Indian ConsumerTech - Coming back to Life

Avnish:

So, 3.5 trillioncurrent GDP hopefully next 5-6 years, 7 years maybe another 3.5 trillion comingand again we should pause there we will add in economic output in the next 6-7years what we’ve cumulatively done in our first 75. So, these aretransformational moments, and in India it’s happening digitally first. So, ifyou do the Math digital penetration and so by 2035 hopefully 10 trilliondigital penetration can go to 25-30 percent, so 2-3 trillion of market capcoming digitally. I would argue it’s a revolution and in a revolution you caneither deny it, resist it, participate in it or co create it.

Rajinder:

Hi. And welcome to Matrix Moments. My name is Rajinder and I'm joined today by Avnish, Sid and CV. Guys, thank you for doing this. Why don’t you all introduce yourself and also we should talk about the event that you all are hosting today DCII which is Digitizing Consumers in India. We should include links to the report that comes out. It’s a great event, great report that talks about a bunch a trends in consumer tech in India. Would love to learn more through this podcast. Today’s podcast is titled Indian Consumer Tech Coming Back to Life. Over to you, Sid.

Siddharth:

Hi, everyone. I'm Siddharth Agarwal, based out of Delhi. I joined after two operating stints, one at Paytm, the other one was at Ecom Express where I led strategy. I’ve also been a consultant in the past at the Boston Consulting Group.

Avnish:

We forgive you.

[Laughter]

Avnish:

Oh, they’re our partners, sorry.

Siddharth:

For the past 16 months now I’ve been at Matrix here, very fortunate, thanks to Avi and BS for that opportunity. I lead our consumer tech investments along with my colleague, CV. I focus on B2C marketplaces which includes product marketplaces, services, travel mobility amongst other sectors. Really looking forward to this episode today and would hand it over to my colleague, CV, for his introduction.

Chandrasekhar:

Hi. My name is Chandrasekhar, everybody calls me CV. I recently joined Matrix as well so been listening to this podcast from the other side, now I’ll judge myself on how this podcast actually goes. Recently joined like I said at Matrix, I look at consumer brands, media and social. I come with more than 10 years of experience, so started my career at BCG, moved into Food Panda, had a leadership team there, moved into Ola once the acquisition happened, did two startups on my own, one which was B2B services, we should discuss that, why B2B services. A D2C foods brand, then joined Glance/InMobi where I launched another four D2C brands. So something that I’ve loved doing over the last ten years, consumer true and blue. Happy to be here, happy to be building this out with you guys.

Rajinder:

So, guys, you’ve been saying for a while that the consumer tech opportunity is exciting, it’s coming back to life. CV, you should talk more about why, you know, kind of titled this podcast as such. But at the same time you're also meeting a lot of experienced founders, operators who are breaking out of companies and it sounds like many of them are a little apprehensive on consumer tech versus perhaps your own impression of the market opportunity. So why is that what have you heard, where is the dissonance?

Siddharth:

So, Rajinder, since I’ve joined I think I’ve met more than 100 people in the Delhi NCR eco system. Amazing set of people out there, people who’ve worked in different unicorns, people who have a great perspective. When I talk to them they’re very excited about starting up but more often than not there are questions in their mind that I’ll try and address here today.

The first one they talk about consumer tech companies not having very good capital efficiency. They take examples of the large e-commerce marketplaces that were built in the country, and they say that 10-20 billion dollars have already been spent in this space and in terms of profitability or suitable unit economics I think they’re still a while away.

The second thing is that they question the depth of the market a lot while we talk about all the macros in place, 1.4 billion consumers on the whole, 700 plus million people who are internet enabled, but in their minds they talk about a 10-20 million consumer base which they believe is monetizable, beyond that they question the willingness to pay.

Third one, this is sort of the weird one where they say they’re just too tired, they’ve been at it at a problem statement for maybe 5-10 years now and they just want something new to keep them excited over time. We’ll obviously discuss each of these points over the podcast.

