands.

He further noted that manufacturers are only absorbing part of the rising cost of operations and procurement, and passing on the rest to clients.

“Plastic raw material costs have seen a 40-50% increase, which is causing a pressure on packaging material costs as well. We are working closely with our manufacturing partners to absorb part of this impact and ensure continuity,” home decor marketplace Vaaree cofounder Varun Vohra said.

What’s Plaguing D2C Manufacturing?

The biggest challenge for manufacturers right now is the procurement of raw materials, due to both shortages and price fluctuations.

The Rupee hit a fresh all time low ₹95.34 against the US dollar this week after falling consistently since the war began, while Global oil prices surged past $120 for the first time since 2022, effectively making raw material imports much costlier.

For beauty and personal care brands, which import many product ingredients from Europe and the Middle East due to their unavailability in India, this has meant a surge in the costs incurred by its suppliers and bottlers.

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