Quick commerce has helped D2C start-ups crack the code on Gen Z customers: Kannan Sitaram of Fireside Ventures

How do you view quick commerce’s impact on the revenues of new-age, niche D2C brands? 

All the big FMCG companies are talking about how consumption isn’t growing but when we look at our portfolio companies, these companies have seen rapid growth. Quick commerce is a key disruption but there are a few other factors. India is getting more affluent. It is no longer a pyramid structure. The age profile of the consumers of D2C firms is also a factor. Gen Zs are emerging as key consumers. We are focused on these three disruptive factors when we assess our investments. 

Can D2C companies achieve scale by just focusing on digital channels?

Digital is only a starting point. But once the brand is built, consumer is going to look for it wherever they shop. The Indian customer is not digital only. Opportunity is lost if they don’t go offline. They start D2C, go to Amazon or any other e-commerce site -these days this space is being taken up by quick commerce- and then they head to retail stores. Take, for example, Chennai-based Sweet Kaaram Coffee – they used to sell only online, then made a mark through quick commerce, and now their select SKUs are in top food retail stores too. They have made the transition in a very deliberate way.  

What role does Fireside play post the investment?

We have chosen to play a very active role. We guide start-ups to build consumer companies and also help them in making connections with digital ecosystem like Google and Meta. More recently, as our portfolio companies inch closer to the ₹100-crore mark, we are also helping them in leadership coaching. Founders now find that they need to transition from problem solvers to being a good CEOs overseeing everyone. You have to hire next level of leaders, set up processes and get other people to solve it. It’s often a failing point for start-ups if founders don’t get this right. We also help our portfolio start-ups develop a brand management playbook. Governance is another area we focus on- both as members of the Board and pushing them to do various audits.

We have seen many large FMCG players buy D2C start-ups recently. Will we see more such deals?

When you look at large companies, their market shares are less when it comes to the quick commerce channel, the Gen Z consumers, and other areas that are now on trend. This is why their revenues have been impacted and they are on an acquisition spree. Look at their balance sheets, they are sitting on a huge amount of cash, and we will see more such deals like HUL-Minimalist or ITC-Yoga Bar. It’s up to the D2C founders to decide if they choose to scale on their own or sell. 

What would you say to people who say consumer start-ups are not cutting-edge enough, and Indian founders must focus beyond these?

The question to be asked is have consumer ventures created value for India? They have created thousands of jobs, tax and other revenue for the government, and all of this feeds into economic growth. Today’s D2C start-ups are also innovating in technology. They are leveraging data in a big way. They are analysing users’ first party data, and analysing it to acquire, retain customers and sell relevant products to their customers and reduce cost of marketing too.

Is the funding winter behind us? Will the trade war impact Indian consumer story?

We are long-term believers of India’s consumption story. We continued to invest during the ‘winter’. Largely, the investments in the consumption space are back, valuations are not at the crazy levels of 2022 and people too have got more realistic. The geopolitical climate does not impact us as a VC firm. India’s GDP growth may not be severely impacted due to these trade wars, and we are betting on Indian consumption.