Siddharth:

CV, what have you heard?

Chandrasekhar:

Well, I made the mistake myself so my first startup was in B2B services after working in B2B services for the longest period of time. A lot of it comes down to familiarity I think in some form breeds contempt and people just don’t look at it with a fresh pair of eyes. I’ve heard this so much that I’ve now started classifying this as ghost of consumer past, present and future where the ghost of the past is look, how much money each business has spent, so much capital has been lost and stuff like that. Ghost of present saying no business is making money which is false, a lot of our portfolio companies are already EBITDA positive so it’s great to see. And ghost of future saying, you know, customer will not pay. Now that I have -- I want to say taken a different sort of view to the entire piece I can see that maybe the ghost of the past is true in some form, was necessary to I think also create the market, get us to where we are. But I believe that the belief that the founders have on ghost of the future which is customer will not pay I highly question that. And with how quickly the markets are deepening I think we’re going to be very surprised on great outcomes in future.

Avnish:

Super. I couldn’t agree more and just layering on top of that, CV, in the midst of all this with the same narrative Meesho got created, DealShare got created, I know you were going to talk about Mama Earth got created, in our portfolio Country Delight got created, Mosaic is getting created. So I deeply empathize with the tiredness, I have felt it as a VC. But I think my parting advice on this is in and this is something I learnt from one of our US counterparts that in these kind of businesses you can say founder, you can say market, timing is everything. And to give up at this time is exactly the wrong time, this is the time to actually build these businesses because the market has deepened, all the ghosts of the past are true.

Rajinder:

Yeah, and I’d say also like just thinking about the last 3-4 years you had Covid where a bunch of folks didn’t really go out shopping, what they bought at home was very different from what they would have bought previously. Now that markets have reopened people are going back out but then obviously there was a little bit of an income short for some period of time for some broader markets. But the economy is doing really well, so in some ways --

Avnish:

Sorry to interrupt, Rajinder, I think for the audience because when we put this together we also took a step back and said oh, wow, I think we should over these last 5-6 years what are all these drivers that have fallen into place that when they come together is a big multiplier, all the ones that we’ve been discussing.

Rajinder:

Yeah, actually maybe just narrow down and talk about some of the large opportunities you all feel are out there like what are you excited by?

Siddharth:

I think there are multiple opportunities out there if you think about the Indian consumer there are different cohorts out there. During the course of the DCII report that we’ve done with BCG we’ve covered new cohorts which are 35 plus women tier 2 and there are multiple such other cohorts that are out there. So I think if you go down to a customer cohort and build after them there are plenty to talk about, few which are top of mind that come to my mind, two or three themes that I’ve been spending some time which excites me right now one would be the verticalisation of marketplaces. I believe that across different verticals the current incumbents in the space do not solve for either parts of experience which is very, very bland and more search based. There are new ways of discovery that are needed so there can be a 10x value prop that you can deliver to the end consumer solving their pain points. There are supply set interventions in terms of a different supply chain that you create, it may be in the form of exclusive supply, it may be in the form of a different kind of supply for tier 2 or tier 3 audiences. And I believe you need a good fragmentation of supply at that. So few categories that come to my mind I think home decor is definitely top, it is not very well penetrated. There is some value creation that we’ve already seen in pets, and I remain optimistic about other such categories in the future as more and more categories unlock and the shopping behavior comes online.

A second one that I can think of which is sort of related to the first one is the entire new commerce models. People have enough assortment that's available online, but people are not really getting the offline like purchase experience that they want. Some people want touch and feel, people want to be – people are quite social, they refer to their friends for tips on what to buy. So, whether it’s life commerce influencer led commerce are a few models that I see a big promise in.

Third is the overall rise of D2C brands, there are 5000 plus brands that are already out there, and tech talent is scarce. So, there is a big opportunity that we see in terms of different technology components that can be built. We at Matrix already are backers of Gokwik, MoEngage, and a few others but chat is another opportunity that is popular in Southeast Asia, loyalty, the new age of distributed commerce which is bringing commerce to wherever the attention is of all the consumers. I think these are a few that are top of mind, goes without saying that this is nowhere close to an exhaustive list.

