India’s top corporates – Tata, Reliance Industries, Adani and Marico – are currently in acquisition mode with several of them being D2C start-ups. This is being viewed as an attempt to build a presence in the consumer base of other FMCG majors.
The acquisition spree of these leading Indian conglomerates has come at a time when top venture capitalists, who have been infusing funds in the start-ups so far, have tightened their purse strings. This has led to a churn and consolidation in the Indian FMCG and e-commerce sectors, two top contributors in India’s AdEx.
D2C Acquisitions
Tata Consumer Products Ltd (TPCL) has acquired NourishCo Beverages, cereal brand Soulfull, BigBasket and online pharmacy retailer 1mg. TPCL also launched premium products, such as 1868 by TATA Tea and Sonnets and Eight O’Clock coffee, to be sold through its D2C channel.
Meanwhile, Zomato has acquired D2C grocery brand Blinkit and Swiggy has picked up DineOut. Marico acquired digital-first brands such as Beardo, Just Herbs, Coco Soul and Pure Sense. The company has also launched its own D2C platform ‘Saffola Stores’ during the pandemic.
Reliance Retail has acquired Hamleys, Milkbasket, Zivame, Clovia, Portico, Netmeds, Dunzo, Shri Kannan Departmental Store. It looks to acquire dozens of small grocery and non-food brands to build a $6-7 billion FMCG portfolio.
Adani Group has acquired the 'Kohinoor' brand from McCormick Switzerland GMBH. The group already has Ruchi Soya under its fold.
What Experts Say
Ashit Chakravarty, Executive Vice President, Dentsu Webchutney, a digital creative agency from Dentsu Creative India, expects an increase in AdEx by startups owing to their acquisitions by the leading corporates.
“There should be increased spending from the D2C brands to match their scaled-up ambitions. On the other hand, it will open up newer marketing strategies for legacy FMCG businesses to learn and implement over a period of time. In all we will see more spending from the FMCG business as they take on the international majors,” Chakravarty tells e4m.
It is noteworthy that the FMCG sector is expected to grow at a compounded annual growth rate (CAGR) of 14.9% to USD 220 billion by 2025, from USD 110 billion in 2020, and the e-commerce market is expected to grow by CAGR of 20% and likely to reach USD 188 billion by 2025 from USD 46.2 billion as of 2020, as per the Department of Commerce, Ministry of Commerce and Industry data.
The very thought behind these acquisitions is to increase market share, expand product portfolio, and in turn scale the company.
Premjeet Sodhi, Chief Strategy Officer, Wavemaker India, agrees with Chakravarty. “As these brands try to shift their source of growth from the early adopters towards the early majority – this scaling up in media is required. While the platforms historically have a lot of focus on the bottom-funnel, there is a need to scale up at the top funnel for acquisition and consolidate the pyramid in the middle for retention.”
Prakhar Shrivastava, Financial Controller of White Rivers Media, also expects that the competition between the retail giants will fuel advertising expenditure, raising the bar for agencies to do their best.
However, Rajiv Dubey, Head of Media, Dabur India, feels the changes won’t have any major impact on overall advertising spends, in the sense that the pie may not become bigger.
Dubey predicts that the IPL might benefit from the consolidation of start-ups, and that the tournament will be able to reach targeted numbers.
“A large number of start-ups funded by VC money have been sponsoring IPL for quick consumer acquisition. But after a few years, those brands disappear from the IPL or disappear altogether and new start-ups, D2C, and Ecommerce companies come up. Earlier it was Telecom and Mobile Handset manufacturers, now it’s quick commerce / D2C wanting to get new consumers. Some of these funded start-ups don’t spend much beyond the IPL, which is a good sign for FMCGs. With the backing of conglomerates, it is expected that more D2C brands will take the IPL and expensive content route. This might help IPL’s kitty to grow,” Dubey told e4m.
Better rates?
Krishna Iyer, Director – Marketing, MullenLowe Lintas Group, says, “Owing to the existing relationships of legacy businesses, start-ups will find greater leverage and better rates with media owners.”
Sharing another perspective was Lloyd Mathias, Business Strategist and Independent Director. “This consolidation will not significantly impact AdEx. However, media buying by larger groups may become more efficient and these groups will benefit from better media rates.”
Digital or Traditional?
FMCG and e-commerce brands rely heavily on traditional media with a share of 46% and 18%, respectively in TV AdEx.
The question now arises whether the consolidation fuels the growth of TV or digital media?
Sodhi expects an increased spending on traditional media. “The impact (of consolidation in the FMCG sector) on Adex will be two-fold. On the one hand, the adopted D2C Brands will be looking for scaling up and are likely to augment bottom-funnel acquisition strategies with high-decibel top-funnel spending. Thus, for most of these brands, we should see more TV and Mass Media spending.”
Krishna Iyer speculates a spike in digital advertising. “Start-ups have typically relied on growth-hacking strategies and techniques to build their customer base via digital media. In contrast, legacy businesses have almost always derived attention, consideration and acquisition by heavily advertising over traditional media such as television, radio, print, outdoor etc. When the two kinds come together, the AdEx will absolutely lean towards digital, with a supply of more funds and a demand for even more reach,” he explains.
Chakravarty feels that traditional and digital both will be affected positively but the prudent answer will lie based on the product category and the audience to reach.
“Digital first brands catering to niche marketplaces will continue to see more money being spent on digital outreach since traffic to your own website is costly. But on the other hand, there will be other newly acquired brands that will take on bigger established brands, and in such cases, there will be a need to index heavier on traditional media as it allows for greater reach,” Chakravarty explained.
