Even as the consumer segment has always evinced significant investor interest, earlier it typically saw the participation of risk capital biggies. But over the last few months, there has been a shift in terms of more consumer-focused funds launching and creating investment opportunities in India and Southeast Asia (SEA).
In the next five years, there’ll be a lot of opportunities to invest $10-14 million in the consumer space in India and SEA.
“2021 will be more interesting and a story of a reviving economy. Lots of existing founders are using some of the changes that have been brought by COVID to build better and bigger businesses. We will be surprised by where we find them in terms of category,” said VT Bharadwaj, General Partner at A91 Partners at the panel titled ‘The road ahead for consumer-focused investors in India and SEA’ at DealStreetAsia PE-VC Summit 2020.
The consumer segment has been a very strong defensive through COVID, which has reflected in the returns, highlighted the panelists. The menu of entrepreneurs is a very large, high-quality menu, and the number of surprises either regulatory surprises, or market surprises, are a lot fewer. On the exits, they felt that the consumer segment has done pretty good, in terms of both ability to build a portfolio and delivering returns.
“I see many more founders and businesses today than 10 years ago. This is why you’ve also seen many more seed and angel funds focused on consumer. And each of the big PE funds you could talk about such as Everstone, TPG, and KKR all have a dedicated consumer team today. So, the velocity of new brands that are going to capture significant marketshare is going to increase,” said Deepak Shahdadpuri, Managing Director at DSG Consumer Partners.
“I don’t back businesses, I back people who understand the risks associated. I’m going to continue my job of finding them, scouting for them and nurturing them. Many will fail. But hopefully, we will find everywhere one or two more Sulas, Epigamias, Raw and OYOs become really big,” he added.
On the shifts that have happened in the consumer space because of COVID, Nicholas Cator, Managing Partner at Venturi Partners, said that about 60 per cent of India’s GDP is through internal consumption, it’s the same in Indonesia. Consumer space is growing faster than GDP in both the countries over the last year.
“There was a gap in the growth stage in this part of the world… we started seeing opportunities in India in Series B to D [level]. Consumer is COVID resistant in some parts of the consumer space. Of course, hospitality and all have been badly impacted. As people remain stuck at homes over the past 6-9 months, there has been a lot of pent up demand,” Cator said.
“In Singapore, restaurants are actually having the best year ever. Alcohol consumption has gone through the roof everywhere. We have fast-forwarded digitalisation by 5 years. Healthcare has got a huge boost as telemedicine is being used by everyone. When we look at opportunities over the next 6-12 months, we have to be careful that it’s just not a COVID boost but a fundamental long-term trend in some spaces,” he added.
The COVID-19 crisis has actually prompted startups to digitalise their businesses without any prior notice. There are a lot of deals that have happened in India over the last six months. Moreover, experts also noted that the spectrum between digital-only to brick-and-mortar-only has changed and most businesses have realised that at some point they need to go omni-channel because consumers have multiple points of purchase.
“Because of the mass closures and lockdowns in Singapore and India, the companies were forced to go digital. Many businesses already had a presence in both. They were luckier because they were able to shift resources from offline to online quickly. Digital is an important component of the go-to-market. The question, however, is as the market opens up, as vaccines come in, and as people start going out again, what component of the business or distribution should be dedicated to offline versus online?” Shahdadpuri said.
Some were also of the view that brands should not be constrained by channel thinking. Depending on the product specification and differentiation, some of them have to be multi-channel, some have to be online only as some have to cater to neighborhood mom and pop shops and some have to cater to modern trade, and you have to make sure you’re available in every possible manner.
“There are very few categories that would get away by being a mono channel. The good brands have to find that mix. And unlike what happened in the US with Walmart and BestBuy reporting spectacular numbers, modern trade in India has given space to online. So, in terms of brands, in terms of audience, as well as the kind of products that are going off the shelves, it will be product specific, channel-specific, and also customer-specific,” Bharadwaj said.
Businesses riding on new disposable income
Asked if buyers are prioritising a need-to-have over good-to-have products and services, Bharadwaj said, “It’s is a combination need-to-have and good-to-have, it is also driven by where was income sitting. Some disposable income has got created because of people not traveling, not dining out as much. As a result, people are spending more on food, skincare, interests and so on. We’ve been surprised by the growth in categories which are classic indulgent categories such as fans.”
He added that aggregate consumption has come down, which will take some time to come up and that’s going to be the reality for India. But in that consumption, there have been a lot of shifts, and some of which will sustain while some may not.
The experts also noted that sectors such as edtech and healthcare have seen a shift and going forward, it will be interesting to see how many more unicorns India will have.
“Startup founders have been able to adapt faster to the new realities, faster than the MNCs. It’s also interesting to see how unicorns have been buying other companies. The Indian IPO market will come into the picture in the next 3-5 years, and the consumer segment will be a great opportunity because currently there are not many big players in the space,” Cator said.
India is strategically very important, and the all big companies are looking to acquire small firms, the panelists noted. These companies have now accepted that disruption is gaining steam.
“The change we see at the board level of these companies is the velocity at which they are acquiring smaller brands. You will start to see Indian MNCs, consumer product goods companies doing acquisitions more aggressively than ever before. When Marico bought Beardo, they showed how you can take a brand with authenticity, use the distribution muscle, and grow it.”
2020 has been a tough year, but it has also been a very busy year for investing. India and SEA are going to see a lot more capital commitments over the next 12-18 months.
“It will be interesting to see what the consumer comes back to, how they have been behaving across the industries and different sub-verticals. 2021 is the year when again Asia is going to be seen as the engine of growth for the world. Asia should rebound faster than the US and Europe,” Cator said.