FMCG Firms tap Consumer Start-Ups to boost growth

October 18, 2019

According to the paper the leading Fast Moving Consumer Goods (FMCG) firms and retailers including Haldiram’s, Wipro Consumer Care and Lighting Ltd, LuLu Group & Burman Family Holdings, the family office of Dabur India, are scouting for investments in consumer brand start-ups to boost growth in a weak economy, multiple investors and industry executive said.

Consumer spending across the FMCG & Consumer Packaged Goods (CPG) segment has fallen sharply in the last couple of quarters. Wipro Consumer recently launched a venture fund to invest in start-ups in the consumer brands space. A Wipro spokesperson said the company will look to invest about INR 10-30 crore in early to mid-stage start-ups. We will be looking at those start-ups where we can add value as well learn from them. Financial returns would be an important objective of the fund as well as adding strategic value, but all as a minority investor, the spokes-person added.

Haldiram’s, one of the oldest names in packaged foods space in India, is in discussions with multiple start-ups in the consumer brands space including Bengaluru-based Frozen Bottle, a quick-service restaurant chain that sells milkshakes and desserts.

While FMCG and CPG majors turn to consumer brands led by start-ups, their overall revenues have also been declining consistently in the past couple of quarters, amid an economic slow-down. A Credit Suisse report this month said the FMCG segment revenue is likely to decline by around 5% in the second and third quarters of 2019-20. FMCG revenue growth had earlier declined from 11% in the third quarter of 2018-19 to around 7% in the first quarter of the current fiscal, the worst revenue growth in the last 15 years.

Analysts and industry observers attribute falling consumer spending to not just low incomes but also a lack of brand innovation, and failure to understand niche consumer needs, at least in Tier I & Tier II markets.  The renewed interest displayed by traditional firms in start-up-led consumer brands, is mostly steered by the fact that these brands virtually saw no impact of the economic slowdown.

The expert stated that when you are the market leader with a 30% market share, slowdowns are scary. But when you are an insurgent brand with less than 1% market share and have a strong product and brand narrative, you should continue growing.