Domestic consumption has been the driver of Indian economic growth for several years. So, when structural issues including insufficient growth in employment and slower redistribution of wealth to a wider mass led to the consumer sector catching cold, it was natural to see the economy sneezing with a severe slowdown. The pandemic-induced lockdown also had a devastating effect on the makers and sellers of consumer products and services.
But the resilience of India’s domestic consumption story is once again on display. Despite the shock of the lockdown, green-shoots are clearly visible.
Rural demand, which is now the bellwether for the industry, was less affected, and shopping trends from the festive season indicated even urban demand is bouncing back. Broadly, the slowdown that was visible even before the pandemic hit the economy, seems to have bottomed out.
Investment activity has been only mildly muted. Private equity and venture capital firms have invested over $9 billion across 250 consumer companies in 2020 to date, according to VCCEdge, the data research platform of Mosaic Digital. Even though a bulk of this money went to Reliance Retail, the total investment was almost the same as the previous year even outside the retail giant. However, the number of consumer firms attracting capital did decline.
The consumer discretionary space sucked much of the money flowing into consumer companies, and while several staples companies found backers they were mostly small-ticket deals.
A large part of the overall money in the consumer sector went into consumer technology firms even as food and beverage; fashion, personal care and restaurant chains also attracted the attention of PE-VC fund managers.
But entrepreneurs face a hard truth about brand fatigue and fragmentation besides down-trading. In a nearly $3 trillion economy of 1.3 billion people, one would struggle to name more than a handful of consumer product labels with $1 billion plus in sales outside of automobiles and electronics. Apparel, food, footwear and personal care in particular, despite being large categories, are highly fragmented businesses.
To gauge the emerging opportunities, discuss the challenges and how to overcome them, VCCircle is hosting the ninth edition of Consumer Investment Summit on January 22, 2021 on a virtual platform.