D2C x GST 2.0

Hey readers,

Welcome to the ninth edition of D2C Cents!

This edition? We talk about:

• The staggering consumer response to GST 2.0

• How the big players are navigating the transition

• The sharpest D2C news that matters

A week into GST 2.0 and the numbers are telling an extraordinary story:

For brands however, these changes have come at a price.

The promise: Products moving from 18% to 5% GST = 13% immediate savings.
The reality: Input tax credit losses are eating 3-7% of those savings.

We ran the numbers on a premium skincare brand to illustrate the above:

The brand saves customers ₹130 but loses ₹94 in working capital from accumulated credits requiring refund claims.

Net benefit to brand: ₹36, not ₹130.

According to Taxscan's post-implementation analysis, 67% of products moving to 5% face similar inverted duty structures, with average working capital impact of 2.5-4.5% of revenue.

This explains why HUL's Dove Shampoo dropped only 11.2% (₹490 to ₹435) instead of the theoretical 13% - they're accounting for real financial impact, not just headline GST rates.

The Department of Consumer Affairs circular (September 9, 2025) permitting manufacturers to revise MRP on unsold stock until December 31, 2025 has created unprecedented retail complexity.

The Legal Requirements:

• Manufacturers can declare revised MRP by stamping, stickering, or online printing

• Original MRP must continue to be displayed and revised price cannot overwrite it

• Companies must publish at least two newspaper advertisements informing consumers

• Retailers must charge the lower of the two displayed prices

The Compliance Reality: The original MRP shall continue to be displayed and the revised price shall not overwrite on it. This creates a unique transition period where identical products legally display both old and new pricing.

HUL's Category-Specific Response

HUL announced specific price cuts across different categories, revealing their strategic approach:

Verified Price Changes:

The Strategic Pattern: Notice how these cuts vary significantly - 11.2% for Dove vs 15.38% for Horlicks. HUL isn't applying uniform percentage cuts across their portfolio.

We’ve come up with a simple Portfolio Matrix to help brands in their decision making:

The GST Arbitrage Portfolio Matrix

Many D2C brands are applying uniform GST benefit pass-through across their entire portfolio. But the smart ones are using this matrix to optimize resource allocation based on competitive dynamics.

Real Application: A multi-category D2C brand can use this matrix to avoid the common mistake of uniform 13% price cuts across all products, instead optimizing for competitive positioning and market dynamics.

Amul's Scale Advantage Strategy

Amul's Gujarat Cooperative Milk Marketing Federation announced price revisions across 700+ product packs, demonstrating how cooperative scale enables comprehensive consumer benefit pass-through.

Their Implementation:

Official Statement: "As a cooperative owned by 36 lakh farmers, Amul believes the reduction in prices will spur consumption of a wide range of dairy products, particularly ice cream, cheese and butter as the per capita consumption remains very low in India, creating a large growth opportunity."

ITC's Positioning Strategy

ITC Limited Executive Director Hemant Malik positioned GST 2.0 strategically: "The far-sighted GST reforms provide a shot in the arm for ITC foods' overall strategy framework. This will help nutrition reach people by making the products more affordable."

With FMCG revenue of ₹22,000 crore in FY 2024-25, ITC is framing the changes as strategic enablement rather than margin compression.

If you've been aggressive while passing on GST benefits this festive season, it's imperative that you ensure no P&L shocks.

This Inverted Duty Early Warning System might help you.

The Problem: Most D2C brands are discovering inverted duty structure impacts weeks after implementation - when cash flow problems have already started.

The Framework:

Real-world Application: If your monthly output tax was ₹2 lakhs pre-GST 2.0 and is now ₹80,000 (due to rate reduction), but your input ITC remains ₹1.8 lakhs, you'll accumulate ₹1 lakh monthly. Without this system, you'd realize the cash flow impact only after 3-4 months.

The Strategic Playbook: How to Navigate GST 2.0 Without Destroying Brand Positioning

Move 1: The Competitive Advantage Recognition

The Market Reality Shift: GST 2.0 fundamentally altered competitive dynamics between organized and unorganized players.

Evidence from Paragon Footwear: According to Paragon's statement on GST reforms: "For an industry that is highly labour-intensive and a vital part of India's manufacturing economy, the reduction provides timely relief and helps organised players like us compete more effectively with unorganised markets."

The footwear brand explicitly acknowledged that GST 2.0 enables organized players to "compete more effectively with unorganised markets" - exactly the competitive repositioning opportunity many D2C brands are missing.

Move 2: The Communication Framework

Bad: "Prices reduced due to GST benefits" (sounds reactive)
Good: "Passing savings to our customers" (brand takes credit)
Best: Amul's approach: "Making quality dairy more accessible" (positions as brand mission)

Real Example: ITC's communication strategy positions GST savings as: "helping nutrition reach people by making the products more affordable" - framing regulatory changes as brand purpose fulfillment.

The bottom line: GST 2.0 is more than price cuts, it's competitive repositioning, strategic resource allocation, and sophistication in brand communication.

Brands winning today are using this moment for portfolio optimization, market share expansion, and strategic brand investment.

Simple savings pass-through is table stakes. Strategic sophistication determines who emerges stronger.

See you next edition - same time, deeper insights.

Until then, keep building strategically.
Abhishek