Colgate will focus on traditional general trade (kiranas) and modern trade (supermarkets, convenience store chains etc).
MUMBAI: This million-dollar question was raised when earlier this month oral and personal care major Colgate-Palmolive India appointed the Bombay Shaving Company (BSC), the digital-first grooming brand to handle Palmolive’s direct-to-consumer (D2C) and e-commerce businesses.
Kannan Sitaram, co-founder and partner at Fireside Ventures which invests in consumer brands, said that steadily rising incomes, growth in digital commerce and advent of millennials and GenZ consumers have reshaped consumption. “It has expanded consumer preferences and offers possibilities for start-ups,” he said. Anurag Kedia, co-founder at D2C beauty brand Pilgrim, said digital operations of start-ups and of large companies are vastly different. Traditional companies are built for offline distribution, start-ups for online scaling,” Kedia said. As e-commerce grows, their average share may decline,” Kannan said. Structurally the market is not with them,” he said. “I have not seen any other start-up emulate this model,” Kannan said. “Many large FMCG companies already run their online businesses themselves and have been investing in the right talent and capabilities for the last five to eight years,” she said. Since Colgate has invested in Bombay Shaving, this may be “as much about leveraging an existing strategic relationship and capability as it is about outsourcing an online business,” Vishwanathan said.
The partnership for running the digital business of Palmolive has left financial investors, start-up founders and FMCG experts wondering whether this could be a sign of things to come with large consumer packaged goods companies struggling to scale their digital businesses. Could this trigger a larger trend where they outsource their digital operations to start-ups? Opinion is divided on such handshakes though experts in the business recognize the challenges of the new consumption landscape traditional FMCG firms face. “Big companies acquire start-ups for their capabilities. Fireside’s Kannan agreed that a large FMCG company’s strength lies in its physical distribution and retail points. “With e-commerce and quick-commerce, that advantage has gone. The big companies may not be ceding ground in kiranas but their share in e-commerce may be lower. Besides, GenZ is not using the brands their mothers used. “So, they may be large, efficient players facing strong headwinds. Even so, he doesn’t see this as a trigger for more FMCG companies outsourcing their digital operations to start-ups. Bombay Shaving Company has a digital commerce arm which does D2C marketing for Reckitt brands. Colgate-Palmolive has a minor stake in the start-up — so giving it their digital piece was a natural fit. Sunitha Vishwanathan, partner, Kae Capital, is also cautious about calling it a broader trend based on one transaction. Different companies will make different choices based on their internal capabilities and priorities, she added.
The specifics of the deal and its impact on the start-up’s long-term economics would matter,” she said. Similar partnerships could give the big company a good shot at online business,” he said. Legacy companies, meanwhile, can help the brand where they excel — in offline, in product development at scale, in organisation building and much more, and may also go on to acquire them, Sutaria said.
From an investor’s standpoint, the key question would be whether this meaningfully strengthens the start-up. “If it adds capabilities, improves cash flow or economics, or creates a clear strategic advantage, it could be valuable. But if it simply turns the start-up into an outsourced operator without meaningfully strengthening its own business, it would be harder to justify. TDV Partners’ Sutaria, however, foresees a possible trend with winners on both sides. “A D2C brand like Bombay Shaving Company has spent years understanding and experimenting with how a user buys online, how to capture attention and create buying intent, and doing all of this while taking care of unit economics at scale.
