Retail & Consumer Sector in Mumbai, Top 20 Startups
The new EqualOcean series, ‘20 Startups in 20 Global Hubs,’ tracks the cities which are attracting a significant amount of VC investment in one industry. This article focuses on startups in the retail & consumer area in Mumbai, India.
The general picture of India and its wealthiest city, Mumbai
The retail & consumer industry in India has emerged as one of the most dynamic industries, showing the momentum needed to potentially surpass China. According to India Brand Equity Foundation, final consumption expenditure (formerly total consumption expenditure) is expected to reach nearly USD 3,600 billion by 2020, from USD 1,824 billion in 2017. Growth in India has been historically consumption-led. Currently, over 60% of India’s GDP is determined by consumption.
Based on another report from A. T. Kearney, the retail industry in India reached USD 950 billion in 2018 at CAGR of 13% and will achieve USD1.1 trillion by 2020. Moreover, India’s e-commerce market is also set to grow at a CAGR of 30% for gross merchandise value to be worth USD 200 billion by 2026.
Several factors make India attractive in the global retail & consumer market. India owns the second-largest population in the world, has a middle class of over 600 million people, government initiatives, increasing urbanization, rising household incomes, connected rural consumers and growing consumer spending.
From the perspective of consumer products, more than 65% of the Indian retail & consumer market is occupied by food and beverage consumption. Other types of consumer goods account for a relatively low proportion. Compared with the equivalent percentage in the United States, India has a lot of room for consumers to explore in areas beyond fundamental consumption.
From a retailer’s perspective, India’s retail & consumer industry is mainly composed of 15 million small retail stores (or brick-and-mortar stores), accounting for 93% of the Indian retail market. Supermarkets, large shopping malls and chain stores only account for the remaining 7%. Compared with the US, where large retail corporations take 85 % of the market share, India’s highly fragmented market status also indicates high growth potential for the future – for example, the beauty & personal care and consumer electronics sectors.
As mentioned above, a significant factor in the rapid growth of the Indian retail industry in recent years is the rise of e-commerce. Due to the continuous increase in Internet penetration and the rapid development of domestic and foreign companies in India, the scale of the e-commerce market in 2020 will exceed USD 60 billion, while the Internet penetration rate will increase from 2.6% in 2017 to 5.45%.
In January 2018, the Government of India relaxed the rules for foreign direct investment (FDI) in single-brand retailing, permitting 100% investment under the automatic route (previously 49% under the automatic route). What’s more, companies can meet the 30% local-sourcing requirement through incremental sourcing by their global businesses for the initial five years. The policy is exceptionally appealing to foreign investors. However, the inventory-based e-commerce model is still not allowed; the Government of India may change the FDI in a bid to permit e-commerce companies and foreign retailers to sell Made in India consumer products.
To choose one city to represent India’s retail & consumer market, we are taking a direct look at the wealthiest city in India – Mumbai.
As the capital of Maharashtra, Mumbai has been a continually evolving city over the past 150 years. In the last 25, it has made a rapid economic transition from trade to services and has expanded its national and cross-border roles.
Mumbai is the financial, commercial and entertainment capital of India, accounting for 25% of industrial output, 70% of maritime trade (Mumbai Port Trust and JNPT) and 70% of capital transactions. The wider metropolitan region, at 4,350 square kilometers, is relatively small compared to other global regions, but it boasts a population of close to 23 million. This 2% of the Indian national population generated a GDP of USD 368 million in 2016, which represents 16% of GDP. What’s more, the city has the highest number of millionaires and billionaires among all cities in India.
VC investment in Mumbai
Please note that this series’ analyses of retail & consumer statistics in three different regions worldwide all applied Crunchbase data for the research. VC investment implies investors’ predictions of future trends. EqualOcean looked into the recent five years of Mumbai’s primary market, trying to get a better understanding of the region.
