FMCG firms tap consumer startups to boost growth
ATTRACTIVE BET Startup brands virtually saw no impact of the slowdown
BENGALURU: Large fast-moving consumer goods (FMCG) retail companies including Haldiram’s, Lulu Group, Wipro Consumer Care and Lighting, Unilever Ventures and Marico are scouting for investments in startups in the consumer brands space in a bid to boost growth in a weak economy, according to multiple investors and industry officials that Mint spoke with.
Mint reported on September 14 that Haldiram’s, one of the oldest names in packaged foods space in India, is in discussions with multiple startup brands in the consumer brands space including Bengaluru-based Frozen Bottle— a quick service restaurant chain that sells milkshakes and desserts.
Wipro Consumer and Lighting recently launched a venture fund to invest in startups in the consumer brands space. A Wipro spokesperson told Mint that 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 as 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.
Apart f r om t hi s , Dabur Group’s family office Burman Family Holdings has been evaluating startups in the branded consumer goods space, according to a person directly 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
FMCG FIRMS’ REVENUES HAVE BEEN DECLINING CONSISTENTLY FOR
THE PAST COUPLE OF QUARTERS DUE TO THE ECONOMIC SLOWDOWN
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 emailed response.
Lulu Group, an Indian multinational company that operates hypermarkets and retail has also been eyeing Indian startups in the consumer goods space, according to a consultant aware of the development. Lulu Group did not respond to an email seeking comments until press time.
Consumer spending across the FMCG segment has f al l en sharply in the last couple of quarters. Moreover, while FMCG majors turn to consumer brands led by startups, their overall revenues have been declining consistently for the past couple of quarters due to the slowdown.
FMCG firms, including Dabur, Hindustan Unilever, ITC Ltd, Britannia Industries, have publicly acknowledged that the slowdown has considerably impacted their revenue, especially among premium portfolio brands.
A Credit Suisse report this month said FMCG segment revenue is likely to decline by around 5% in the second and third quarter 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, which is arguably the worst revenue growth in the last 15 years.
Analysts and industry observers point out that a contraction in consumer spending on packaged goods was impending, not just because of low incomes, but also due to a lack of brand innovation and failure to understand niche consumer needs, at least in tier I and tier II markets.
The renewed interest displayed by traditional firms in startup-led consumer brands this year is mostly steered by the fact that startup brands virtually saw no impact of the economic slowdown. “When you are the market leader with a 30% market share, slowdowns are scary. 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 managing director, DSG Consumer Partner.