Chardrasekhar:

Yeah, let me just bring back the previous point we discussed, right, will the companies that are going to come up in B2C look exactly like a Flipkart is today or a Mama Earth is today, and I think the answer is no there. Primarily if you expect another large marketplace to come up with the same kind of cashflow and say I don’t think that's what it’s going to look like at all. What the better way to look at it and I think some of it’s covered in our DCII report as well is what are the trends that are changing, what are the tailwinds that are happening. And I prefer to look at it in three dimensions, one is demographics and that's where I get most of my optimism from. Just the fact that young TG premiumizing -- 80 million households get more than 10 lakhs of annual income by 2030. So can it premiumize, there’s a younger TG. There’s an older TG above 40 who will need a different set of brands, different set of services. So, if you take those cuts I think you should be most excited by India to build, where else are you going to build, so many things are changing, technology, everybody has a phone, internet access. So the first thing I would look at is to say when all of this changes in the next 5-10 years where are the largest pools of opportunity that are going to get built and how can I as a founder who’s exposed in some form to consumer psyche create the best value out of it. So that's one big trend on demographics.

The second piece is on how shopping itself happens, I think a lot of it is still very PDP driven, not very high on engagement, discovery, that touch and feel that you were saying about offline. But I'm sure there are tools that will come up that make that really real for an online purchase as well. So I think there’s a different kind of commerce that will come up, it’s not just going to be influencer commerce, this could be video led commerce, you could potentially even see AI come in and create a completely different sort of shopping experience.

The third part is a slightly differentiated way to look at this, that's to say if you’ve got these ton of deal Z brands, suppliers coming on and suddenly servicing the consumers this actually means the opportunity to create a truly differentiated product is even higher. Why does that happen, your distribution is solved, in a large form your backend delivery and all of that is pseudo solved in some form. So the best product wins, right, and the best product means the founder who has the closest insight to the consumer, who spent time on the backend researching it, truly passionate about it I think can really create large opportunities. This also means that a lot of enabling technologies, now this could be like a Gokwik sort of piece, but I think there’s also a lot of front end and mid funnel changes. By that I mean you have 1 percent conversion that happens on a D2C website can that be 3 percent. What are the kind of tools that can enable that sort of a handheld journey to move from a top of funnel to the mid funnel to the bottom funnel where the consumer truly feels, hey, I’ve experienced this brand, I like this brand, I'm getting more and more aware of what it does and can your conversion be 3 percent. I think those are major analogs, right. So if you look hard I think there’s a tonne of value that's going to get created.

Avnish:

Superb. These guys are the experts, so I have nothing to add on this. I'm just going to go back to the previous question and for the founders who are tired and burnt we should also keep context on what’s changed in the last 5, 6, 7 years. You guys mentioned mobile, so mobile number one, Jan Dhan mobile architecture in terms of KYC. Logistics cost in India, you would know this better, used to be 14-15 percent, for e-commerce it’s very critical, it’s now at 11 percent. The plan by the government in Gati Shakti should bring it down to 8-9 percent. These are big deals, GST, created a national market. UPI went to the next level during this period, DeMon helped, Covid tech enabled everybody, Whatsapp exploded. So again going back to creating all these things is this macro that is just completely turned different and I'm a bit wary that that's not fully understood when people are wary of starting businesses.

Rajinder:

And I’ll add one other point to the list that you put out which is 4G plus video and especially short video content which has just taken off. And honestly the way brands have leveraged short videos to create new disruptive communication is truly what’s separating them from the traditional brands. I was also intrigued, Sid, of all the themes that you spoke of actually all of them have a Covid connection. So home decor, pets, influencer commerce and then offline brands going online, all of them were an outcome of basically what happened over the last 2-3 years. So, in many ways I think lots of exciting trendlines which one can look at. I'm going to switch gears, tell me like a lot of folks who you meet should they be building in domain, a domain that they understand well, should they broadly because they come from a consumer tech space should they kind of pick something within consumer tech or many of them like you said are kind of tired of it so they’re now thinking about say a Fintech startup or something outside of the domain that they understand best.

