Top Factors Steering Investments in the Consumer Sector in 2024

January 15, 2024
Consumer
Blogs

Recent years have seen rapid growth in the consumer sector, fuelled by a rise in purchasing power and enhanced digital infrastructure, securing over $10 bn in funding in the last 2 years in India. Though 2023 saw a YoY decline of ~50% in consumer funding, we believe that companies demonstrating growth prospects, innovation, and strong unit economics will continue attracting attention from both private and strategic investors. The consumer industry is poised for a transformative journey, with investors playing a pivotal role in shaping its trajectory to align with emerging trends and opportunities. As we move to 2024, we at Merisis foresee that the forthcoming trends, which are a blend of technology, sustainability, and evolving consumer expectations, will define the trajectory of the consumer industry and funding in 2024.

Footwear: Brands like Neeman’s, Comet, Plateo, Asian, Monrow, Solethreads, and Inc.5 have secured $60 mn funding in the last 2 years from investors like Sixth Sense, Motilal Oswal, Carpediem, LC Nueva, Saama Capital, Nexus, and Florintree. Factors like young demographics with rising disposable incomes, growing preference for branded footwear, evolving fashion trends, and enhanced availability of diverse designs and brands are expected to drive a shift from mass to more premium categories of footwear in India. We anticipate continued investor interest in the sector through 2024, given the projected increase in the organised market from 30% to 40% by 2025 in the currently fragmented footwear industry.

Spices: The spices market is fragmented with many regional players, but a noticeable shift to branded spices has emerged recently, propelled by a wave of health consciousness. This shift opens up significant expansion opportunities for regional spice brands to transition into national brands, especially given the growing inclination towards blended spices driven by convenience and new-age cooking preferences. The absence of MNC players in this sector has garnered investors’ attention, as evidenced by Sixth Sense’s recent investment of $12 mn in regional spices brand Pushp, Dabur’s acquisition of Badshah Masala and ongoing discussions for HUL’s acquisition of MDH. We expect to see more strategic investments in this space as almost every FMCG player is actively seeking entry into the spices market.

Baby Care: 2023 saw several activities in the space, with Hopscotch receiving a funding of $20 mn from Amazon, SuperBottoms receiving a funding of $5 mn from Lok Capital and Sharrp Ventures, Reliance Retail’s acquisition of Ed-a-mamma, and First Cry filing DRHP. The rise in disposable income has led millennial parents to show greater willingness to invest more in their child’s comfort and future. With its growing young population, India has 375 million individuals below the age of 15 who will eventually become parents. As a result, baby care is poised to attract significant funding interest in 2024.

Pet Care: The sector received over $90 mn funding in the last 2 years from investors like Sixth Sense, L Catterton, Fireside, Saama, DSG, and Sauce.vc. Some prominent companies in the space include Supertails, HUFT, Drools, Just Dogs, Wiggles, and Khanal Foods/ Dogsee Chew. As pet owners continue to treat pets as family members, becoming equally conscious about their health and well-being, the pet food and pet care sector is expected to grow significantly and continue receiving investors' interest.

Discretionary Sectors: Discretionary sectors like specialised or personalised BPC, apparel, home décor, bags and luggage received over $1 bn funding in the last 2 years. Some of the prominent companies in the space include Mokobara, mCaffeine, Sugar, Renee, and Rare Rabbit. A recently published report by Chiratae Ventures and 1Lattice highlights that the fashion industry, which includes apparel & accessories, BPC, footwear and jewellery and watches, is anticipated to surpass entertainment, emerging as the second most prominent sector in consumer tech after mobility by 2027. Increasing access to consumer credit and growing purchasing capability are poised to boost consumer spending in these sectors, particularly in metro cities. Younger consumers are increasingly embracing borrowing binge, moving away from previous conservative spending patterns.

Wedding Wear: Wedding-related sectors such as jewellery and ethnic wear will likely find investors’ interest given factors such as increasing wedding expenditure and shifting from unorganised to organised retail. Indians spend nearly $130 bn annually on weddings. The current wedding season in Nov and Dec has witnessed a significant increase in no. of weddings, rising from 3.2 mn to 3.5 mn, along with an estimated expenditure surge from INR 3.75 tn to INR 4.25 tn. Traditional players like Senco, Vaibhav Jeweller, Motisons Jewellers, and RBZ have recently listed to seize opportunities in the growing sector.

