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No flash sales or discounts but business is booming for consumer startups

Digital-first brands selling premium products have seen their business grow in the last few months, with Tier 2, 3 cities fuelling the demand. From bargain hunter to premium buyer, has the Indian customer come of age?  Read on

August 27, 2020 / 10:44 AM IST

Price-sensitive is how the Indian consumer is described, be it by a cellphone company or a tooth-paste maker but the definition is up for a change if consumer startup trends are anything to go by. 

In 2015, several big and growing consumer startups had a simple growth model. Find an under-tapped segment, raise loads of money and build a customer base on the back of discounts and cash-backs. The thinking was that Indian consumers are loyal only to discounts, capital is flowing freely, and economics can be figured out later.

Today, a slew of digital-first brands are challenging this thesis. Bargain hunting and predatory pricing is not the currency here. These brands sell premium products, offer little to no discounts and are still doubling and tripling revenue year-on-year.

More so during the coronavirus pandemic, when consumers have switched from offline stores and malls to upstarts such as Mamaearth, Mosaic Wellness, and Atomberg fans, some of which sell only online.

“Our competitors are larger incumbents and our technology is actually 1.5x more expensive. But we offer value to the customer, to save energy and use fans with remotes or control with phones, etc,” says Manoj Meena, founder and CEO of fan startup Atomberg. “There is a unique value proposition, which is our focus, not discounts. Customers really appreciate value and are not necessarily cost-sensitive.”


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Despite no reduction in prices and production grinding to a halt in the initial months of lockdown, Atomberg expects to more than double its revenue in FY21 from Rs 75 crore in FY20.

The story is playing out across the country—from small to big towns and small to big brands.

“There is a frenzy in D2C (direct to consumer) brands right now to take advantage of the current situation. The D2C market may have gone three times in the last few months as the percentage of digital moves from 4-5 percent to 12-15 percent of the overall market,” says Revant Bhate, co-founder and CEO of Mosaic Wellness, which is building digital-first health and wellness brands.

The viral outbreak and the lockdown have boosted these digital brands but the fundamental shift in consumer preferences started earlier.

These brands are seeing real revenues from Day 1, something many startups have missed in their early years.

Many of these, from WOW Skin Sciences, which offers cosmetic and skincare products, to And Nothing Else, a health food brand, are premium products. Despite this, the demand is broad-based and without discounts.

“The kind of demand we are seeing for brands outside of the metros is phenomenal,” says Manu Chandra, managing partner at, an early-stage venture fund.

“Most of our portfolio is premium brands, and 50-60 percent of their demand is from Tier 2-3 cities and beyond, from towns whose names I haven’t even heard.”

Small towns’ big push

So what has changed? Has the Indian consumer come of age?

It is not that India has suddenly become wealthier. The top 10 percent of the country’s earners—about 140 million people­— have always been able to afford these products.

“The wealth was always there, but these customers (in smaller towns) are exposed to so much more information than before. It makes them even more aspirational,” says Chandra.

Entrepreneurs say there is a deeper consumer base where traditional retail cannot reach, offering online brands an opportunity to expand even as they charge full price and maintain better unit economics than in many other sectors.

Consumers experimenting with online products and willing to pay a premium over the internet is new. Cash-on-delivery helps but people who would never consider online shopping are taking these new brands seriously and making them a part of their routine, which is driving this growth.

Funding will follow as well. In 2019, a record year, consumer brand startups raised $295 million across 57 deals, figures from Venture Intelligence, a data tracker, show. It is nearly double the $158 million raised cross 29 deals in 2018.

This year has seen them raise $107 million across 23 deals, with many deals still in play. Online-only brands also tend to raise less money as the middleman gets cut and margins are better.

Despite the shift in consumer preferences and the very real opportunity, industry insiders say it is early days—D2C is at the start of a 15-20 year journey—and founders and investors should not get carried away by the pandemic-driven growth.

“More than the number of people increasing, or income rising, the buying has shifted online. This is a fundamental change. But in a few months, we have to see where it will settle. All of us will need to figure out how to give the best customer experience as when offline stores open,” says Bhate. 

“When the market size readjusts it's critical to get consumers to stick to the new normal rather than go back to old habits,” he added.
M. Sriram
first published: Aug 27, 2020 10:44 am
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