How startups are taking on consumer giants
Founders
create niche brands that appeal directly to customers, and slowly chip away at
FMCG majors' market share
When Rohan Mirchandani was a student at Wharton in 2011, he
attended a talk by former Coca-Cola marketing head Shripad Nadkarni, who said
the next decade would herald the rise of young independent FMCG brands that
would take on the handful of multinationals in India.
It was an insight that changed Mirchandani's life. The next year,
after he graduated, he co-founded Drums Food, which makes Epigamia Greek yogurt
and Hokey Pokey ice cream. Epigamia, launched a year ago, sells 25 lakh units
every month and competes with Grekyo from Swiss food company Nestlé and
similar products from French dairy giant Danone. The multinationals took a cue
from Epigamia's success, Mirchandani said.
The Indian fast-moving consumer goods (FMCG) space,
traditionally dominated by multinationals, has spawned 1,300 startups in a very
short span of time, revealed data from Tracxn. In the year ending September
2017, investors pumped in around Rs 1,400 crore through 34 deals.
“There is a growing upper middleclass population in India with
discretionary income,“ said Arvind Singhal, founder of retail consultancy Technopak.
“These consumers have global exposure and want more than just their basic needs
fulfilled. Therefore, going forward, the market will provide more opportunities
for niche brands.But the numbers are still minuscule.So only time will tell
whether multinationals are really worried about them.“
However, some startups such as Bira and White Rhino beer, Raw
Pressery juices and Paperboat beverages have met with reasonable success.The
men's grooming space too has seen the emergence of sprightly companies such as
Beardo, The Man Company, Bombay Shaving Company and Ustraa. FMCG company Marico
acquired a 40% stake in Beardo last year.
In the beer category, Sequoia backed Bira, has created quite a
splash too. The brand's founder, Ankur Jain said, in three years, Bira has
become the number one premium beer brand in the Capital and will achieve a simi
lar feat in Bengaluru too, home to the country's largest liquor companies and
birthplace of Kingfisher.
Bira's parent company B9 Beverages plans to sell two to three
million cases this year.
Although the numbers appear small compared to market leader
Kingfisher's yearly sales of 150 million cases, Jain has managed to take his
brand to the US and is currently planning an ambitious foray into UK, Singapore
and UAE.
“I started by importing branded beer for restaurants and
hotels,“ he said. “But when I looked at the beer market in India, I couldn't
find a single brand that played on good taste at a decent price. The popular
brands marketed strong run-of-the-mill lager that young consumers had got tired
of.“
Another homegrown beer brewing company, White Rhino, started by
an economics graduate from Pennsylvania University, Ishan Puri, has grown its
business 10 times in the eight months since its launch. Puri is banking on
young well-heeled consumers who don't mind coughing up Rs 160 for a pint of
craft beer.
“We operate in Delhi and Gurugram and will expand to other
cities soon,“ Puri said. “But we don't want to rush things and burn money to
gain market share. We operate in small batches, since beer -no matter what
others would have you believe -has a very short shelf life. It starts
disintegrating after three months.“
Globally, large established players are snapping up young
startups due to the trendiness of their products, but in India, it's still
early days. An example is the US' Dollar Shave Club being acquired by Unilever
for $1 billion because the online merchant built a strong brand in four years
betting on selling low-priced alternatives to Gillette to male customers.
Closer home, when Marico acred a stake in Beardo last year, the quired a stake
in Beardo last year, the company defined the acquisition as an opportunity to
learn from an online brand. “The male grooming market, growing in double
digits, is at the cusp of growth in India and constitutes a strategic category
for Marico,“ said Marico CFO Vivek Karve. “We believe the acquisition of a
controlling stake in Beardo will fast-forward our journey towards nurturing a
future-ready male grooming portfolio and brand in the online and salon space.“
But taking on consumer giants comes at a cost. Many startups TOI
spoke to said building a strong brand is just one challenge -distribution is
the main one. For instance, Bira faced a massive consumer backlash when it ran
out of stocks. Mirchandani of Drums Food had trouble sustaining a seasonal ice
cream business and setting up a cold chain for distribution.Since then, he has
focused more on Epigamia than Hokey Pokey .
“Distribution is very hard for us, compared to established
players,“ said co-founder of Hector Beverages' Paperboat Neeraj Kakkar. “You
can create a product that is better than the competition and you can create a
brand with more meaning. But reaching the same scale and building a strong
geographical distribution network requires a lot of patience. In the beverage
industry, the large players enjoy the availability of chillers in outlets,
which is a strong entry point. It gives large players a monopoly over
distribution.“
But for budding entrepreneurs who want to take on the Goliaths
of the industry, Kakkar has some sound advice: “The key is to listen to
consumers.That is the only place where you have a strong, sustainable,
competitive advantage over the large players,“ he said.“You can gain insights
that are difficult to ascertain at a large scale. There are niches that the
large players are not interested in because of lack of scale, and those niches
are what aspiring entrepreneurs should look to evaluate.“
How I
got my STARTUP IDEA
I just wanted meri wali chai
NITIN SALUJA | Founder, Chaayos
THE IDEA:
A café to serve customised chai to people twice a day
EUREKA MOMENT:
I missed getting the perfect cup of chai, made just the way I
like it, in the US, and when I returned to India in 2012, I saw a need for chai
cafes. Coffee vs chai consumption is 1:30 yet there was no place serving chai.
Cafés seemed to be serving only coffee. India has a unique tea
drinking culture, and every person has a unique way of brewing his or her chai.
So I started Chaayos to offer `meri wali chai'.
EARLY DAYS:
The good part was that getting customers was not tough. There
was a huge market for chai. At our first café at Cyber City, I would take care
of operations myself -taking orders, making chai and serving customers.
BIGGEST CHALLENGE:
Customising tea for every customer and serving it consistently.
In the process of fast expan-sion, we had to make sure that each outlet was
unique yet offered a similar Chaayos experience.
WHERE I AM NOW:
Chaayos has 43 cafés in Delhi-NCR, Mumbai and Chandigarh. We aim
to open 33 more by the end of the financial year.
When
the VC HAD ME STUMPED
`I got
a job offer instead of funding'
Munish
Dhiman Gesture Research
Since 2012, when he established Gesture Research, an artificial
intelligence startup in Gurugram, Munish Dhiman has met a host of venture
capitalists who have offered him both good and bad advice...
I met a well-known venture capitalist who was impressed with my
product and had a lot of questions. After I finished, he said, `Dude, you are
making revenue. You don't need a VC. Take a loan if you want money for
expansion.' It felt like a big bad no but it turned out to be the best advice I
got. I took a loan and saved myself from giving away equity cheap. I've also
had some not-so-pleasant meetings with VCs. One kept telling me that my idea
was “too much in the future“, and suggested that I get a job that would put my
tech skills to good use. At the end of the meeting, he said one of his startups
needed a chief technology officer -and offered me
the job. Turned out he already had money in a startup working on similar
technology.
Shubhra Pant & John Sarkar
Oct 08 2017 : The Times of India (Mumbai)
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