Nutritious, Organic and Natural Products: With growing consciousness around health and wellness, a shift in lifestyle choices and buying patterns is seen. As there will be rising demand for nutritional food, we expect to see more strategic investments in this space as the larger brands continue to be on the lookout to add these innovative products to their portfolios. Past few include HUL’s acquisition of Oziva, Marico’s acquisition of Plix, and ITC’s acquisition of Yoga Bar.

Some key trends that will drive growth in the consumer sector in 2024 include:

Digital Inclusion: Increased digital adoption is anticipated from tier 2 and 3 cities as companies place a stronger emphasis on making their platforms and brands more vernacular and embrace voice commerce, which is expected to enhance inclusivity. ~70% of users in tier 2 and 3 cities shop for clothes and fashion online, owing to a lack of desired products in offline stores. According to industry intelligence reports, 60% of India's iPhone sales come from outside tier-1 cities. With trends like these, companies in the consumer space are now increasingly focussing on rural India as a key market for expansion.

Omnichannel Presence: The distinction between offline and online purchases will continue to fade as digital-first brands focus on omnichannel capabilities in order to establish a brand, reach diverse customer segments and tap into the fragmented market by integrating customer experience across channels (own platform, marketplaces and physical stores), offering services such as click-and-collect and in-store returns. These kinds of integrations will attract investors who recognise the potential of elevating customer experiences. Brands like FableStreet, DailyObjects, Blissclub, Snitch and Zouk have opened their offline stores in recent times and have collectively received funding of $44 mn in the last 2 years.

Personalised/Customised Products: With growing technological advancements, consumers' preference for customisation and personalisation, tailored to their tastes, needs, and preferences, will continue to take a more sophisticated form. Investors will be interested in companies that excel in meeting these evolving demands. Some companies like Bombay Shirt Company, Traya Health, Cureskin, Innovist, and Gynoveda provide customers with customised products and services.

Green Choices: As consumers become increasingly mindful of their purchases' environmental and social impact, there is growing emphasis on brands adopting sustainable and ethical practices such as sourcing eco-friendly materials, reducing waste, sustainable packaging, fair labour practices, traceability, and transitioning to a circular economy. In 2024, sustainability will no longer be an option but a vital aspect for businesses. Impact-focused funds like Lok Capital, ResponsAbility, and Omnivore may find this space appealing, as it aligns with their sustainability and climate change theme.

Premium and Luxury Brands: Factors such as growing affluence and increased discretionary spending, even in small towns, will result in significant growth in the luxury market. The number of millionaires in India is projected to grow by 105% by 2026. The entry/expansion of numerous luxury apparel, bags, accessories, and chocolate brands, such as Laderach in partnership with DS Group, Galeries Lafayette in partnership with Aditya Birla Group, and Balenciaga with Reliance, in India, further supports this trend. Companies offering premium or luxury products will continue to thrive and outpace growth benchmarks.

Quick Commerce Expansion: Driven by a fast-paced lifestyle and desire for instant gratification, the demand for convenience and speed is set to grow in 2024. We anticipate expansion of product offerings on quick commerce platforms, encompassing not only grocery, packaged foods, and stationery but also extending to various other categories, exemplified by boAt’s recent partnership with Swiggy Instamart.

How Merisis Can Help - Contact Us

The consumer vertical at Merisis is focused on the needs of the ever-changing Indian consumer. As the customer is evolving, consumer brands and services are on the lookout for constant innovation in order to stay relevant. The consumer team at Merisis strives to identify these trends early on and assist companies in the identified sub-segments with their growth plans. The team has extensive experience in fundraising and M&A transactions across the consumer sector – be it in products, services, or channels. The Consumer team works hand in hand with all the other verticals in order to provide a consumer’s perspective to the offering. Read More

Write to us on consumer@merisis.in

AUTHORS

Shuchita Agarwal

Associate

Shanil Vasa

AVP - Consumer

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