The Indian FMCG market, which is expected to grow to $200 billion by 2020, is set for exciting times with a clutch of startups daring to take on the established players.
These past few weeks, Manish Chowdhary has been visiting his brother Karan in the US to discuss the future of their company, the Florida-based Fit & Glow Healthcare which is better known for its WOW brand of products. The two have been joined by Fit & Glow’s other two partners, Arvind Sokke and Ashwin Sokke.
Fit & Glow, which is focused on holistic wellness and organic personal care products, recently crossed Rs 50 crore in revenues and is looking for its next phase of growth, including expansion in the global markets. And rightly so. It has become one of the “challenger brands” on Amazon.in and also started exporting its products to the US. In fact, Fit & Glow's WOW is the number one brand in the shampoo category on the e-commerce site.
Challenger brands are those that are looking to take on incumbent brand leaders in their space, in Fit & Glow's case FMCG giants like Procter & Gamble, ITC and Unilever, which dominate the skincare business. CavinCare, Marico and Emami also have a large presence in the skincare business. But it's the food segment which makes up nearly 45 percent of the overall FMCG market and the traditional big brands ruling the space are ITC, Unilever, Dabur, Patanjali and Britannia.
Coming back to Fit & Glow, its founders have been approached by one of the largest investors in the world, with a big India play. But Manish is taking his time to gauge the commitment of the investor as well as the merits of becoming a global business with global capital. After all, the company has gotten where it is today after a lot of hard work and so the next move has to be carefully considered.
“We have grown so fast in three years of being operational that we want a strategic investor to be on board and not take money just for the sake of it,” says Manish, Co-founder of Fit & Glow.
But there’s a larger story unfolding in the e-commerce space. Fit & Glow’s feat is being replicated by many other young startups. From juices to yoghurt to skin care to energy bars, a number of startups are showing that there is ample space for brands to be built in an industry dominated by large brick-and-mortar companies. These newbies are setting up distribution and are using online as one of the channels to reach out to the younger consumers.
Brands like MCaffeine, Ava, Epigamia, Raw Pressery and Mojo bars, to name a few, are ready to make the big push after figuring out the various pieces of the online jigsaw puzzle.
“The last 18 months have been the best time to discover new Indian brands,” says Harminder Sahni, Founder of Wazir Advisors, a consulting firm. However, it all began with Paperboat of Hector Beverages, in 2012, which set in motion a frenzy to launch brands. Also, fuelling this trend in some ways is the growth of Patanjali which has challenged the incumbent FMCG companies.
But what exactly have these johnnies-come-lately done to make their presence felt in a crowded market? Experts attribute their success to packaging, product design and pricing strategy. “Becoming brands is not just a function of reaching a product to the consumer but it involves things like R&D in product, the value communication–premium–and the ability to risk it all by serving the millennial customer," says Sreedhar Prasad, Partner, Management Consulting, KPMG.
MCaffeine, which was born in 2016, has employed pricing and product design to carve a niche for itself. Here's how its story goes. After working with MuSigma and a global retailer in the US, Vikas Lachhwani returned to India and began discussions with Tarun Sharma to launch a skincare product that used caffeine.
Until the duo launched MCaffeine, there weren’t any caffeine-based products in the market. In fact, stumbled upon this idea when the two, while researching for extracts, found literature which extolled caffeine for its skin nourishing properties. They began with caffeine-based shampoos which they launched late last year. They are looking at launching 40 SKUs by end-2017. MCaffeine, which gets its products made through contract manufacturing, sells online only, and Vikas and Tarun are looking at critical scale before taking their product offline.
“Indian consumers are looking to experiment with new brands and offline is the best way to reach them,” says Vikas, Co-founder of MCaffeine. The brand is targeting people below 30 and is clearly pushing caffeine as an anti-oxidant. In the absence of a similar product from the FMCG players, MCaffeine has positioned itself as a premium play through higher pricing. Since MCaffeine is just seven months old, the founder did not deem it fit to disclose revenues. The company has raised Rs 2 crore from a clutch of angel investors from Mumbai.
Food is another segment where startups are betting big. Take, for instance, Epigamia and Mojo bars, which were conceived in the US but built in India. Maulik Mistry, Founder of Pure Snacks, after finishing his M.Sc in Industrial Engineering from the University of Southern California in 2010, worked with Nestle for three years, where he learnt what it was like to function like a brand. In January 2014, he set up his business in Mumbai along with operations to manufacture a snacking bar. His brand called Mojo is now a Rs 2-crore business and has been operational since last year. Even Epigamia, launched by Drums Food, had a similar start, but is a sizeable business today. Sources say it is more than a Rs 15-crore business.
“A lot of work has gone into creating the design, the taste and the distribution network,” says Maulik.
These brands are also building their own distribution network. Today, PaperBoat has the largest distribution among younger brands and is available in more than 1,10,000 locations. Other brands are raising money from venture capitalists (VC) for beefing up their distribution network. Maulik is currently in talks with VCs, and Drums Food has already raised more than $6.6 million from DSG Consumer Partners. Paperboat has raised $37 million from Sequoia Capital and Hill House Capital. Its turnover was closer to Rs 100 crore in the last financial year.
Unlike the bigger companies that spend millions of dollars on brand-building, the newcomers have spent very little money in establishing themselves. They have restricted themselves to piloting in a few big cities and raising money for growth. Perhaps the only challenge they could face is in the form of large discounts that they may have to offer to distributors, since they do not have the bargaining power of large brands. They are, nevertheless, a refreshing change from the existing brands, and use the e-commerce medium to good effect.
Ava, a Bengaluru-based skin and wellness product, sells on BigBasket.com and to B2B customers. Its founder Prithika Parthasarthy has tied up with over 15 top hotels and wellness institutions to scale up the product. Her USP: the company works with a manufacturer who uses natural ingredients and there are no plastic beads in the product. Prithika’s business is close to Rs 1 crore in size today.
Contract manufacturing is the norm with most of these new brands. It frees up the all-important capital for growth and expansion. A facility manufacturing 1,00,000 units of a product a month would easily cost Rs 20 crore to set up. “All our manufacturing is done in Himachal and the factory caters to our production because we are giving them so many orders,” says Manish of Fit and Glow. All these brands are particular about quality control and deploy controllers in the factories to ensure that products are made to exact specifications.
Besides, while these new companies many not be profitable at the net level yet as most of them are barely three years old, they nevertheless are generating enough cash to sustain operations.
Devangshu Dutta, Founder of Third Eyesight, says that all these brands can learn from Patanjali. “Over time, the group has invested in improving its manufacturing and packaging infrastructure to bring itself on par with well-established competitors,” he says.
According to him, the group has clearly focused itself on the mass market, with Patanjali Group’s products becoming a “go-to” for customers who are more price-sensitive than brand-loyal. This definitely creates pressure on established brands in each of the product segments where Patanjali is now present, he says.
The young Indian brands may be trying to appeal to certain types of customers, but they nevertheless are competing for a piece of the $200-billion FMCG pie. Two things may happen in future. These newer brands may either be gobbled up by the very same corporates they are competing with today or become large enough companies to hold their own in the market.