1949 Roundtable - Insights into building a new consumer category in India

Zero to one journeys of creating health-first food companies

Few weeks ago, we had the founders of Noto Ice Creams and Snackible in a roundtable lunch with a select cohort of people from the 1949 group. 

Hearing the stories of these founders and how they built their business from scratch, scaling both offline and online, certain trends/patterns become apparent. 

Bit of background on these new-age business:

NOTO Ice cream is a healthy ice brand started in 2019 by the husband-wife co-founder duo Varun Sheth and Ashni Shah. They got the idea when they visited supermarkets in western developed countries and saw new ice cream brands which had built their product offerings around being healthy & had chipped away significant market share from incumbents. These brands were able to scale and do 100s of millions of dollars in sales. They saw the same white space in India.

Snackible was started by Aditya Sanghavi in 2015 with the vision to be a “new-age healthier version of Haldiram”. When working a job back then, he noticed that most colleagues in office snacked on unhealthy fried snacks during the later afternoons-evenings hours. He realised that these same snacks could be made with healthy ingredients and made tasty at the same time.

Looking at these young healthy food brands and how their journey has been, we observed the following trends & takeaways:

Starting with a simple idea and the daunting prospect of competing with large incumbents

“How will I compete with Pepsico and Haldiram?” - Aditya didn’t get bogged down by minor concerns like this when starting his business. He had a simple idea; a differentiated offering and he knew whom he would be selling to, initially: the posh SOBO crowd of Mumbai and the South Delhi crowd. The medium to reach them would be, of course, online. 

Varun and Ashni did consider the huge challenge of competing with Amul, Kwality walls, etc. however, they too had a differentiated offering with a niche target group. They too started with the health conscious high spending cream crowd of the metros of India

It's apparent that courage, innovation in product offering and creative business models are what is required if you want to break and enter a new industry with established players.

The consumer group at the top of pyramid are experimenters who enable new-age brands

These are the top earners of India. The modern metro crowd that doesn’t hesitate buying online. We explored this topic in a previous consumer insider article by Mitali Sriivastav here.

Both NOTO and Snackible leveraged this cream of the top as a target group (TG) to initially build their brand and grow from 0 to 1. Noto visited the cafeterias of the top corporate offices and offered freebies and live-free tastings. Snackible launched in the era of work from home where a person working alone from home would be too happy to snack on something healthy.

In 2019, the concept of ordering ice-cream on Swiggy or zomato was novel and counter-intuitive. The prime concern was the risk of melting which held back many people. But these logistical challenges were met with innovative packaging such as shipping with dry ice. All this on the back of India’s digital natives, who dared to try new brands, pay a premium and take risk.

PS - This is also how Tesla scaled up - Sold $100,000+ Model S to the rich → funded factories | economies of scale → Sell $35,000 Model 3 to the masses; which is what they intended to do from the start.

Constant unending experimentation is what made these brands sustain

Pretty early, both sets of founders realised that copying a successful idea from abroad, without the desi touch, won’t work in India. Snackible started with a subscription model hoping to build a high momentum business. However, Aditya learned that snacking was an impulse purchase and Indian people munched on “nashta” based on mood, counting on a variety of offerings to choose from. Quickly learning from this, Snackible dropped subscriptions.

Data analytics on their website - click through rates, conversion rates of particular products, provided them with a guiding stick of which products worked and which didn’t. Those SKUs that didn’t work were dropped. Snackible sells 100+SKUs because consumers demand variety based on specific cravings and having a high number of SKUs to choose from is a must. 

NOTO, on the other hand, initially stuck to tried and tested classic flavours like chocolate, vanilla, coffee. However, NOTO being a healthy brand, used real ingredients in their ice creams and reduced fat & calories. They recently launched the gelato range, but purely in Indian flavours like rose kulfi. NOTO also experimented, successfully (IMO), with the form factor of ice creams. Coming up with “MINI BITES”: A bite sized ice cream portion encased in chocolate to satiate a person’s sugar cravings without indulging in a full scoop. 

Experimentation and iteration is the backbone of a new-age consumer business

It is important to note that not just experimentation but other factors associated with them are important Ex - Cost of experimentation should be low, ability to experiment quickly is important, among other things 

Hero products drove growth and profitability

As a result of this experimentation and iteration, they invariably ended up hitting a nerve and more than one of their products became hero products. Leading in terms of sales demand and driving overall profitability.

Creative business models to get around industry MOATs 

The first problem NOTO solved was cold chain hyperlocal distribution. Being capital constrained, they scaled their distribution in a lean manner. Instead of renting out expensive dark stores, they leveraged pre-existing store fronts from other brands by tying-up with them for a fee. They would supply them with a freezer for ice cream storage and the store employees would hand over the order to the swiggy/zomato delivery guy to fulfil an order.

Infographics by Yash Parwal & Khushi Bhartiya

Snackible discovered that ASP for their products was around Rs 50/- but their loyal customers’ AOV was around Rs/500. This meant that the customers were stocking-up their pantries with a variety of products and then choosing one at the time of snacking. So they increased the variety of products offered causing AOVs to go up, improving their unit economics.

The chicken and the egg - Before these brands started, the category itself didn’t exist. When starting a business with a novel idea, founders are often confronted with a choice: Follow what others have done or do something new but bear the cost of educating a customer and creating a new category. 

Guess what the most successful 21st century brands did? Hint - Amazon started by selling books, youtube started as a dating site, Mamaearth started by selling babycare products.

NOTO took on the task headfirst of educating customers. People had to be convinced first that healthy ice cream would taste like an ice cream and that sugar-free alternatives actually tasted good. Snackible also foremost kept in mind that no matter how healthy you make the snack it has to taste good. The cheapest acquisition method is giving products for people to try for free, especially when it's a niche category.

They created buckets of large categories as to what “healthy” means for different people and then created product extensions to serve what customers want. People watching their macros, counting their calories, have been early adopters of NOTO’s Low Calorie range. Continuing to build on this transparent approach by bringing the back of the pack info to the front, NOTO began to resonate with a larger audience. Serving customers that have a dietary preference towards plant-based dairy was a new audience NOTO tapped into. 

If the healthy snack category was already established, then there would be no opportunity and no space for new entrants. But stalwarts would not take the risk of establishing a new category for example - Pepsi would never try to sell you healthy cold pressed juices. That would require a lot of time, effort and money (which their shareholders don't have the appetite to burn). The same analogy can be seen in auto - In the 1990s, General motors, in response to an EV mandate by the state of California, made the EV1 and leased them out to customers. It was incredibly successful and people loved the electric car. Recall that this was the mid 1990s. However, it was a clear threat to GM and every other car manufacturer’s business model and they lobbied the government to abolish the EV mandate, after which, they recalled all the EVs and crushed them in the desert. :( https://en.wikipedia.org/wiki/Who_Killed_the_Electric_Car%3F ).

It cannot be concluded that only new entrants have the ability to disrupt an established industry because the stalwarts are De-incentivised  to do the same. In simple words, Without brands like NOTO and Snackible we wouldn’t have healthy ice creams from the likes of Amul or Baskin Robbins or healthier snacking options from Haldiram or Pepsico.

Author: Amay Solanki

End movie credits:

Consumer Avengers: Yash, Mitali, Akhil, Amul, Arnim, Chirag, Shashank, Mukund, Pranav and Nakul.