A new breed of entrepreneurs in the country stands ready to take advantage of a “first wind” effect that is driving the possibility of disproportionate returns in the consumer sector. There are four key trends that have picked up pace in the past decade and are contributing to this effect.
• Greater self-confidence: There is a new confidence in India, powered by a combination of rising incomes, the success of large Indian companies and a stronger sense of cultural identity. This confidence is translating into enthusiasm for Made for India products that are rooted in our history, culture and traditions. This is a complex phenomenon that cannot be dismissed as chest-thumping patriotism. Neither does it translate into pride in everything Indian, nor an unwillingness to examine our very real social and economic challenges. Instead, this is a confidence fed by the belief that our problems can and will be fixed in one or two generations, and by us.
A corollary of this self-belief is that a product or service that truly resonates with the Indian consumer is more likely to be embraced by her. In the past, indigenous products with an Indian feel and flavour were frequently discounted and rarely occupied premium positions in the consumer mindscape. That is no longer the case. Given product and service purity and an ability to convey these credentials to the consumer, an Indian brand can make deep inroads into both mind and market share.
Examples of this new kind of Indian company are easy to find around us. Companies such as Hector Beverages, the maker of traditional Indian beverages under the Paper Boat brand, and adventure gear maker Wildcraft India. They possess a very Indian ethos but have successfully combined this with modern narratives—around packaged beverages in the case of Paper Boat and outdoor adventure with Wildcraft—that appeal to their respective target groups. In the past, researchers would tout Gujarat as an unusual case study of a state where Indian brands were embraced and multinational ones less revered. What was true for Gujarat is becoming true for the rest of India.
• Confidence to take on the mighty: This underlying consumer confidence is infecting entrepreneurs as well those who, armed with ideas and capital, are increasingly more willing to shun safe niches and take on global Goliaths. We have seen this in the snacks category, for example, where companies such as Balaji Wafers, ITC and Prataap Snacks (Yellow Diamond) have introduced disruption and are emerging as market leaders in a category largely shaped by PepsiCo India over the past few decades. These three companies have challenged Pepsi’s position with its core offerings (chips and snacks) through business model innovation, a ‘world-class approach to product quality, taste and innovation’, and a willingness to experiment.
The aggression shown by Patanjali Ayurved in some of the categories where it has seen success—such as toothpaste and honey—is in a similar vein.
Interestingly, traditional Indian consumer goods companies such as Dabur and Haldiram’s, with a strong foothold in the Ayurvedic products and snacks categories respectively, have not shown the same chutzpah.
• A globally aware and influenced citizen: Even as traditional customer segments are becoming clichéd and less relevant in today’s India, we are seeing several global trends seeping into our society—earlier than expected given our consumer evolution stage. In food, for instance, India is embracing global ideas and practices regarding nutritive value, freshness and sourcing of ingredients (organic/natural/herbal) ahead of time. The slower growth of colas, as compared to juices, at a relatively nascent stage of the beverage market in India is a classic example of how we are leapfrogging category evolution. These trends are widespread and can be seen across India, although in varying degrees and forms. It could involve a middle-income household choosing Patanjali’s ayurvedic toothpaste over standard brands, or a more affluent one making the shift from conventional packaged juices to a “cold-pressed” juice such as from RAW Pressery. The driver is the same, but its manifestations vary. In apparel, we have seen a movement from ‘unorganized’ to ‘organized’, which has created successful ethnic brands such as BIBA, W or Global Desi. However, on the flip side, the “mix ’n’ match” fusion sensibility that they have enabled could also make it harder for them to stay differentiated and compete with the likes of Zara and H&M.
• The MNC conundrum of ‘think global, act local’: One of the factors for the extraordinary success of early multinationals in the consumer space in India was the freedom given to the local unit to shape the agenda and the market. This was the era of Hindustan Lever (now Hindustan Unilever)—the time when it fought Nirma with Wheel, and launched Fair & Lovely. Happily, for Indian entrepreneurs, this era ended when the country became an important and relevant part of the global business scene. The new era is defined by the notion of ‘thinking globally—from a product and value proposition perspective’ and ‘acting locally from an execution’ perspective.
Given that it is not always easy for multinational companies to implement or sustain this mindset across products and markets, it creates a white space for a smart entrepreneur. Take the example of deodorants where a rank outsider like Fogg became the market leader in 24 months, disrupting the category with the insight that the Indian male preferred a perfume over a deodorant. Once this option was available to him in an Indian product, he no longer had to settle for global products.
Similarly, while Hindustan Unilever continues to dominate the fairness product market, its now reluctant association with the category could create openings and white spaces for other companies.
The late launch of products such as moong dal and bhujia by Pepsi under their core brand umbrella of Kurkure in 2015 (a full 15 years after the launch of their chips business) is another example of refusing to think local. This kind of hesitation—while perhaps understandable for a large global multinational company with an extensive footprint—does create opportunity for Indian entrepreneurs armed with confidence, talent and capital.
We believe that the ultimate winners in any consumer category in India will be those who can ‘think and act’ local without compromising on product and service standards.
Over the next few years, we believe that there will be an extraordinary opportunity to create Made for India brands on the back of products custom-designed for the Indian consumer. The total market capitalization of the Indian consumer sector (multinational companies and old Indian brands) is currently at $157 billion and expected to grow to $378 billion in 10 years. This is the opportunity that is there for the new-age consumer entrepreneur to tap and exploit.
There is clearly enough of a first-wind effect in play to help launch them. Their flight and journey beyond that will be driven by the choices they make.
V.T. Bharadwaj is Managing Director at Sequoia Capital India Advisors.
(Disclaimer: Paper Boat, Wildcraft, Yellow Diamond, RAW and Fogg are brands owned by Sequoia portfolio companies.)
This article is the first in a three-part series on consumption trends in India and the potential opportunities they present for companies.