In Search of Consumer Connect
Goutam Das October 15, 2018
The packaging isn't subtle. One of them borders on comic art with 'Eargasm in the box' printed. The products themselves can be loud with a definitive bass bias. That's when EDM or electronic dance music gets heady. The 20-year-olds love that.
Three-year-old boAt sells earphones, headphones, speakers, travel chargers and cables. Yet, the start-up loathes to be called an electronics company; it prefers the tag of a 'lifestyle brand', a cool one that makes fashionable stuff such as cables in camouflage or denim colours for Apple products, portable speakers that are stone-shaped and not the usual egg-shaped, and Bluetooth headsets designed to complement those with a sense of "style, fashion, and craziness".
Aman Gupta, boAt's co-founder, who calls himself 'Captain', identified the company's positioning early. Some companies were playing on price, while a few played on perception - top-end audio companies that market quality of sound. "We are somewhere in between," says Gupta, who started boAt with Sameer Mehta. "Products for 18 to 24-year olds - that was the whitespace." He implies that no one was really targeting this demographic.
If you survey the recent start-up landscape in India, you will discover many trends, and sub-trends. Food-tech has made a revival, so has grocery. Business-to-business companies are going strong, as are companies that are Artificial Intelligence (AI) -driven and those in fintech. There is a whole bunch of real estate start-ups, in the form of co-working spaces. Nonetheless, there is something about consumer product brands and their fast-paced growth. They are cool, innovative, have well targeted products, and are ready to disrupt markets dominated by the established, in many cases multinational, companies. Many of them cater to a new consumer, the one Gupta talks about.
The consumer product sector was also well represented in Business Today's Coolest Start-up edition 2018 - the jury picked 14 winners of which five are consumer brands or intend to become one soon - FableStreet (work wear), Wakefit (orthopaedic mattress), Smartivity (toys), Clensta (bathing without water), and Swajal (water bottles and water ATMs).
Putting a finger on the exact number of consumer facing product start-ups is difficult, but one proxy could be Amazon Launchpad, which showcases products from such start-ups. Most Indian start-ups are Internet-first companies. Amazon says that Launchpad has over 350 start-ups hosting over 40,000 products across 30 product categories. In the past three years, consumer facing start-ups have spanned from fast-moving consumer goods (FMCG) sectors to fashion, electronics, and alcoholic and non-alcoholic beverages among others.
Yet another way to figure out the growth of consumer brands is the interest from Indian investors. Fireside Ventures, a specialised fund that invests in consumer brands, raised a corpus of `340 crore from a long list of marquee investors, which include Premji Invest, Westbridge Capital, Mariwala Family Office, Unilever Ventures, Emami Ltd, RP-Sanjiv Goenka Family Office, Sunil Munjal's Hero Enterprise Investment Office and ITC Ltd. Over the past 18 months, Fireside has evaluated 800 consumer product brands.
Investors are hoping that two mega trends will aid their success in the years ahead. One is what boAt talks about, the new consumer. Fashionable, aware, wants to live healthy, is willing to try new things, and also pay a slight premium for a better product. The second trend is the growth of new infrastructure such as e-commerce platforms, of course, but also engagement platforms on the web and super markets. All this reduces the time and cost to market.
The New Consumer
In August 2017, Anirban Das Blah, Founder of talent management company Kwan Entertainment, and Jiggy George, Founder of brand licensing agency Dream Theatre, entered a joint venture agreement to create a new company, Mojostar, which partners with celebrities to co-create fashion brands. Earlier this year, it launched Just F by Jacqueline Fernandez and PROWL by Tiger Shroff. A footwear brand by Ranbir Kapoor is in the offing.
What are the brands eying? Something similar to boAt, a whitespace that hasn't being addressed by established brands. For example, active wear for women is usually drab rather than being fun and fashionable. "The idea of an Indian fitness brand that is only about women and about fashion you can wear outside of a gym too didn't exist. That was a consumer whitespace," Blah says. Just F, a "feminine active wear" brand was thus born. Similarly, PROWL is an active wear brand for young men. "Existing active wear brands made no distinction between the 15-20-year-olds and the 35-40-year-olds. The young want their stuff to be affordable, but also make them look good. For them, working out is not about health; it is about vanity," Blah says.
Beauty products can be about vanity, too. They can also cater to modern day fads of being organic, using less chemicals or being vegan. There is growing demand for such products, primarily because of greater awareness.
