New-age consumer food brands will have to create direct-to-consumer distribution channels, as their usual partners — traditional and online retail — struggle to meet demand amid the disruptions induced by the Covid-19 pandemic, according to Deepak Shahdadpuri, managing director of investment firm DSG Consumer Partners.
As online marketplaces and e-grocers such as Amazon and BigBasket focus primarily on large FMCG brands and push their own private labels, newer and smaller “insurgent” food and beverages brands have to figure out strategies to beef up flagging sales, pointed out Shahdadpuri, one of the leading consumer-focused investors in the Indian startup ecosystem.
“Any grocery business, offline and online, will be using this opportunity to push their private label brands. The data suggests that consumers are not making decisions based on what they want given the very limited choice in the early part of the lockdown. Consumers are buying based on access and availability,” he said.
Two of DSG Consumer Partners’ portfolio companies in India – yoghurt maker Epigamia and cold press natural juice maker Raw Pressery – have already started selling on their websites.
“The big online retailers were not being able to service their clients. We don’t want to compete with the likes of Flipkart or BigBasket, who also sell our products. But at this stage, everyone in the ecosystem is stepping up to get the goods to the customer,” Shahdadpuri said.
The Singapore-headquartered firm with over 40 portfolio companies, which was one of the earliest investors in SoftBank-backed hospitality chain Oyo, currently manages assets of over $200 million.
The Covid-19 virus outbreak resulted in global ratings agencies slashing economic growth projections for Asia’s third-largest economy, citing the shocks to the system triggered by the pandemic.
Last month, Fitch Ratings slashed India’s GDP growth to 0.8% in the current fiscal year, stating an unparalleled global recession was under way due to disruptions caused by the outbreak and resultant lockdowns. The slump in growth will be mainly due to a projected fall in consumer spending to just 0.3% in FY21, it added.
This has resulted in venture capital firms looking at various funding options to pump in capital into their consumer facing portfolio companies, many of which are in dire need of capital to even survive the next few quarters.
“There are businesses where Covid-19 has given you this huge explosion, where you might need money to scale. But that’s a minority. Then you have companies that were planning to raise money in the first half of 2020. They are the ones that will face challenges. The timing is bad,” Shahdadpuri said.
According to him, the firm has been doing a mix of rights issues, convertible notes and pricing rounds outright. A priced round is an equity-based investment round in which there is a defined pre-money valuation, while a rights issue takes place when existing investors in a company invest additional capital and are issued shares at a discount.
“It will be very tough valuing companies. Because of the surrounding uncertainties, it is not the right time to raise money,” he said.