The Indian consumption story still continues to excite investors as they look at new sub-segments and back entrepreneurs, helping them gain leadership positions.
“I think there are still a lot of white spaces in the Indian consumer space, with a lot of small, fragmented players around. If you build leadership positions in these sub-segments, it may lead to high value creation and be satisfying for entrepreneurs,” said Vikram Nirula, Partner at India Value Fund Advisors, at the VCCircle Consumer Investment Summit 2012, held in Mumbai on March 21.
Nirula added that these sub-segments would emerge as stand-alone industries, citing the example of IVFA’s investment in a multiplex chain in 2000 (Fame India) and also in a grocery retail chain (Trinethra).
Moreover, the country’s young demography and the rise of women as consumers are the trends to be watched for. Also, e-commerce is likely to play an increasingly important role in core strategies of consumer businesses.
The summit saw participation from over 200 industry stakeholders including entrepreneurs, private equity and venture capital investors, consultants and investment bankers.
The first panel – Dissecting Indian Consumption Story: Road Ahead For Entrepreneurship & Investments – was moderated by Beacon India Private Equity Fund MD Deepak Shahdadpuri, with participation from Asim Dalal (MD, The Bombay Store), Vikram Nirula (Partner at India Value Fund Advisors) and Lalit Choudary, MD of Infinity Cars Pvt Ltd.
According to Shahdadpuri, the sector still has high potential as sectors, which have been growing for the past 25 years or so, are still at a relatively nascent stage. “What excites us as a fund is when we compare (sub-segments of) India to South-east Asia and China, we find that the penetration is in fractions – like one-tenth and one-twentieth,” he said.
Lalit Choudary, who runs a car dealership for luxury automobiles like BMW and Aston Martin, feels that the biggest change over the past five years in consumer behaviour has been the increasing inclination to spend. “It is no longer a social stigma to spend on luxury,” he added.
For The Bombay Store, which mainly dabbles in home furniture and articrafts, launching proprietary products and targeting youngsters are the strategies ahead. According to Dalal, the company is looking to expand from the current 16 stores to around 50 outlets in the next three years. It has also launched a new brand called Elephant Company that caters to younger customers.
Scaling up would be a major issue for consumer businesses, noted Shahdadpuri, adding that some investments might take almost twice the time. Retail real estate continues to be the biggest challenge but according to Dalal, outlets in airports and malls have turned out well for his company.
Semi-urban and rural areas will be the key growth areas as the majority of Indian population lives there. But Infinity Cars’ Choudary cautioned that entrepreneurs need to time their investments in these markets.
IVFA’s Nirula also warned that one would need to tweak the business model and investment pattern for rural markets, where the urban model could not be replicated. Getting returns from those markets would be tougher. Shahdadpuri added that several consumer businesses that Beacon has looked at over the years, have come back to him with e-commerce strategies.
Dalal of Bombay Stores added that the company had started selling products online and e-commerce would be an important part of its channel strategy. “We need to learn e-commerce well because if we don’t, business will become tough for us in future.”