Varun Alagh remembers how he and his wife, as new parents, would scrutinise labels on every baby product they purchased, and being unimpressed with what they saw. That was four years ago. They run their own baby care brand now, Mamaearth, selling about 50 different products certified as toxin-free—lotions, washes, shampoos, diaper rash creams— to a new breed of Indian consumer with a big appetite for choice, finicky even, and with a willingness to spend.
Their bestselling products currently are mosquito repellents, a fluoride-free natural toothpaste for kids aged 10 and below, and a tummy roll-on for babies which uses the old Indian remedy for colic—coconut oil. “There is a large section of market which is clearly looking for healthier, more natural options and those people need to be reached out to with the assortment that we have,” says Varun, 35, who worked with various FMCG companies after graduating from a business school. “Of course, it was a big move for us.”
Mamaearth’s story reflects the changing landscape ushered in by organised retail and e-commerce, where young, sharply-focussed brands are fighting for space amid deep-pocketed FMCG giants. For private equity funds, they’ve always been a hot space to invest in. But now, venture capitalists too are willing to look beyond tech-firms and write them cheques.
Of course, the ecosystem ten years ago wouldn’t allow for such fast-paced companies, says Varun, whose start-up would have been, in the old formula, just a local brand in Gurgaon. “All of that has completely changed...sitting out of Gurgaon we are able to service 150 plus cities in India,” he says. Last week, Mamaearth raised fresh funding of $4 million from a clutch of investors which included a true-blue technology fund such as Stellaris Venture Partners.
“I think the next decade or two is going to be very interesting in the context of how India will become the hotbed of very exciting brands,” says investor Kanwaljit Singh, who has placed a personal bet on Paperboat, Epigamia, Licicous, Yoga Bar and Mamaearth in the last three years. “I realised that the market was changing, almost like Brands 2.0, if I can call it that. That’s when I decided to move away and raise an early stage fund which was focussed on this space,” says Singh, who started Fireside Ventures in 2015 with a fund of Rs 340 crore and has invested in a dozen consumer brands so far. “There are really not enough brands in the market. I mean, you go to a supermarket shelf in Singapore or Thailand or Indonesia...and of course, Europe and the US...you will find a proliferation of brands which India is not even close to at this point of time,” says Singh.
Take Raw Pressery, which has been selling cold-pressed fruit and vegetable juices since 2013, and doubling revenue every year. The brand is present in about 2,000 points of sale across 14 cities in India, besides Doha and Abu Dhabi. “There’s still plenty more of modern trade,” says founder Anuj Rakyan, referring to the organised retail segment of specialist stores such as Godrej Nature’s Basket, hypermarkets and value formats such as Reliance Fresh and premium standalone stores. The top 12-15 cities in India are driving the Mumbai-based company’s growth currently, and their primary consumer target is the age group of 18-40. “First, it was about calories and fat and sugar. Now it’s a lot to do with what is organic or free from preservatives or additives or sugar. So, the consumer is saying: can you match what I make at home? And, as clean and healthy and nutritious as what I make at home? These are the big changes we have seen over the last 4-5 years,” says Rakyan. Raw Pressery is now looking at almond milk and wants to get into dairy products, particularly probiotic drinkable yoghurt.
Varun and Ghazal Alagh with a range of their products
“More venture capitals are becoming open and receptive to investing in consumer brands,” says Navin Honagudi, managing director of Kae Capital, which has invested in popcorn maker Popicorn and sanitary napkin brand Nua Woman among others. Over the last two years, Kae Capital has been inv-
esting in about two consumer brands per year. “We expect to continue at a similar pace,” he says. The point, he says, is there are companies being built which are suited entirely for modern trade and generally priced slightly higher price than regular kirana stores. “Today, it is possible to build a large enough brand focussing only on modern trade and convenience stores. This was not true 10 years back.”
Typically, his firm writes out a first cheque of Rs 3-4 crore to an investee, says Honagudi. Over time, the amount could go upto Rs 18-20 crore. Kae capital is currently investing from a fund of $53 million.
Ash Lilani, co-founder of Saama Capital, one of the early investors to back consumer brands such as winemaker Sula and designer Satya Paul, says he’s clear about maintaining discipline when it comes to investments. “We are not chasing just because people think it’s hot,” he says. Saama, which has put money into Raw Pressery, Goa Brewing Company, natural toxin-free baby products firm The Moms Co., sauce maker Veeba and Chai Point among others, raised a $100 million fund this year. “It’s not that we are going to invest in more companies or ideas, we’ll still invest in the same number of companies as we did the last fund. The only difference is that we have learnt that when you do consumer investing, in the first three years of the fund you will identify the 2-3 companies that are scaling very fast and have the potential to be big winners. So, in those kinds of companies we will double down,” says Lilani.
Anuj Rakyan of Raw Pressery, which sells cold-pressed juices
This year so far, venture capitals have invested $152 million in the Indian FMCG space over 34 rounds, according to Tracxn, a firm that tracks start-ups. In 2017, venture capitals wrote cheques for around $240 million.
With large FMCG companies around, there’s always the promise of an exit on these bets. Market watchers point to Marico’s stake purchase in Beardo, a men’s grooming brand, or the Prataap Snacks public listing—both took place last year—as possible routes for profitable exits. “Most of the large corporates, instead of starting from scratch are looking for some kind of minimum size and scale of company to acquire and they will build that into the next phase with their muscle,” says Kanwaljit Singh. “As an investor, I know that I have the ability to exit my companies at a certain size and within a certain time frame.” The examples overseas, where the consumer brand explosion has been playing out for the last 7-8 years, are plenty. “Investors clearly have seen large exits in developed markets. That is what has given them confidence,” says Mamaearth’s Varun Alagh.
However, Alagh has plenty of work at the moment. “We are already present in 500 stores and we intend to be in 5,000 in the next one year,” he says. Families have fewer children now and the growing incomes suggest they are spending more—both time and money—per child. “That has happened not just in the upper income strata but also in the lower strata of society. So they want to make better choices for their children,” he says. But that sort of consumer behaviour is happening across sectors. Even beer. A week or so ago, Suraj Shenai’s Goa Brewing Company released its first batch of bottled craft beer, an India Pale Ale called Eight Finger Eddy to supermarkets in Goa, and it sold out in five days. “We were not really expecting that huge a response,” says Shenai.
Over time, he expects to sell in other big cities in the country. “Our focus right now is making sure we make better-quality beers with every brew that we do.”
Says Anuj Rakyan of Raw Pressery: “People are moving up, value is creeping in into price understanding.” Entrepreneurs will argue that the price conscious Indian consumer can also be value conscious—a bit of both at different times. The good part is, investors reckon, it’s just the start of the story.
By Ajay Sukumaran in Bangalore