Siddharth:

If you ask me honestly and probably being very selfish here, I would want all of them to build in domain.

Avnish:

And just on that you have to stack odds in your favor, you're taking a big risk in life, do you want to play to your strengths that you’ve gained over many years or to find out new areas of weaknesses.

Siddharth:

I fully agree, and Avi, we’ve done podcast on this in the past, which were that on the experienced founders in the FMF I think we’ve covered a lot of those podcasts and a lot of these points that come out of this research that we’ve done over time. But I mean you can only do so much, right, we can give perspectives, we can talk about all the things from that point of view. For people eventually there are people who decide to pick other sectors and I believe for some of them that's also important because there are new sectors which no one has done so eventually if there’s a new sector that they find exciting we would want them to create value for the consumers.

Avnish:

I'm going to pause you there for a second, Sid, because we’ve thought a lot about this and the ones that have done that piece best is it’s a sector of adjacency to something they were doing. So if you look at Gokwik with Chirag he was in D2C, he was suffering from RTO so he started a business. That by the way comes to FMF and experienced entrepreneur that's fine, it will look like a different domain but it’s again somewhere where you have a disproportionate edge in the thesis.

Siddharth:

Completely agree, Avi. I was coming to the same point as well, that this business is about stacking odds in your favor. You’ve to understand what’s your unfair advantage, how well do you understand the business or the set of consumers that you're trying to serve, is there a supply or a demand edge, is there a go to market edge that really sets you apart. So the closer you are to areas of domain that you’ve been associated with I think the higher your chances of winning. For people eventually who do not come from that background which maybe sundry sectors I would say my personal point of view would be to make it up by surrounding yourself with people who’ve been from that domain. So if you know domain experts please hire folks that are smarter than you, you should not be the smartest person in the room if you're building out in that domain. And for those people who eventually plan to break out that would be my advice. CV, any points that you --

Chandrasekhar:

I’d be a lot more brutal to my B2B and Fintech colleagues, no disrespect to whatever they’re doing. But since consumer is where majority of my experience lies there’s this certain romantic nature about building a consumer business, right, you really need to love your consumer, you need to really understand them. What they say in an FGD or talk about in a review is not actually what they think. And people who have operated in this segment it’s just intuitive, like you're looking back at what are they actually saying, what does that really mean for my product or business or my service. It takes years to sort of hone that and every time I talk to let’s say anybody from Unilever whose got 10-15 years of experience you’d see that really shine. You’d see them really be able to articulate and say oh, I never thought about this market that way. To start in a domain outside of that and leaving that intuition expertise aside you're not doing yourself any favors, and a lot of that is a lie to yourself, right, I don’t understand this sector really well so it must be easy to solve. I think that's a mistake that people make quite easily, once you start opening that sector is when you know oh, there are smart people everywhere. So anybody who has an edge on having done that for 5-10 years you just start off at a different point and then take off to a completely different level.

Avnish:

That's a great point. You know, in business school they talk about decision making unit and you know your decision-making unit there and you want to switch that unit to somebody you don’t know.

Rajinder:

So, Sid, we started the podcast talking about DCII and this report that the team is putting out in partnership with BCG and part of the objective was to identify some of these opportunities that you're referring to so tell us more about DCII, what can founders look to in terms of resources, what are some of the ideas that came out of the work?

Siddharth:

So, BS, after talking to all these founders we realized that we need to put an end to this so we embarked on a study with BCG where we spoke to about 250 plus founders and operators to understand where are the opportunities really, cover the future of the Indian consumer tech, is there really value to be created. So this report is sort of covers three parts, the first part is it covers the macros of India, we talk about the GDP growth, the resilience of the economy, the size of price, sentiments of the founders. So, across the founders we ran surveys and tried to understand what areas are they optimistic about of their future and what areas would be watch outs. We’ve uncovered that there are 43 unicorns in the country in consumer tech believe it or not, 250 billion dollars of valuation or value creation, 54 billion dollars of primary funding. These are big numbers, and all of this happened in the last five years.

