Mokobara to Tego Fit, VC funds gun for India's creamy layer

Marketplaces are playing a crucial role in propelling the reach and accessibility of premium goods. (Image: Pixabay)
Marketplaces are playing a crucial role in propelling the reach and accessibility of premium goods. (Image: Pixabay)


Consumer brands are choosing to go premium to achieve scale quickly and VCs are riding the luxury wave

Startup investors are increasingly backing consumer brands offering premium products, anticipating significant growth in this segment.

Over the past few months, several direct-to-consumer (D2C) firms offering premium wares such as luggage maker Mokobara, organic dairy startup Akshayakalpa, and apparel brand Bombay Shirt Company have raised early-stage capital from some of the country’s largest venture capital (VC) firms.

“Until five years ago, our view was that the market at the premium end is small and hence we chose to invest in companies that cater to the mass market," Abhishek Mohan, principal at Peak XV Partners, said. “However, the increase in the number of people who can afford and the change in consumer demand towards quality has prompted our investment thesis to evolve."

Peak XV (formerly Sequoia India and Southeast Asia) recently invested $12 million in Mokobara. Its consumer portfolio includes petcare startup Heads Up For Tails, nutraceuticals seller Healthkart, and home improvement firm HomeLane.

India’s “affluent" class is set to reach 100 million in the next three years, according to Goldman Sachs. As of January, the set of people earning greater than $10,000 per annum was 60 million, compared to 24 million in 2015.

Also Read: Charting the rapid rise of India’s affluent class

The increase in wealth among high-earning individuals has led to a rise in top-end consumption in India and categories such as leisure, jewellery, out-of-home food, healthcare, and premium brands are expected to benefit.

Zoeb Ali Khan, vice president at early-stage investor, said that the Delhi-based firm has always kept its eye out for premiumisation in the consumer category.

“With the number of people demanding premium products on the rise, consumer brands have a sizable opportunity ahead of them. The economics is the most interesting part of the proposition," he added.—which backed Mokobara in 2019, Supertails in 2021, and The Whole Truth in December 2023—is looking to invest in another premium consumer brand by the end of the year, Khan said without giving further details.

The economics

The biggest advantage of going premium is the ability to scale quickly. Larger order values help achieve better margins over time, helping brands lose less money on each order.

The average ticket size of transactions on XYXX Apparel, a Mumbai-based premium men’s innerwear brand, is upwards of 1,200, according to founder Yogesh Kabra. On the back of 250 stock-keeping units, the DSG Consumer Partners-backed firm claims to have hit Ebitda-level profitability last quarter.

“We are seeing good traction from young consumers in their 30s who are digitally savvy and are willing to pay a slight premium over products sold by decades-old brands," Kabra said. In FY22, XYXX saw its operating revenue surge 95% to 105 crore compared to the previous year.

Premium brands have the luxury of focusing on improving product quality and delivering aesthetics since they no longer have to worry about the price point, Peak XV’s Mohan said.

To this end, Tego Fit, a fitness apparel and accessories brand focused on health-conscious consumers, has sharpened focus on expanding its range of products to cater to a health-conscious consumer who has a nuanced demand, according to co-founder Krishna Chandak.

Premiumization helps cater to the segment of consumers who are trying to fulfil a ‘want’ that’s not necessarily a ‘need’, according to Chandak.

Also Read: Rise of the uber-rich drives luxury brands in India

The rise of premium products also puts up a strong case for consolidation by bigger consumer players, who are increasingly eyeing the premium goods market. Last year, ITC acquired Yoga Bar to diversify its portfolio of health-focused, digital-first products.

“There is bound to be consolidation in the near term as some of the brands plateau and may be forced into a strategic sale to larger corporations that are looking at growing their own portfolios," said Devangshu Dutta, founder of Third Eyesight, a management consulting firm.

Marketplaces are playing a crucial role in propelling the reach and accessibility of premium goods. According to XYXX’s Kabra, the firm receives 40% of its revenue from marketplaces like Amazon and Flipkart.

Moreover, quick commerce platforms such as Swiggy Instamart, Zepto, and Zomato’s Blinkit are further driving up sales. Kabra added that XYXX is already seeing 15% of its overall sales come from these portals.

It’s complicated

While it might look like it’s a great time to build a premium consumer brand, the target audience in India is still very small. According to estimates by Goldman Sachs, the affluent class earning greater than $10,000 per annum is just about 4.1% of the country’s population.

“Premium brands have to work doubly hard to acquire and retain customers. If a brand manages to get a customer on board with the help of discounting, they will have to continuously innovate to deliver performance,"’s Khan said.

Peak XV’s Mohan concurred. Consumers are now more aware and have access to the best brands around the world, making it key for brands to offer differentiated products to keep customers coming back to their products, he added.

“The upper income segment has the highest intensity of brand competition, both in terms of international brands and Indian brands, all fighting for the same, still relatively limited in numbers," according to Third Eyesight’s Dutta.

This also makes it imperative for brands to keep expanding their pool of products and stay relevant with customer demand, trends, and aesthetics, Mohan noted.

Moreover, under the premium segment, certain categories like home products where the buyer is not necessarily the consumer, may find it harder to scale. Apparel and personal care, too, may find growth an uphill task simply given the competition in the space, according to both investors.

Profitability, too, remains a concern. According to a study by marketing firm MMA Global, nearly 80% of direct-to-consumer brands are unprofitable.

While many brands are reporting skyrocketing revenues, profitability is a tall ask.

All things said, the Indian consumer is certainly finding flavour in premium products, prompting venture capital investors to make bolder bets in the space.

Also Read: The global luxury market is in a slump. Should Louis Vuitton’s owner worry?


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