"Consumer behaviour is changing rapidly. They are flooded on social media with ideas and know a lot. This was not the case seven years back. Now they know what a single-ingredient product is and want that," says Manish Chowdhary, Co-founder of Fit & Glow Healthcare Pvt. Ltd. One of the company's brands is WOW that started with an ideology of using less harsh chemicals in formulations such as shampoos. Chowdhary says one of the company's top sellers is an apple cider vinegar shampoo, a single ingredient product.
Similarly, there is skin-care and hair-care brand Plum, which started with the "philosophy of goodness". "We don't make fairness creams (because you are who you are); we use glass and recyclable packaging; our products are vegan, which means there is no animal-derived fragrance, or no animal is involved in the whole production process," says founder Shankar Prasad.
Prasad, a chemical engineer, had worked with Hindustan Unilever, McKinsey, and Everstone Capital. He noticed that the FMCG market has both expanded and become complex over time. While a decade back, there were just three categories - mass, premium and niche - now, the market is segmented into at least five. "There is mass (Rs 100-200), mid-premium (Rs 300-800), premium (Rs 800-1,200), sub-prestige (Rs 1,200-2,000) and prestige (beyond Rs 4,000)," he says. "We like to target the 25-32 years olds who are familiar with modern concepts such as vegan. But, older consumers end up using the products as well," he adds.
Then there are start-ups that are targeting convenience. The busy consumer, or the lazy one. Sleepy Owl Coffee's three founders, Ajai Thandi, Arman Sood and Ashwajeet Singh, saw that in-home coffee consumption in India is dominated by instant coffee. People don't want to or don't know how to brew. In 2016, they came up with brew box and brew packs, targeting the cold brew market. The brew box is a cardboard box with a tap one can buy off-the-shelf in Delhi-NCR. The coffee is already brewed and all it needs is dispensing. The brew packs require some amount of work but isn't difficult. One brew pack can be added to 500 ml of water and left overnight. The coffee is ready in 12 hours, to be served over ice.
Thandi says that they specifically wanted to target the cold brew market because India mostly has warm weather. Also, cold brew coffee is less acidic and one can consume more. The pricing is premium. A 1.5 litre-box comes for Rs 600; and five brew packs cost Rs 500.
The New Infrastructure
About 79 per cent of the customers who bought Sleepy Owl's Original brew pack on Amazon gave it a 5-star rating. About 45 per cent of boAt's Rockerz 400 On-ear Bluetooth Headphones gave it a 5-star rating and another 27 per cent gave it four stars. This is what excites start-up founders about e-commerce. Instant feedback helps in product iterations or even deciding on pulling out products that aren't doing well quickly enough. The feedback loop in the traditional world takes months, and is expensive.
Nearly all consumer brand start-ups today have an e-commerce-first approach for strategic reasons. It forms part of what Kanwal Singh of Fireside Ventures calls the "new infrastructure" -one that helps build brands with lesser capital.
"There are also interesting developments in distribution and go-to-market strategies. And new ways of building brands," he says.
"The cost of customer acquisition is getting more focussed. Around 10-15 years back, you would have to do more mass advertising on television and print, and you would have the distribution complexity of going to smaller kirana stores. That combination of mass advertising and high fleet on street requirement would require a significant amount of capital," Singh adds.
Apart from e-commerce, new infrastructure includes formats such as supermarkets. An FMCG start-up today can create more focused distribution with only supermarkets. So, instead of going to 20,000 smaller shops in a city, it can do with a few hundreds. Digital avenues of engaging with customers are also reducing the cost of branding. Singh cites consumer engagement platforms on the Web. His portfolio company Mamaearth, which sells toxin-free baby care products, uses mom bloggers to influence.
Exactly how much cheaper is this? Singh calculates that for FMCG brands, it could be possible to build a Rs 100 crore-company with an investment of Rs 30-35 crore. A decade back, building a similar sized company would have required Rs 60-70 crore or more. While today you could get to Rs 100 crore in four years, it would have taken double the time a decade back.
WOW started in 2014 and expects to close 2018/19 with revenues of over Rs 100 crore from sales in India and the US. Last year, it raked in Rs 30 crore. boAt, which started in 2015, had revenues of Rs 27 crore in 2016/17. Last fiscal, revenues shot up to Rs 106 crore.
All this makes the consumer product start-up sector a real cool one - a new sunrise space for both founders and their investors.