The second part is the trends, so we see that the time spent on social media is going up, relevance of omni channel is going up, I think there’s a 6-8x increase in the number of founders who believe that going offline and exploring other channels is important to success in the long run. We covered new models in commerce, generative AI, ONDC, which are significant tailwinds as entrepreneurs explore new opportunities.

The third part is for learnings of the entrepreneurs in the initial journey, in the initial stage how should they think about GTM, product market fit, areas that they should go after, some nuggets around that. And we’ve discussed this in our podcast earlier around infinity entrepreneurs, how do you take the company forward towards profitability in the long run. How do you expand, how do you think of loyalty, customer centricity, repeats, cross sell, up sell, channel diversification, key strategies for profitability etc. All of this is going to be covered in the report.

Rajinder:

Since the report also covered some topics around macro what’s the outlook for 2023, you know, we’ve published a bunch of podcasts which are more to look back and look forwards but anything else that you’d like to add?

Avnish:

Let me take that first, you know, this is a topic I can't speak enough to or about, so we keep speaking about this and we want to keep speaking about it until it happens. So, 3.5 trillion current GDP hopefully next 5-6 years, 7 years maybe another 3.5 trillion coming and again we should pause there we will add in economic output in the next 6-7 years what we’ve cumulatively done in our first 75. So, these are transformational moments, and in India it’s happening digitally first. So, if you do the Math digital penetration and so by 2035 hopefully 10 trillion digital penetration can go to 25-30 percent, so 2-3 trillion of market cap coming digitally. I would argue it’s a revolution and in a revolution you can either deny it, resist it, participate in it or co create it. And we’re very lucky and we want to co create with the founders, so I just think again ghost of the past, forget, let’s look at the future, it’s really bright and we’re very blessed. I’ve said this before off the record that I would pay to do this job, I think we’re just very privileged to have this ringside view and being able to co create.

Rajinder:

Yeah. CV?

Chandrasekhar:

Completely agree. It’s part of the allure to joining investing as well just to be able to see all this value creation happen it’s going to be a lot of fun. I just have a couple of callouts here; I think you can always look at the past again and say that's what it’s going to look like and be pessimistic. But I urge you to sort of reverse that a bit and look at it to say what is the full potential here. And then you’d think are we saying in future also Indian consumer will never pay extra for premiumization, quality or service. I really don’t believe that I think that's already changed in the top 1-2 million households in India to a large extent. We’re behaving like a global household in all forms. Will that translate? Absolutely. There are companies that I’ve met who are able to get anywhere from 300-1000 bucks from villages outside of Haryana for content, who would have believed that people are saying that I’ll give money for content. So I’d urge that perspective to say if you look at it slightly differently and say I'm going to make sure that just about value I'm giving consumers not take too much money then obviously you’ll say it’s super thin and then customer will still see that price to quality. But if you reverse that and say consumers are also becoming more and more mature, their needs are maturing, their demands are increasing. Can I charge a premium for it? If you go in to say yes, you can, I think you’d be quite surprised to say how much can you actually take out from these households. So, yeah, look at it optimistically and I think you could paint a picture that looks very different.

Avnish:

You know, just on one example of that and honestly internally I think we as Matrix were also negative but quick commerce for example is playing out better than most of us expected, people are paying. People are paying delivery charges, people are paying so I think that's an example where if you're always you have a rigid view of the consumer who’s actually evolving very dynamically you’ll get some of this wrong.

