Startup Acquisitions: Is an AdEx surge likely?


India’s biggest companies – Tata, Reliance Industries, Adani and Marico – are currently in acquisition mode, with several of them being D2C start-ups. This is seen as an attempt to establish a presence in the consumer base of other FMCG majors.

The acquisition frenzy of these major Indian conglomerates has come at a time when major venture capitalists, who have so far pumped money into start-ups, have tightened their purse strings. This has led to turnover and consolidation in India’s FMCG and e-commerce sectors, two of the biggest contributors to India’s AdEx.

In 2021, the Indian AdEx was around Rs 74,231 crore, according to the PMAR report. While the FMCG sector contributed almost 33%, e-commerce emerged as the second largest category with an AdEx share of 13%.

D2C acquisitions

Tata Consumer Products Ltd (TPCL) has acquired NourishCo Beverages, cereal brand Soulfull, BigBasket and online pharmacy 1mg. TPCL has also launched premium products, such as 1868 by TATA Tea and Sonnets and Eight O’Clock coffee, which will be sold through its D2C channel.

Meanwhile, Zomato acquired D2C grocery brand Blinkit and Swiggy took over DineOut. Marico acquired the first digital brands such as Beardo, Just Herbs, Coco Soul and Pure Sense. The company also launched its own D2C platform “Saffola Stores” during the pandemic.

Reliance Retail acquired Hamleys, Milkbasket, Zivame, Clovia, Portico, Netmeds, Dunzo, Shri Kannan Departmental Store. It is looking to acquire dozens of smaller 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 the experts say

Ashit Chakravarty, Executive Vice President of Dentsu Webchutney, a digital creative agency of Dentsu Creative India, expects an increase in AdEx by startups due to their acquisitions by larger companies.

“There should be an increase in spending by D2C brands to match their increased ambitions. On the other hand, it will open new marketing strategies for legacy FMCG companies to learn and implement over a period of time. In total, we will see more spending from the FMCG business as it takes on the international majors,” Chakravarty told e4m.

It should be noted that the FMCG industry is expected to grow at a compound annual growth rate (CAGR) of 14.9% to reach USD 220 billion by 2025, from USD 110 billion in 2020, and the e-commerce market is expected to grow at a CAGR of 20% and is expected to reach USD 188 billion by 2025 from USD 46.2 billion in 2020, according to data from the Department of Commerce, Ministry of Commerce and Industry.

The very idea behind these acquisitions is to increase market share, expand the product portfolio and, in turn, scale the business.

Premjeet Sodhi, Chief Strategy Officer, Wavemaker India, agrees with Chakravarty. “As these brands attempt to shift their source of growth from early adopters to early majority, this scaling in media is needed. As platforms historically focus on the lower funnel, there is a need to scale up for acquisition and to consolidate the pyramid in the middle for retention.

Prakhar Shrivastava, financial controller of White Rivers Media, also expects competition between retail giants to fuel advertising spending, raising the bar for agencies to do their best.

However, Rajiv Dubey, head of media at Dabur India, believes the changes won’t have a major impact on overall ad spend, in the sense that the pie might not get any bigger.

Dubey predicts that the IPL could benefit from the consolidation of start-ups and that the tournament can reach the targeted numbers.

“A lot of start-ups funded by VC money have sponsored IPL for quick consumer acquisition. But after a few years, these brands disappear from IPL or disappear completely and new start-ups, D2C and e-commerce companies are popping up. It used to be telecom and mobile phone manufacturers, now it’s fast commerce/D2C that wants to attract new consumers. Some of these funded start-ups don’t spend much beyond of IPL, which is a good sign for FMCGs. With conglomerate backing, more D2C brands are expected to go down the IPL and expensive content route. This could help the prize pool. ‘IPL to grow,’ Dubey told e4m.

Better rates?

Krishna Iyer, Director – Marketing, MullenLowe Lintas Group, said, “Through the existing relationships of traditional businesses, start-ups will find better leverage and pricing from media owners.”

Lloyd Mathias, business strategist and independent director, shared another perspective. “This consolidation will not have a significant impact on AdEx. However, media buying by larger groups may become more efficient and these groups will benefit from better media rates.

Digital or traditional?

The FMCG and e-commerce brands rely heavily on traditional media with a 46% and 18% share, respectively, in TV AdEx.

The question now arises, is consolidation fueling the growth of TV or digital media?

Sodhi expects increased spending on traditional media. “The impact (of consolidation in the FMCG sector) on Adex will be twofold. High top-of-funnel spend, so for most of these brands, we should see more TV and mass media spend.”

Krishna Iyer speculates on a spike in digital advertising. “Startups have typically relied on growth hacking strategies and techniques to grow their customer base through digital media. In contrast, legacy businesses have almost always garnered attention, consideration, and acquisition through heavy publicity on traditional media such as television, radio, print, outdoor, etc. When the two types come together, the AdEx will absolutely go digital, with the supply of more funds and the demand for even more reach,” he explains.

Chakravarty believes traditional and digital will both be positively affected, but the cautious response will be based on product category and audience to be reached.

“Early digital brands aimed at niche markets will continue to spend more money on digital outreach because traffic to your own website is expensive. But on the other hand, there will be other newly acquired brands that will take on larger established brands, and in such cases there will be a need to index more heavily on traditional media as this allows for greater reach,” Chakravarty explained.

Read more about (advertising news, latest ad news in india, internet advertising, ad agency updates, media advertising in india)

For more updates, be social connected with us on
instagram,
LinkedIn,
Twitter,
Facebook&
Youtube

Previous Smart borrower: you can easily keep an eye on your mortgage
Next Compare Terms and Rates for Personal Loans and Payday Loans in Florida in 2022