L Catterton to pick up minority stake in pet-food company Drools for $60 million

Drools' potential investment and expansion strategies align with the current thriving state of India's pet food market

US-based L Catterton will pick up a minority stake in pet food products maker Drools, sources told Moneycontrol on June 20, as private equity firms explore opportunities in traditional, profitable companies amid the so-called funding winter for startups.

The private equity firm will invest about $55-60 million in Drools, people aware of the matter said. While the valuation of Drools, a company that has never raised external funding, remains unclear, the deal is about to close within the next two days, the sources said, requesting anonymity.

“Drools was getting quite a few offers from investors and they like L Catterton because of their expertise in the pet-care segment across the world,” said one of the sources.

The deal, if it goes through, will mark another retail bet for L Catterton in India after ethnic wear and home-decor company FabIndia, and beauty-care startup Sugar.

L Catterton and Drools did not respond to Moneycontrol’s queries.

However, in a press release later on June 20, L Catterton said that it invested $60 million in Drools, confirming Moneycontrol's scoop.

"L Catterton’s expertise and ability to create value for companies in the sector is well known across the industry and will help us unlock a new phase of growth. We are keen to leverage its consumer insights, operating know-how, as well as commercial network to further strengthen our brands and recruit talent," said Drools founder Fahim Sultan in the statement.

"India’s developing pet market continues to mature across metros, as well as Tier 1 and Tier 2 cities, and we see many more years of secular growth ahead,” he added.

Pet project

“Globally, L Catterton has backed many pet-care companies, so this is like a thematic investment for them,” the person quoted above added.

L Catterton has backed seven companies in the pet-care segment globally such as Just Food For Dogs in the US, Pet Love in Brazil and Lily’s Kitchen in the UK.

L Catterton has invested in more than 320 companies across the world, Tracxn Technologies data shows. In India, it has investments in 11 companies, including Reliance Industries’ Jio and multiplex chain PVR.

L Catterton is also an investor in restaurant companies Social and Smoke House Deli. The PE firm, unlike many of its peers, has not been very active in the startup investment space in India.

Its potential investment in Drools comes at a time when PE firms in India are looking to invest beyond startups.

Earlier this month, Moneycontrol wrote that PE firm WestBridge picked up a majority stake in KPN Farm Fresh. WestBridge is also close to investing in Milky Mist.

“Drools is largely run like a traditional business, has a significant market share in India and is further gearing up to set up new manufacturing units from about three facilities currently,” the person quoted above said.

Drools, owned by Indian Broiler Group, a poultry products company, was set up in 2010 and claims to have more than a third of the market share in India. It also exports to about 22 countries, with Australia and the Middle East as its major markets.

“What truly differentiates Drools is its ability to manufacture high-quality products across the price ladder and make them available to pet parents via every relevant channel, be it online on Amazon or Flipkart, or offline in over 34,000 points of sale spanning specialty vet shops, veterinary clinics, and general trade stores,” said Anjana Sasidharan, a partner in L Catterton Asia.

“Its focus on product quality has helped it become a brand that has gained a reputation for providing high protein content at value-for-money price points, cultivating a very loyal base of customers. This is an exciting time to be entering the country’s pet food market, which we believe is at an inflection point, and we look forward to working closely with the Drools team to further scale its business,” she added.

In an interview in February, Drools CEO Shashank Sinha said the company was planning to expand its footprint to 50 countries. The company’s turnover would double in two years from Rs 360 crore in FY22 (2021-22), he said.

Drools competes with Pedigree and Purina (owned by Nestle) in India. Its potential investment and expansion strategies align with the thriving pet- food market in India, which has experienced significant growth due to a surge in adoption following the coronavirus pandemic.

According to a report by Mordor Intelligence, the pet population grew to 31 million in 2021 in India from 19.4 million in 2018. Another report by Statista pegged the size of the pet-food market in India between Rs 4,500 crore and Rs 5,000 crore.

Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.