Siddharth:

Great, I personally with Avnish what you said I'm a big believer in the India macros and the resilience of our economy, very excited as the economy moves from the 5th spot to the 3rd spot over the next decade. And India actually is one of the few bright spots in the global economy. Tactically I see multiple examples of people actually paying, if you think about all the loyalty programs in the country, we’ve got Amazon Prime, multiple people paying for that. they’ve got a good eco system, we’ve met other companies in the marketplaces who have loyalty programs. Think about Urban Company more than a million consumers pay for that. So I see there is appetite, the Indian consumer wants the right value to be delivered to them and there are multiple opportunities and examples where you can monetize them. Other examples I mean we’ve recently opened our office in Gurgaon, and we see 137 apartments worth more than a billion dollars that got sold in three days.

Avnish:

And that's connected to us opening the office.

Siddharth:

Yeah.

Chandrasekhar:

Sid himself drove ten of those closures.

Siddharth:

Luxury carmakers I think are at an all-time high, their sales are higher by 50 percent and overall sales electronics grew by 23 percent since last year. So I already see it playing out and with the GDP doubling over the next ten years I couldn’t be more excited about building in consumer tech.

Avnish:

And that's actually just to give some counterparts or analogies from other markets, when you're going through this middle-income journey so our nominal GDP growth is hopefully at 13-15 percent because it’s inflation plus real GDP. Typically in Maslow’s hierarchy as you're going into things like what you said with luxury cars even I saw that statistic they grow at 3-4x that rate. And if you compound that over ten years there’s an unimaginable number that’s why the billion dollars get sold.

Rajinder:

I mean it’s basic like Maslow’s hierarchy is one but the consumer staples basket versus the consumer discretionary basket the discretionary basket will just keep increasing and within that discretionary basket in our own portfolio from previous months we’ve seen better for you was a big trend. Now I think you were talking just before this that better for me the equivalent of that is better for the planet or better for everyone.

Avnish:

But also it will become premium also, Rajinder, because earlier we said there’s no market at premium, I think you’ll see premium and luxury also grow.

Rajinder:

So definitely value, Indian consumer will pay but value. Closing thoughts, I guess, Avi, maybe on this one from you?

Avnish:

I'm an evangelist of digital nation building like I’ve said before --

Chandrasekhar:

Actually I have a closing question here, Avi, you’ve obviously seen so many years of this, I'm sure there were multiple times where you said I'm optimistic, this is the time when it’s going to go up. What is different this time?

Avnish:

Yeah, very good question. So other than 2018 when – 2018 was the first time we felt it or I felt it. And I will tell you these drivers that were falling into place, payments, logistics, GST, you were starting to see that and companies actually getting real revenues. Some of our companies if you look at their December ’18, December ’19 run rates versus December ’22 it’s mind blowing, it’s like 30, 40, 50, 100x. So the previous ones I was pessimistic, so I’ve seen this in 2010-11, 2014-15 and maybe 2017-18 a little bit where one could see that growth was being pulled forward by giving out subsidies and discounts but the fundamental drivers hadn’t changed. Now the fundamental drivers have changed, so therefore optimistic but growth still gets pulled forward. See, everybody sees the same data, so they all want to win at the same time so that does create issues. But I think you have to just ride out these cycles and then these kind of times, I’ve tried to emphasize this before in the podcast me and Rajinder did, people think this is the worst time to start a business, this is actually the best time to start a business because if you're a differentiated team with an edge others won't get funded. One, two years ago everybody was getting funded. Now we all hate the fact that layoffs are happening but that also means abundance of talent is coming into the market, the cost structures will be different. So it’s actually one of those times where we were with one of the celebrated founders yesterday and he said “ese time mein hum sabse zyada moves karte hain” and these are those times.

Chandrasekhar:

But then you also foresee the LTV CAC curves to change like how do you think --?

Avnish:

But actually because there is less money to spend CACs are already dropping versus last year. And if your point on premiumization and customers willing to pay it’s true LTVs are also going up which we’re starting to see because when you switch off the convenience that's when customers miss it then they pay. Again in a time of abundant capital you don’t switch those discounts.

Rajinder:

Superb.

Avnish:

Thanks, guys.

Rajinder:

Thank you.

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