FMCG giants run minnows' race

The Indian start-up story is finding many global takers. After biggies like Walmart and Google which have made acquisitions in recent times, it’s now the turn of consumer goods giants looking for a meaty piece of the start-up pie.

Proctor & Gamble India (P&G India) recently set up an Innovation Sourcing Fund to collaborate and invest in start-ups. Unilever, through its investment arm Unilever Ventures, has invested in a host of consumer goods start-ups like micro-delivery platform Milkbasket, grocery platform Peel-Works and ice-cream brand Hangyo. Similarly, the Asia-Pacific arm of Colgate-Palmolive recently picked up a stake in Bombay Shaving Company, a male grooming products start-up. 

“The start-up scene in India is throwing some interesting consumer products based enterprises which appeal to the millennial audience and look to disrupt legacy brands. It certainly makes sense for large-scale fast moving consumer goods (FMCG) companies to lay early bets on Indian start-ups,” says Sunjay Ghai, founder and CEO, Revofit and Hello Green. Earlier this year, home-grown FMCG giant Marico had picked up a 22.5% stake in Revofit, which is a curated marketplace for holistic fitness and wellness.

Experts say the business environment for building consumer start-ups in India was never so easy. “Historically, trying to build an FMCG company was near impossible for an entrepreneur. It was capital-intensive and highly dependent on the distribution chain that would take years to build and carry very low margins. But now, there is tremendous opportunity to build consumer start-ups across categories and those backed by the latest technologies,” says Sidharth Rao, co-founder and CEO, Dentsu Webchutney. 

The Indian FMCG market, as per Boston Consulting Group (BCG) estimates, is worth $185 billion and projected to grow to $3.6 trillion in the next few years. Staples, packaged food, consumer health, wellness, beverages, home and personal care comprise the crux of this sector. Also, like every other sector, FMCG, too, has been disrupted by e-commerce, direct-to-consumer sales and aggressive social media marketing through interfaces with Instagram and Facebook. 

“And this is precisely where FMCG giants lag behind,” claim experts. Rao says almost all traditional FMCG companies are not wired to operate in a digitally savvy environment. “Also, globally, enterprises like Casper, Warby Parker and Honest are a few examples of new-age businesses that have challenged the monopoly of large FMCG companies. Therefore, investing in early-stage consumer start-ups is one sensible way of remaining in the competitive arena.” 

Moreover, since the start-ups actively leverage data analytics and are mostly consumer-facing, they have access to real-time consumer feedback which can be effectively utilised by the FMCG giants in decoding consumer behaviour. Adds Rao, “The idea is that lessons from start-ups can be applied to help take the FMCG behemoths further in the digital rat-race and keep them at the forefront of a rapidly changing consumer market.”

According to Ghai, FMCG biggies can never really be as nimble and agile as start-ups in adopting new emerging technologies and trends at lightning speed. “Start-ups carry no legacies. It is compelling for FMCG biggies to back start-ups in order to chase newer trends, and once the start-ups scale up, eventually acquire them,” Ghai said.

For the start-ups, any kind of collaboration with a globally recognised business implies a multitude of benefits. “Global FMCG firms are masters at marketing, branding and delivering quality at scale. Start-ups surely have a lot to learn from the global giants in these areas,’’ says Anirudh Damani, managing partner, Artha Venture Fund.

Another crucial way start-ups benefit is through the easy access to capital that they derive through such sync-ups, says Ghai. “The capital then enables start-ups to go after newer market niches and scale them up. The distribution networks, domain and production expertise of established companies help entrepreneurs looking to scale up their ventures. Furthermore, there exists the potential for an eventual exit for entrepreneurs and that makes deals with FMCG giants a win-win for all stakeholders involved.”

A BIG PIE

• $185 billion – Indian FMCG market as per BCG
   
• $3.6 trillion – It will grow to in the next few years