Examine the period from 2014 to 2019, we can barely find a trend in Mumbai’s funding data. Several huge investments – BookMyShow, Hungama and Naaptol – greatly affected the deal amount in each period. Despite those significant transactions, one reason for Mumbai’s stagnation in investment is that it is fast losing its sheen as one of the top destinations for attracting FDI. At the same time, New Delhi, Hyderabad ad Kolkata have fast emerged as favorite targets for foreign investors. Though it still holds the first place among all Indian cities for FDI, Mumbai has been receiving less investment from abroad. Data released by the Department for Promotion of Industry and Internal Trade (DPIIT) showed FDI received by Mumbai declined sequentially from USD19.7 billion in 2016-17 to USD13.4 billion in 2017-18 and USD11.4 billion in 2018-19.
Another reason may be the busy mergers and acquisition activities in Mumbai with a tide of global capital flooding into India – from Walmart to Schneider Electric and Unilever on the one side and TPG Capital or KKR on the other.
For VC investments traversing the different funding stages, the seed/angel funding round remains the top position in both deal counts and deal amount. Compared with the US or some European countries, where large stage ventures attract more funds, India (including Mumbai, of course) is a critical growth market, with its billion-plus demographic advantage for investors from the US, as well as China.
In different sub-categories, consumer products, e-commerce, media & entertainment and retail technology have bagged more funds than other sectors. The layout coincides with the characteristics of Mumbai and India’s general situation. As food & beverage takes over 65% of the total market, consumer products in Mumbai have grabbed USD 41 million in 26 cases. Epigamia, a Greek yogurt brand in Mumbai, secured USD 25.6 million in Series C funding in January 2019, including investors from Danone Manifesto Ventures. With Danone’s expertise in the food industry, the company plans to expand to 25 cities in India. The e-commerce and retail technology sectors have been riding the uptrend that comes courtesy of the fast development of India’s Internet penetration and general tech boom.
Moreover, since Mumbai houses the center of the Hindi Film Industry, better known as Bollywood, the media & entertainment sector is extremely prosperous with large investment deals. Acclaimed as one of the biggest film industries in the world, Bollywood produces over 1000 films every year. Between 2014 to 2019, the VC market attracted over USD 218 million, including foreign investors like Xiaomi, Intel Capital and Canaan Partners.
Top 20 Startups
EqualOcean screened 20 companies among the retail & consumer-related VC investments in Mumbai to shed light on future trends. The consumer products sector harvested with six brands entering the Mumbai top 20. The abovementioned yogurt brand Epigamia, is a subsidiary of Drums Food International. The Mumbai-based fast-moving consumer goods (FMCG) company has received four rounds of funding since its inception and shows significant growth potential of healthy and premium dairy products. Further, the FMCG sector has been booming and has become the fourth-largest sector in the Indian economy. The FMCG is projected to grow at a CAGR of 20.6% to reach USD 103.7 billion by 2020. The e-commerce sector, though has five finalists, is not quite exciting in 2019 with innovative players. Only Purplle, a women-focused online beauty platform, received USD 30 million in December 2019 in Series C, an investment led by Goldman Sachs. As some observers believe, competition in the e-commerce segment in India is saturated. With big players like Flipkart, Club Factory (a Hangzhou-based startup, see more in the previous top 20 series article) and Snapdeal, the e-commerce players in Mumbai also face the problem as its neighbor in China. The traditional e-commerce players are now trying to capture the offline market. The retail technology sector, with three companies entered, hints a huge potential in Mumbai as well as India. The billions of data across e-commerce sites, marketplaces, brick-and-mortar stores, direct marketing and consumer social media in India will empower the retail analysis to solve the rising pain points in India’s retail & consumer industry. Intelligence Node, a retail tech company that announced its Series B funding round of USD 5.5 million, looks to double its value by 2020. Its products help brands and retailers optimize their pricing and merchandising operations using real-time data to deliver actionable insights.
The next retail & consumer ‘20 in 20’ article will set sight on New York and uncover the exciting trends in this city.