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6 days ago
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ARTICLE AD BOX
Summary
As India's consumer landscape rapidly changes, traditional business moats are weakening with new D2C brands taking fresh approaches to market. Product differentiation, targeted marketing, and online distribution are key strategies for these new entrants.
“A castle can’t fight a war on its own,” Jaime Lannister, one of the lead characters in TV series Game of Thrones (GoT), remarked after the northern stronghold of Winterfell repeatedly fell to invading forces. Its real strength lies not in the walls but in the people who guard them and the moat that protects them.
In investing, a moat, as popularized by Warren Buffett, is a business’s sustainable competitive advantage, shielding it from rivals just as moats protect castles.
I have argued in the past that steep valuations in consumer businesses are defensible given deep moats built on brand (mindshare), distribution (share of shelf), and product (habit share). But, are these moats beginning to show cracks in today’s rapidly changing consumer landscape? Across FMCG (Minimalist, MamaEarth, YogaBar), luggage (Mokobara, Nasher Miles, Uppercase), and fashion (Snitch, The Souled Store), a wave of D2C challengers is storming the fortress.
In a country of ~1.4 billion, the entrepreneurial spark was never missing; brands like Nirma, Thums Up, and Fogg proved that long ago. The difference now? Those once rare success stories are no longer few and far between; they are multiplying, and the moats are looking a lot shallower.
Product/Habit Share: Differentiation is the sharpest weapon
To earn a place in the Indian consumers’ mind, product differentiation has become the baseline to make a real dent in the market. Earlier, winners spotted white spaces and bridged themes through quality or price innovation.
Today, disruption is brewing among ‘India 1’ consumers; those who’re well-travelled, quality-conscious, and willing to pay for better products. Brands like Mokobara, Wellbeing Nutrition and Giva have shown how tapping this segment can unlock disproportionate value. [India 1 refers to the country’s top 50 to 75 million affluent consumers.] In the rush to serve the bottom of the pyramid, this segment was long underserved.
Brand/Mind Share: From shelf space to screen space
In the consumption businesses, real moats are expensed in P&L (profit and loss) statements as advertising. While marketing may not create fixed/real assets in balance sheets, they build recall—an invisible yet invaluable asset residing in consumer minds, revealed through sales and market share.
For decades, FMCG giants spending 10-20% of revenue on mass media appeared invincible; their scale seemingly impossible to challenge. But, today, digital marketing has changed the playbook. Today, brands target custom by income, region, gender, or age—spending with surgical precision to craft recall at a fraction of traditional costs. India's brand-building playbook has been rewritten. Influencers and user advocacy have displaced celebrity endorsements, slashing barriers to entry and enabling challenger brands to breach moats once zealously guarded by legacy players. The new influencer economy has democratized marketing muscle, proving that authentic recommendations now trump star power. The true battleground has shifted from shelf space to screen space, from factories to feeds.
Shelf/Distribution Share: The widest moat
Yet, distribution remains the toughest moat to breach. You may have a great product and a strong brand, but without reach, it is a tree falling in the forest. India’s complexity–28 states, eight Union Territories, countless cohorts, and a deeply fragmented general trade network–makes shelf space hard-won.
That is where online retail works its magic: infinite digital shelves offering every brand a shot at discovery. Challenger brands now start online–horizontal, vertical, or quick commerce–before expanding offline into general and modern trade. For sure, it is easier said than done but success stories like Atomberg and Mokobara prove it is possible.
Curious consumers, open minds
Why should consumers trust a new brand? That is where consumers have surprised us. Without boxing them into millennials or Gen Z, it is fair to say that rising per capita incomes have made India’s affluent cohorts–India 1 and upper India 2–far more experimental. The ‘value at risk’ from trying something new is not as high anymore.
That perhaps explains why brands like Kia and MG, both launched in 2019, found acceptance faster than anyone expected. The same trend is visible elsewhere in the world where challengers like HOKA and ON have eroded the dominance of traditional heavyweights such as Nike and Puma. Consumers today are open to discovery—if the product delivers, loyalty follows swiftly.
Patient/Courageous Capital
Capital at all stages (angel, VC, PE, and IPO) is today more willing to fund challenger brands and accept longer development cycles. China's playbook showed us that building brands at scale demands investors who can frontload losses and endure long gestation periods. India's maturing risk appetite suggests the ecosystem is ready to fund marathon ambitions, not just sprint opportunities.
Rebuilding defensibility for the next decade
It is, indeed, an exciting era for consumer sector entrepreneurs; traditional moats aren’t as deep as they once were, allowing new brands to breach old castles. Yet, incumbents are quick to take note, acquiring stakes in brands like Minimalist (HUL), Yogabar (ITC), Plix (Marico), and Oziva (HUL), blurring the lines between challenger and legacy.
As distribution and discovery become more democratic, the next wave of defensibility will depend less on scale or spend, but on new-age moats like data, community, and experience.
Tyrion Lannister, Jaime’s twin brother in GOT, observed: “Never forget what you are. The rest of the world will not. Wear it like armor.” Likewise, winner brands will be those who know exactly what makes them distinctive and protect it relentlessly.
Tejas Shah is director at Avendus Spark Institutional Equities.
English (US) ·