The consumer sector is a darling of investors at present with both early stage venture capital as well as private equity firms betting big on companies chasing domestic consumption as an investment theme. The VCCircle Consumer and Retail Investment Summit in Mumbai on Thursday had industry veterans, investors and other experts talking about trends, challenges and opportunities in the consumer sector. We pick up a few takeaways:
Consumer services sector is the new sweet spot
It’s not just consumer facing products or brands that are the future of the sector. There are also heroes behind the scene who make consumer brands. Nikhil Vora, founder and CEO, Sixth Sense Ventures, a recently launched venture capital firm chasing consumer companies, said, “We look at innovative models. We are betting to buy in businesses that are disruptive in the consumer ancillary space. Consumer analytics will be a big opportunity in the next five to 10 years. There are many sub-sectors within consumer to invest like new age digital media and brand positioning companies.”
Physical retail and e-commerce to converge
While many experts opined that consumers will directly shift from kirana or local neighbourhood shops to e-commerce in India, Future Group’s Kishore Biyani shared a different perspective, “The physical and digital model will converge in retail. I do not see any e-commerce company with positive gross margins in India. Both the models have to work in collaboration.” He further gave the example of Big Bazaar Direct, a cross between e-commerce and door-to-door sales.
Exits remain a challenge for investors in regional brands
Given its geographical spread and local market nuisances, the country has a plethora of regional brands dominating certain geographies. But is it the right bet for investors?
Siddharth Dhondiyal, Investment Director, IVFA, said that regional brands can grow, but may not give good exits to investors. He counted two reasons: “The first is that an IPO is difficult in a regional brand because it takes time to scale up. The second perspective is that a strategic investor would think twice before investing in a regional brand as he would not know how to take this brand national.”
Venkatesh Iyer, MD & CEO, Goli Vada Pav, talked about challenges of going national. “We have different recipe in each region in India as tastes are customised. This is how we are building a national brand. We cannot rely on the same recipe for all states,” he said. Goli Vada pav which offers burgers as an ethnic fast food with an affordable tag, is now present in some 55 cities in 14 states and has 250 stores.
Early stage funding is the future of investment in consumer companies
Investors feel that infusing large chunk of capital in mature companies is not fashionable any more. “We look at extremely immature companies,” said Vora from Sixth Sense Ventures.
Exits could be a major reason to this trend. Added Rahul Garg, Principal, PremjiInvest, “Financial investors should invest in consumer companies at an early stage or probably at a VC stage. It doesn’t make sense for a financial investor to invest in a consumer company at mid-market stage.”
He said another option is that PE players can join hands with strategic investors in mature deals.
(Edited by Joby Puthuparampil Johnson)