FMCG start-up acquisitions: What does it mean for D2C ecosystem?

BY Kanchan Srivastava

India’s top conglomerates Tata, Reliance Industries (RIL) and Adani are in a buying spree these days. They have acquired several FMCG brands across the country in order to pip multinationals like Hindustan Unilever (HUL), Nestle and P&G. 

Tata Consumer Products Ltd (TPCL), which was formed in 2020, has recently acquired NourishCo Beverages and cereal brand Soulfull. Last year, it acquired a majority stake in online grocery seller BigBasket and online pharmacy retailer 1mg. TCPL will be able to enhance its FMCG sales with the widening Tata Neu customer base. The group already operates an e-commerce platform Tata CLiQ.

The acquisition spree of the leading Indian conglomerates has come at a time when top venture capitalists, who have been infusing funds in the D2C brands so far, have tightened their purse strings. 

Data Game?

It is certainly a boost for the startup ecosystem. Each acquisition is an inspiration for scores of other D2C brands to spawn - all hoping to be ‘bought-out someday’, says Premjeet Sodhi, Chief Strategy Officer, Wavemaker India. 

Sodhi points out, “As we look into this trend deeper, this is indicative of the buying behaviour shift that the consumers are going through. Access to smartphones & cheap data; proliferation of online wallets/ payment systems; fast-developing fulfillment/ delivery services; along with the growing culture of convenience, safety and the increasing share of the digital-natives in the “buying demographic” – are all contributing to the growth of ecommerce,” he adds. 

Sodhi explains, “In the western countries when the retail-wave first happened, we saw the advent of bar-codes and the power it gave to the advertisers and trade with data about sales and customers. Ecommerce is giving the same thrill of data – ten-time over. However, it is changing the power equations between the brands, platforms and consumers.”

The brands are now trying to catch up and want more control over these trade channels and their D2C platforms are a possible avenue. 

Sodhi explains, “As data and privacy laws become more stringent and marketplaces become more opaque - going forward, we expect a lot of action in the D2C space not only as a significant contributor to sales as a trade channel; but, also as a barometer for these companies to capture first-party-data and understand the consumers better.”

Legacy businesses would surely like to be part of this e-commerce growth along with the access to the loads of consumer data. After all, India has about 622 million internet users, which is likely to cross 900 million by 2025, according to the IAMAI-Kantar ICUBE 2020 report. Active ecommerce penetration in the country at present is over 75%, a report from Statica says.  

“FMCG companies need D2C brands more than the other way around”, says Ashit Chakravarty, Executive Vice President, dentsu Webchutney. 

Echoing the sentiments of Sodhi, Chakravarty states, “D2C brands are disruptive and they bring a string of benefits, like tapping into niche categories, bringing almost real time feedback on new products and they have a ‘highly engaged user base’. It augers for fierce competition with home grown FMCG companies empowered with disruptive omni channel brands taking on the international majors.”

FMCG market

The FMCG market in India is expected to increase at a compounded annual growth rate (CAGR) of 14.9% to $220 billion by 2025, from $110 billion in 2020, as per the Department of Commerce, Ministry of Commerce and Industry data. 

According to estimates, India’s consumer digital economy is expected to be a US$800 billion market in 2030, registering a 10x growth from 2020. The Covid-19 pandemic and rising digital connectivity in cities and rural areas is driving the demand for FMCG through e-commerce portals. 

By acquiring various startups and investing more in retail, Indian conglomerates see the expansion of the market as an opportunity to increase their footprint and possibly to surpass the global FMCG majors. 

For instance, Adani Wilmar Ltd has already trounced HUL in terms of revenues in the last financial year -- ?54,214 crore for AWL and ?51,468 crore for HUL. 

Win-Win Situation?

How will the consolidation in the FMCG sector reflect on both India's startup ecosystem and top conglomerates? 

For large businesses it is always better to acquire a well-functioning startup than to build a new category-product from ground-up, Krishna Iyer, Director – Marketing, MullenLowe Lintas Group, says. 

Iyer says, “It may keep legacy companies from achieving their highest potential. Also, this model forces only one winner, whereas, collaboration is about growing together. Businesses that collaborate carefully are uniquely positioned to build a significant market share, especially in an era where there is dynamism of not just consumer behavior but the market itself.”

Lloyd Mathias, Business Strategist and Independent Director, feels that the consolidation in the FMCG sector is a positive trend. 

Mathias says, “As liquidity tightens, many start-ups will struggle to raise funds for their next phase of growth and to compete with larger players. At times like this being acquired can help them  - both by being part of a larger system where they have better access to funds as also the cost synergies of working with other entities. This process of consolidation, in any fast growing sector,  is inevitable and will help more robust players with scale and heft,” Mathias adds. 

Ashit Chakravarty believes that it is a win-win for both parties. “For legacy businesses and FMCG majors, it adds speed and agility to their portfolio. D2C startups are more nimble, with faster go-to markets for their products as well as a faster attribution of their products. With these acquisitions, legacy businesses don’t need to tinker with their existing models, rather they can take time and familiarize themselves  better.”

Chakravarty further noted, “For D2C brands, it allows them to scale up immediately. For instance, cereal & snacks brand Soulfull scaled up to 300,000 retail outlets from 15,000 after the Tata consumer products acquisition. More and more FMCG companies will be vying for such opportunities, and digital first omni channel brands will have a lot to gain from it.”

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