In many ways, these factors represent the “plumbing” for new disruptors to emerge and grow. Trivial as it may sound, the adoption of supermarket-style aisle displays is a major factor that’s cited by many VCs.
“Distribution is always the biggest challenge, particularly if you’re launching a new category,” says Shahdadpuri. He uses the example of products targeted at babies, to illustrate the point.
A surprising interaction in the supermarket
“Very few Indian supermarkets have space dedicated to these products, except maybe for nappies. In most other countries, there are multiple shelves or aisles for baby products. I was in a Mumbai supermarket recently and saw snacks for babies kept next to Pringles chips!”
The last major factor cited by almost all investors is the distinct difference in the profile of first-time entrepreneurs starting consumer product businesses.
“Till now, it was only MNCs and large Indian family houses that built new consumer brands. But now, the classic flip to entrepreneurial profiles has happened, with MBAs and pedigreed professionals becoming first-time founders,” says Singh.
This change radically alters the way products are being conceptualized or brands are being built.
Where a large company would commission consumer research and dive down into demographic data, many newer brands start with much smaller but better-defined niche segments. And instead of a top-down approach to market sizing, a better way is bottom-up.
Analyzing the categories
“Yoga Bar (a brand of protein bars) was not even a category that existed in India,” says Singh. He illustrates the way it might approach building a customer segment comprised of gym-goers.
“A Yoga Bar has around 20 gm of proteins at a price of around Rs 100 per bar. Its target will be health and fitness-focused people who go to the gym regularly, say at least 15 gym visits in a month. These are customers looking to supplement their protein intake.
Now 15 gym visits are a potential spend of Rs 1500 per month or around Rs 20,000 a year. Are there 10,000 such gym-goers in Bengaluru, among a population of 8-9 million? If I extrapolate, can I do 20,000 in Mumbai and Delhi too? By expanding to the top 10 cities can I find 100,000 such customers? There. That’s a Rs 200 crore annual market!” he says.
A favorite category among many investors is the pre-natal to the 12-months-post-birth segment that comprises both moms and their babies. “The amount of money spent there is ridiculous. It’s a huge segment but big brands are not doing much,” says Shahdadpuri.
The way such consumer segments are targeted, engaged with and grown are very different from traditional mass marketing.
“The insight is that newer brands are not driven by GMV (gross merchandise value), but by repeats,” says Singh.
Why can’t a really large MNC or Indian brand copy Raw Pressery, I ask its founder Anuj Rakyan? Surely they can execute what he does at a lower cost and better efficiency, given decades of experience and a well-oiled distribution and sales machine.
“For large FMCG players, their supply chain is at the center of all product development. Unlike us, for whom the customer is at the center,” he responds.
“A typical FMCG develops a cold-pressed juice and then figures out how to get it to 50,000 stores. Or how to increase its shelf life to six months. Or how to store it at an ambient temperature that can be easily achieved. And to sell it at, say, Rs 65 MRP. What arrives at the end of that process isn’t something that customers would call juice,” says Rakyan.
Then there’s the fact that success means different things to startups versus large FMCG companies. Large companies need new products to sell in millions of units very fast, while the startups are able to do so with just tens of thousands.
It is in between the two that the opportunity and danger for startups lie. Grow too slow and you lose momentum and investor interest. Grow too fast and you risk overheating and losing focus.
Fireside Venture’s Singh sees four distinct stages that consumer product startups must cross, with distinct strategies and teams for each.