Consumer brands in India are looking to embrace the digital domain and build a hybrid distribution model with e-commerce as a key pillar to scale up the business, according to experts at the VCCircle Consumer Investment Summit 2015.
The event held in Mumbai saw a packed house of well over 150 participants spanning established entrepreneurs, investors and bankers. Speakers shared their experiences and views on emerging consumer categories, investment trends and innovations driving both the mass consumption items and luxury products.
The flavour of the day clearly was the potential of the e-commerce and the digital space at large and how brands can tap the opportunity. This was both from the sales perspective as well as marketing and customer feedback cum analytics angle.
As a result, even segments like fast moving consumer goods (FMCG)—seen as a fairly colourful but still an old economy consumer industry—is seeing an increasing digital footprint.
“Today one-third of FMCG is influenced by the digital market,” said Shomik Mukherjee, partner at Actis, a private equity firm which has backed ventures like Paras Pharma, Jyothy Laboratories and Nilgiri’s among others in the consumer space.
Those at the intersection of old economy and tech-enabled business domain are already seeing a far larger business driver from online sales channel.
“Today 70 per cent of my bookings come from mobile app. So we are looking at online not just as a point of sale but also as a marketing tool to increase penetration,” said Siddhartha Pahwa, CEO of Meru Cabs.
Meru, which competes with the likes of Ola and Uber among other online cab aggregators, was previously seen as a taxi operator and banked on phone calls to its customer care centre to book cabs. The firm earlier owned the bulk of the cabs in its network but overtime pivoted to become a digital aggregator like its more younger peers.
Companies are also willing to take a cut in margins to drive sales online through discounts. Asif Merchant, managing director of footwear firm Catwalk, said, “People talk about building a luxury brand but I want to be omnipresent and have my brand feature in as many sites and portals as possible. The idea is to increase sales.”
He said if his firm enjoys a 30 per cent profit margin for products sold through an offline retail outlet, he is willing to generate only 17 per cent profit for items sold online.
“This helps me increase sales and in turn increasing profitability. So I as a brand choose to rather be present on every site rather than only operate through my own retail stores,” he said.
Saurav Banerjee, CFO of jewellery retailer Tribhovandas Bhimji Zaveri (TBZ), said the company is looking at e-com as a significant business driver as customers are more keen on purchasing products online.
Speakers also touched upon the opportunities and challenges for packaged food products, a fast growing category with changing lifestyle and preferences.
Venture investor Deepak Shahdadpuri, founder and managing director of DSG Partners, said: “The ready-to-eat segment is expected to grow 14-20 per cent during 2014-17.”
The challenge, however, lies in being able to maintain the supply chain and quality of processed and preserved foods.
“We have to find innovative ways to manage and improve the supply chain and how we can take out cost is a key issue in the food chain industry,” Kannan Sitaram, CEO, Innovative Foods (which sells frozen foods under Sumeru brand) and operating partner at private equity firm India Equity Partners, which owns the company, said.
He counted three major drivers of packaged foods business in India: convenience, gourmet food and snacking, and said that to provide all three, a strong supply chain is needed.
“We need to innovate to be able to optimise our supply chain in order to cut costs and provide a broad range of products,” he added.
Others like Vikram Sharma of private equity firm India Value Fund Advisors noted that one big constraint for packaged food is the lack of technology to process and preserve.
Speakers also discussed the big opportunity in ready-to-eat food category with Akshay Bector, managing director of Mrs Bector’s Food Specialties Ltd, saying his firm finds Indian cooking sauces as an interesting play while Vikas Kakwani, CEO of Keya Foods, pointed out healthy snacks as an area of interest.
Panellists also discussed the growth in the out-of-home eating segment with multiple formats, choice of cuisines, convenience etc related to online ordering.
“We have to be more proactive and provide a strong central kitchen to ensure the quality of food and have a strong delivery model to meet the needs of online ordering,” said Uday Kumar, chairman of Annamalai Foods Pvt Ltd, which runs a chain of restaurants under the Nalas Aappakadai brand in India, UAE, France and the UK.
Some also had a contrarian view on the online sales phenomena. Rahul Deans, CEO, Cocoberry Retail, which runs a chain of frozen yoghurt, said it remains to be seen that how long restaurants remain with online aggregation and ordering sites providing discounts.
“These sites are not helping us in new customer acquisition, it is giving our existing customer another mode of ordering. I am keen to see how the online ordering segments grows or when does it shut shop,” he said.
Speakers at the event also touched upon the other aspects linked to technology play in the consumer sector. “Data analysis is becoming an important part of understanding consumer behaviour,” said Dhanpal Jhaveri, managing partner, private equity, Everstone Capital, at alternative investment firm with a bunch of consumer sector investments.
(Edited by Joby Puthuparampil Johnson)