Last month, Delhi-based startup Habbit launched three products — ice creams, shakes and protein mixes. The outcome of almost 18 months of research, the products aren’t available in any store, but are sold to customers directly. Habbit doesn’t own any factory, neither does it run any large-scale distribution networks. It relies mostly on third-party providers. The asset-light FMCG venture is run by just 30 people. Bengaluru-based Teamonk Global has a team of 20, including founders, and sells 70 types of speciality teas. It also doesn’t own plantations or supply chains and does not even sell a gram through any retail outlet. It sources teas (via fixed price contracts rather than buy in auctions) from plantations in Nilgiris, Darjeeling and elsewhere. Almost 90% of its sales come from ecommerce platforms and the rest from its own site, which has been increasing over time. Habbit and Teamonk are among a crop of new ventures that are trying to disrupt the FMCG sector by going asset-light. The business model is not just about reaching out to consumers directly, but about selling the product by owning pretty much nothing more than just product innovation and idea. These businesses use third-party agencies to bridge gaps in the value chain, from manufacturing to distribution. Dhruv Bhushan, cofounder of Habbit, says, “On the distribution side, we are a tech-first company. In the traditional FMCG model, it would have cost us $8-10 million to launch. We did it at 5% of that cost.” Using established third-party logistics and payments ecosystems bring down entry barriers, points out Neeraj Shrimali, executive director, digital & technology, Avendus Advisors. “But such models work best for mass-premium categories rather than mass market ones.” FMCG has essentially three parts — product creation & manufacturing; distribution & marketing and managing the business. Several new companies try to control product creation but outsource production to contract manufacturers. Ventures like Habbit and Teamonk are taking a step further by outsourcing a part of distribution as well. Anurag Mathur, leader, consumer goods & retail, PwC, says, “This helps to discover market potential, do test marketing. The focus is on reaching out to the buyer directly to create a more curated experience.” Besides, selling a Rs 20 orange bar or mango duet ice cream, or off-the-shelf teas and cookies may not be viable via the direct route. 81607675This model works best for exotic products and flavours which can command a premium, like salted caramel ice cream, which is in Habbit’s portfolio, or kimaya white tea, which is among the 70 varieties sold by Teamonk. “The model works better for high-value items and has high customer acquisition costs,” Mathur adds. Habbit sells ice creams only in DelhiNCR now, while its other products can be ordered anywhere in India. The discovery of the brand is via word of mouth. The startup, backed by VC firm 3one4 Capital, Better Capital and First Cheque, among others, engages with health and fitness experts to promote its products and hopes the network effect will help it get new consumers. Habbit sees it closing 2021 with around $3 million revenue. Teamonk, on its part, banks on ecommerce companies.New-Age FMCG 81607682 81607683“We can’t put all our tea variants in retail shops,” says Nalin Sood, cofounder, Teamonk Global. Ecommerce is the fastest way to reach multiple markets. “It takes away the complexity of managing a full-scale distribution network, feet on street, mass-market advertising and so on,” he adds. It sells 15,000-20,000 tea boxes a month. If Teamonk takes over distribution, it would need at least 60 people to reach just the top 10 cities in India. That would have escalated operational cost by 35-40% in staff salaries and distributor/retailer commissions. “We removed that fixed cost component. We pay for only what we sell,” says Sood. It frees up the team to look at product innovation. A big challenge with an asset-light FMCG model is customer acquisition and retention. Says Mathur of PwC, “They have to constantly look for new buyers. Spends on discounts, social media advertising will add to the costs.” Teamonk is hoping to work around that through subscription schemes. It’s also hoping the Indian market might evolve like the US — where 30-40 million consumers buy tea on Amazon, that’s about half the tea sales in the US, as Sood points out. Habbit is betting on its value proposition around healthy products to ensure repeat purchases and sticky customers. On third-party marketplaces, subscription models are standard and can’t be customised for, say, Teamonk or any other brand. The speciality tea retailer plans to offer such schemes via its own website. With such business models, it may not be difficult for a newcomer to replicate either the model or a product. Bhushan says Habbit has a 2-3 year head start in the space. “People have tried to replicate Coca-Cola, Maggi for decades without success. Rivals won’t be able to match us on the science of our products. Customer experience is a combination of product, distribution, the brand and delight. This combination is what creates a barrier to entry.” But there will always be room for entrepreneurs to experiment with some exotic product ideas and upend the market. If it doesn’t work, they can always wind up easily without any fuss and minimal loss.