CPG-focused start-ups give retail chains a miss
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Mumbai: A number of start-ups catering to segments ranging from beauty to male grooming, and natural and organic products that had initially established a presence online are now looking at general trade to reach consumers, giving large-format modern trade retail chains a skip.
Happily Unmarried Marketing Pvt. Ltd, which runs the portal HappilyUnmarried.com and has the male grooming brand Ustraa; beauty e-commerce firm Nykaa.com, owned by FSN E-commerce Ventures Pvt. Ltd which launched its own private label by the same name Nykaa; and Dr Vaidya’s New Age Ayurveda, an Ayurvedic products company that has a presence online are all now expanding their presence in general trade and in channels like bars, restaurants and beauty stores instead of large department or hypermarket stores, deterred by the prohibitive cost of listing in large organized stores.
“The margins in modern trade are not sustainable; also the payment terms are unviable as we get paid only after four-six months,” said Rajat Tuli, founder of Happily Unmarried, while explaining that setting up a distribution footprint in general trade is much more difficult than modern trade.
However, in the long run, it has a larger scope and is more sustainable for the company as it is “bottom line driven”, he added.
Likewise, Dr Vaidya’s—the brand that has products like LIVitup, a hangover ‘cure’, and HERBOfit, an immunity and energy boosting pill—is available online and in general trade stores, bars and restaurants in Mumbai.
“It is not easy to get into modern trade with its high costs,” said Arjun Vaidya, chief executive officer, Dr Vaidya’s. Instead, the company is trying new distribution channels like bars and restaurants, gyms, yoga practitioners and chemists and has seen close to 25,000 people use LIVitUp through the bar network within a month of launch.
To be sure, companies like Drum Foods International Pvt. Ltd of Hokey Pokey ice cream, a Greek yogurt brand called Epigamia and Hector Beverages Pvt. Ltd of Paperboat have built sizeable businesses through modern trade.
As such modern trade contributes about 8% of total retail transactions in the country and in certain categories such as packaged basmati rice, modern trade has a penetration of more than 20%.
However, while modern retail allows brands to scale faster and also provides better visibility, it is much more expensive than general trade as a channel for distribution and this can deter start-ups from using the channel, said Anil Talreja, partner at consulting firm Deloitte Haskins and Sells.
For start-ups, it is more sensible to be in general trade and piggyback on the work done online for creating awareness and demand, he added.
Meanwhile, most stores in the general trade are run by the owners who keep a limited number of items and are looking at differentiation and hence give space to new brands for no extra cost, said Chetan Sangoi, owner of Sarvodaya, a grocery store in Dadar, central Mumbai. New brands at his store account for 10-15% of the shelf space.