Consumer spending across the FMCG and consumer packaged goods (CPG) segment have fallen sharply in the last couple of quarters.
Wipro Consumer recently launched a venture fund to invest in startups in the consumer brands space. A Wipro spokesperson said the company will look to invest about ₹10-30 crore in early to mid-stage startups. “We will be looking at those startups where we can add value as well learn from them. Financial returns would be an important objective of the fund as well as adding strategic value, but all as a minority investor," the spokesperson added.
Dabur Group’s family office Burman Family Holdings’ has been evaluating startups in the branded consumer goods space, according to a person aware of the group’s investment strategy. Gaurav Burman, director of Dabur International and investor in Burman Family Holdings, said his family fund’s investments will be stage-agnostic with a long-term investment view. “We have no minimum limit on ticket size, although we will look to deploy at least ₹70 crore per investment through the life of the opportunity," Burman said in an email.
LuLu Group, an Indian MNC that operates hypermarkets and retail chains has also been eyeing Indian startups in consumer goods, a consultant aware of the development said. LuLu Group did not respond to an email seeking comments until press time.
Haldiram’s, one of the oldest names in packaged foods space in India, is in discussions with multiple startups in the consumer brands space including Bengaluru-based Frozen Bottle, a quick-service restaurant (QSR) chain that sells milkshakes and desserts, Mint reported on 14 September. While big FMCG and CPG majors turn to consumer brands led by startups, their overall revenues have also been declining consistently in the past couple of quarters, amid an economic slowdown.
Dabur, Hindustan Unilever, ITC Ltd and Britannia Industries have acknowledged that the slowdown has hit their revenue, especially among premium portfolio brands.
A Credit Suisse report this month said the FMCG segment revenue is likely to decline by around 5% in the second and third quarters of 2019-20. FMCG revenue growth had earlier declined from 11% in the third quarter of 2018-19 to around 7% in the first quarter of the current fiscal, the worst revenue growth in the last 15 years.
Analysts and industry observers attribute falling consumer spending to not just low incomes, but also a lack of brand innovation, and failure to understand niche consumer needs, at least in Tier-1 and Tier-2 markets. The renewed interest displayed by traditional firms in startup-led consumer brands, is mostly steered by the fact that these brands virtually saw no impact of the economic slowdown.
“When you are the market leader with a 30% market share, slowdowns are scary. (But) when you are an insurgent brand with less than 1% market share and have a strong product and brand narrative, you should continue growing," said Deepak Shahdadpuri, founder and MD, DSG Consumer Partner. According to him, CPG start-ups are least impacted by the cyclical slowdown because they are doing between ₹50 lakh to ₹5 crore of net revenue per month. Between May to August from the DSGCP portfolio, companies like Veeba, Sleepy Owl, Arata, The Moms Co., Chai Point, Suzette Kitchen Garden, and Goa Brewing, did not see any slowdown, added Shahdadpuri. “It could also be because the companies we back tend to be in the more premium categories in Tier-1 cities where the slowdown has not had the same impact yet," Shahdadpuri added.
Vinay Singh, co-founder and partner at consumer-focused VC fund Fireside Ventures said his portfolio of brands across segments like personal care, clothing and accessories, and lifestyle, witnessed record month-on-month growth (in terms of revenues) in the last couple of months. Fireside Ventures had earlier raised money from ITC, Emami, L’Oreal, and Unilever to reinvest in consumer startups.
To be sure, if smaller brands which appeals to a niche consumer base escape the slowdown, then logically, big FMCG and CPG majors should also be emulating them, but that isn’t the case in the Indian scenario.
According to Harsha Razdan, partner, head of consumer markets at KPMG India, a large company with its vast distribution network is better off acquiring startups and layering their distribution network on top of the new brand, mostly because small brands are splintered in size and reach, which poses a logistics challenge.