Today’s is a special and ‘additional' edition of my newsletter. It’s more opinionated rather than tactical. So if you are a consumer business enthusiast (as an investor or a builder), this one’s for you.
For all those who’ve just signed up or been signed up, welcome to the club of 700+ consumer business enthusiasts. Sticking a link for you here, to sign up people who you think could benefit from this one.
Today, we dive deeper into what the e-commerce industry in India has come to be. And what’s in store for us in the coming months. And I’ll largely use the Thrasio Model to extrapolate my ideas.
Well, here’s to start with the basics, especially if you’ve been living under a rock.
What’s the Thrasio Model: Founded by Joshua Silberstein and Carlos Cashman in 2018, Thrasio thrives on brands that sell on Amazon. The startup collaborates and acquires them. Typically, it buys brands for everyday products from small business owners for a purchase price of more than $1 million. Once it acquires the brand, it upgrades its marketing, product development and supply chain management.
(Fact: In 2020, following this model, Thrasio clocked over $500 million in revenues and profit of $100 million. According to Bloomberg, the unicorn startup was valued at over $3 billion in February 2021.
In the US, Thrasio aims to use the money to ramp up its pace of buying third-party sellers that sell and distribute their products using the ‘Fulfillment By Amazon’ or FBA service. Thrasio has reportedly acquired nearly 100 FBA businesses)
If you are an investor, get the hint of what a modern day search fund looks like in here? Something to ponder about.
While Thrasio’s model cannot be replicated verbatim in India, it surely can be extrapolated. The diversity and hyper-competitive nature of this country would force online sellers to either adapt or fold.
Sub-explorations & thesis:
Thrasio is just a concept. What can we learn & extrapolate from it?
- CPG / D2C ecosystem in India is ripe for explosion
- “Brand” is the front-runner in determining the success of a D2C brand
- We’re moving away from just ‘acquisitions & volumes’ to ‘profitability & equity’ for the category
- Online is paramount and enough to sustain a million dollars in revenue (as compared to a few years back when offline retail played a significant role in consumer behaviour)
- Aggregation is bound to happen across individual categories in the coming months (fitness, neo-banking, ed-tech, to name a few). Larger DTC brands will start entering niche categories ancillary to their core product / service line. Here’s an example of The Cult Ecosystem.
- An evolved version of Search Funds (equity funded though) is possibly ready to enter India in a big way.
Where else can we extrapolate it’s learnings in the D2C space?
- Dependency on Amazon: As brands grow, they are usually keen to start off with Amazon, but as sales increase and cross the INR 1 Cr ($ 0.13 Mn) mark on the platform, they start to fragment into:
- Independent brands that want to sell D2C. Thus, marketing takes over as a priority for these brands.
- They look to be bought out / consolidated with other brands. Thus, their discipline on pricing starts to shift and focus on profitability increases beyond just volume.
- Growth: India’s e-commerce market is growing at an average rate of 30% YOY. Which means that not only is penetration increasing, but also maturity of the industry
- Maturity: The entry barriers on Amazon are limited, but growth would certainly mean more strategic thinking in the coming months. While ‘Amazon Basics’ will take over the top sellers in most categories, it’s the 2nd and 3rd in line that will start to see acquisitions. And focus on building healthier sales funnels as well as customer feedback. If your customers are loving your product, it’s an important metric for acquisition.
- Evolution on Funds: In the coming months: the business model of VC’s will certainly adapt to the Thrasio Model with newer and more definitive e-commerce specific metrics that they would look at to acquire these brands. Not just that, consortiums / syndicate funds would start to spring up since the risk of failure is relatively lower through the Thrasio Model. And the success of these syndicate funds will start to depend on the composition / skill sets in the investor teams. Having core knowledge of the DTC sector would start to become paramount. And hence, founders of prominent brands / consultants would be looking to invest in these top sellers.
- ‘Modified’ Search Funds: The concept, naive in India, will see more traction in the coming days. While earlier limited to consulting firms, larger DTC brands and consulting firms will start to look into these models, for their risk aversion at the outset.
- That’s not it: Maturity of sectors happens at all levels. Once vertical integrations start to happen at the bottom, the ones on top automatically fall in line with the trend. The maturity would not just be limited to top sellers on Amazon. What’s important to note is not ‘Amazon, because that’s an outcome. The input is digitisation. And if you’re not part of the digital revolution, you’ll be missing out on so much. Online retail is evolving at a pace faster than it has in the past decade. Larger, more established conglomerates like HUL, Marico & Dabur would start to invest in more mature DTC brands to build forays into the digital ecosystem. There are enough examples to cite this but it’s only going to evolve in the coming days. Marico’s acquisition of Beardo is one such example.
So how does one react to the rapidly maturing e-commerce landscape in India:
- Discount Death: In any case (whether you are a top seller or a loved brand online), if you are surviving on discounts, it’s time-out.
- Brand Equity: As theoretical as this sounds, if you don't have a solid recall, preference and community established around your brand, it’s going to take your competitors less effort to take customers away.
- Vertical Integration: The pandemic forced multiple DTC brands to hedge across all levels of their vendor network. Right from sourcing to logistics, marketing to after-sales, if your dependency on an external vendor is high, it’s going to start pinching you at some point.
- User Experience: You could have all the mixes of the marketing & sales model in place, but if customers drop out after they see your ad or if your mobile experience is glitchy, it’s game over. Not just that, your product (e-commerce site or mobile app) experience (UX & UI) needs to be consistent across all customer centric platforms.
- Niche Domains: Customers have evolved preferences and tastes that they’re more vocal about. As business builders, your product needs to fit into their lifestyle at an opportune time and with a definitive value. The more niche you go, the more significant you become in their lives.
Well that’s it for today. I’m obviously building a new venture that harps on to evolving trends of this industry and hence my inclination to grapple more knowledge on the sector. Hit me up if you’d like to have a chat on any of these. Until next time, With Gratitude, Sak.