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

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.

Additionally, freight costs have gone up by 50-60%, a container shipment from Dubai that charged $1,000 earlier is now 4X the amount.

Even cotton yarn for apparel manufacturing is getting costlier as disruptions to global supply routes have led Chinese mills to Indian suppliers, making domestic cotton availability tighter, according to Swapnil Srivastav, cofounder and CEO of kidswear brand Kidbea. Indian brands are now competing with Chinese import demand on the same supply, he added.

Petroleum byproducts like plastic polymers, used to make resin and other materials used across manufacturing and packaging of consumer goods are especially affected. These commodities are denominated in US dollars and widely traded on spot markets, making them vulnerable to price fluctuations.

“The key challenge has been volatility and lack of pricing clarity rather than structural cost increases. Overall manufacturing costs have remained largely stable, with only marginal, situation-driven fluctuations,” said Udit Birla, promoter of Swara Baby Products, an original equipment manufacturer for the babycare industry.

Although, operations are getting impacted as well.

“Pricing has gone off the charts because a commodity like LPG, whose supply is controlled by the government, changed overnight,” said Rishheb Wassan, director of Stella Industries, a manufacturer of grooming and toiletries products.

He added that LPG can’t be stored in large quantities at once and has to be bought on a weekly basis. It’s widely used in industrial ovens to cure paint and powder coatings, drying, melting and moulding. It’s also used for dyeing and textile processing, making the sector especially hard-hit.

Packaging is another segment where LPG usage is important, especially for plastic shrinkage, bottle moulding, and labeling. Some of these processes can be turned electric, but it’s not as efficient, especially due frequent power outages that last for hours, explained Longway’s Garg.

Currently, factories are only being allotted 60% of their LPG usage in the last three months before the conflict first broke out in March, claimed Wassan, adding that the winter months anyway have low utilisation and the current supply is not enough.

Manufacturing On Pause

Thousands of MSMEs in manufacturing hubs across the country have already paused operations due to a lack of supply and high costs.

If oil prices also increase, it could also lead to shortages as people start hoarding in anticipation of more hikes. This could lead to stoppage in production, as energy fluctuations are commonplace in Indian factories that rely on diesel-powered generators for power backup which is frequently required due to electricity fluctuations.

Furthermore, the logistics space will be hit hardest, with both incoming and outgoing shipments taking a huge hit.

Manufacturers are also facing pressures from rising labor costs that have shot up by roughly 15% due a multitude of factors, according to Kidbea’s Srivastav.

Over the last month, factory workers from Noida in UP and Gujarat have protested over low wages, long working hours and working conditions, leading to a temporary halt in manufacturing activity and rising costs for their employers.

The protests came after the minimum wage was hiked in Haryana, enraging those in neighbouring states to demand the same, a move that could not have come at a worse time, a manufacturer remarked without wanting to be named.

This was on top of an ongoing exodus of workers from manufacturing hubs due to the rising cost of cooking gas in the grey market. Periodic events like elections in West Bengal, and wedding and harvesting seasons in UP and Bihar have added to the shortage and increased wage demands, according to Chadha.

“Many workers have left over the past month, and there is extreme inconsistency in their working hours due these factors. Those that stayed back are now demanding salary hikes since their cost of living has increased, which is driving up our costs,” he said.

Absorb The Blow Or Pass It On?

Manufacturers and retail brands are circumventing the fluctuations in commodity prices by either trying to lock in volumes when raw materials are cheaper or placing smaller orders when the prices go up to make sure bulk buying isn’t done on a higher price point.

Since this has resulted in hoarding and hedging, many vendors supplying these retail manufacturers are now only quoting prices on a daily basis to make sure their own profits are not impacted.

Most of the brands Inc42 spoke to said that consumption patterns haven’t changed yet, mostly because prices continue to remain largely unchanged for consumers and inflation has been under control. Consequently, they are scrambling to pad up inventories to continue their ability to service orders at better margins before price increases need to inevitably be kicked in.

Some have already sneaked in price hikes through hidden markups before discounts, which is commonplace in the D2C space. In other cases, retaining the existing retail price, D2C brands are slashing discounts on their website by 5-10% to cushion hits on their margin without letting end consumers feel the heat directly.

Others are optimising by seeking alternative ingredients that are available in India or relatively shielded from shortages and price fluctuations. D2C businesses are also building buffers into their margins by slashing budgets in other departments, especially marketing, to save where possible.

Regardless of the steps being taken by brands and their manufacturers to mitigate the ill effects of the war, one thing is for certain: businesses will absorb the impact for only so long.

Most agree that once the prices of commodities like gas and petroleum (and their byproducts) go up, they hardly ever come back down to their original levels. Hence, they will only take a hit on their balance sheets for so long, before they eventually have to start passing on their rising costs to their consumers.

The wait and watch game may only continue till the next quarter, or until legacy FMCG brands start hiking prices, after which they will be forced to start passing on the rising costs to their end consumers, regardless of whether the conflict is resolved till then.

The post Why India’s D2C Brigade Is Facing Its Toughest Test Yet appeared first on Inc42 Media.