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New-Age Consumer Brands Will Create $50B Of Listed M-Cap‍

For a long time now, the startup ecosystem in India has questioned whether new-age consumer brands can deliver "venture-scale" outcomes.

This skepticism has led a few to question whether consumer brands as a sector is VC-fundable or not.

While everyone is aligned that brands can predictably achieve some decent revenue mark faster than ever, there are a few common arguments we often encounter.

What is the moat? Is this really defensible? Will online growth plateau out at some point?

According to us, the right question isn't, "Can brands see a path beyond the initial scale?" It is, "Which ones will?"

Revenue of new age consumer brands

Source: Tracked by Elevation Capital

Despite being an $800B+ retail market, India has historically remained brand-starved. However, this has started to change quite meaningfully in recent years, as the D2C playbook proliferates

Today, the combined revenue of new-age consumer brands being tracked by Elevation has crossed $5B/₹40,000 crore, a figure that continues to scale at a rapid clip.

‍We believe the acceleration has only just begun, as several enablers are now converging to make brand-building both lucrative and exciting for entrepreneurs.

Enablers for Brand-Building in the D2C Era

Deepening E-commerce Penetration

As e-commerce penetration deepens in India, even categories perceived as small/niche in the past are becoming attractive.

Lower Cost Barrier

The cost barrier to launching an online business today has significantly lowered, allowing for rapid experimentation.

Internet Access Before Discretionary Income

The fact that Indians have the internet in their pockets before real discretionary income & spending is starting to kick in for the bulk of the population, creates a natural advantage for brands born in the D2C era.

Consequently, we anticipate 300+ new-age brands surpassing the ₹100 Cr revenue mark in the next three years.

How Founders Can Achieve ₹100 Cr+ Scale Via Online Channels.

Pick severe/emerging consumer problem statements

Country Delight focuses on solving for quality (and not, availability like incumbents) of fresh produce for the top 10%

Create products with strong differentiation

SUGAR Cosmetics focuses on color cosmetics for Indian skin-tones (unlike incumbents which design for global audiences)

Be laser-focused on targeting consumers with a sharp marketing message

BlissClub focuses on activewear for women with very clear, targeted messaging (unlike incumbents who are building their brands with a focus on men first in India)

Generate strong repeats/first-order contribution margin

The Souled Store which focussed on repeats by launching non-licensed merchandise and adding multiple sub-categories beyond T-Shirts.

Wakefit offered a superior product to customers and cut out all fat in the supply chain to create a value prop which spread through word of mouth and did not need massive marketing investments thereby generating higher first-order contribution margin than other players.

We now have several examples of companies in our portfolio that have demonstrated this can be achieved in time periods as little as two years, such as Mosaic Wellness and Bliss Club.

Once companies establish product-market fit (PMF) on online channels and the core of the business is built out, founders should step back and think about the core capabilities built within the company.

One should then think about how to leverage the capability to scale across multiple channels and/or crack other such online GTMs to go after adjacent or new consumer personas with similar problem statements to drive the next level of growth.

While the barriers to entry in the new-age consumer brands space are quite low, the barriers to scale can be quite high.

What Does It Take To Crack Offline Channels or Adjacent Personas on Online Channels?

A dramatically different temperament in the organization

Comfort with linear (perceived as slow) growth, patience to deal with geographical nuances & have multiple playbooks v/s the online world, work harder for customer feedback, deal with middlemen.

Sometimes a completely different pricing and marketing strategy

Traditional General Trade operates at very different price points v/s online channels; also continues to be ATL dependent (v/s performance marketing); carrying the full basket becomes important to solve for the cost structure of the channel + space constraints

A second compelling consumer insight or product differentiation

Implementing new brand ideas requires alignment across all teams and getting the org to focus on a 10X smaller business is hard; going offline might also require product innovation (pack sizes, different use case - planned v/s impulse purchase, different packaging)

Beyond the ₹100 crore scale, business models of new-age players tend to converge with incumbent players in the category.

Any business that built scale on D2C by riding on an arbitrage of sorts, without investing adequately in core capabilities like product innovation, sourcing, supply chain, and distribution — not just marketing and sales — will struggle to tread the journey going forward.

SUGAR Cosmetics

SUGAR Cosmetics despite its D2C origins, now operates a full-fledged offline distribution infrastructure akin to giants like Unilever or L'Oreal.

Country Delight

Country Delight avoided the temptation to go offline and focused on expanding the categories available through its D2C offering by going deeper into the value chain and building strong sourcing and supply chain capabilities across categories like fruits and vegetables, staples, and snacks.

The Souled Store

The Souled Store stuck to its D2C DNA and went offline through a network of EBOs. This conscious call to stay close to customers and avoid selling to Large Format Retailers required new capability building around property selection, store merchandising, store staff training, and logistics for replenishment.

If you ask the founders of these companies whether they knew from Day 1 that their business would shape up this way, the answer would be a clear ‘No’. But, on stepping back post early PMF and based on feedback from customers, somewhere the answer on the path forward became obvious for each of these companies.

The $50 Billion Opportunity

The publicly listed market cap of consumer companies in India is ~$350B today and is primarily concentrated in businesses catering to basic/staple needs of the consumer basket — categories such as: packaged food, home cleaning, personal care, etc.

By 2030, we expect brands catering to consumers' discretionary needs — premium products in the categories above and new categories such as home, footwear, durables, QSR, toys, etc. — to be a sizeable part of the listed universe.

Among the 300+ new-age consumer brands expected to cross the Rs 100-crore mark, we foresee 25-30 breakout companies contributing to a public market cap of ~$50B by 2030.