The burgeoning popularity of health-conscious consumers and the influence of social media personalities are driving explosive growth in healthy snack brands. Nevertheless, expanding these businesses into broader markets while maintaining profitability poses a significant challenge.
In FY23, Peak XV Partners-backed The Whole Truth reported a 125% growth in operating revenue, reaching INR 36 crore, while concurrently, Open Secret, supported by Matrix Partners India, nearly tripled its revenue to INR 37 crore.
According to regulatory filings from the Registrar of Companies and Tofler, significant players in the sector, like ITC-backed Yoga Bar, achieved a 31% increase in revenue to INR 88 crore in FY23. Similarly, Tata Consumer Soulfull experienced a substantial 88% revenue growth, reaching INR 64 crore. Additionally, Marico-owned True Elements reported a 24% revenue growth to INR 57 crore.
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Nevertheless, these brands, specializing in items like chocolate and protein bars, millet and dry fruit-based snacks, granola bars, oats, and breakfast cereal, also saw an increase in their losses over the course of the year.
“When we invested in The Whole Truth in 2019, it was just an idea, and the company was pre-revenue. We believe that awareness about what people are consuming is increasing, and that awareness levels will start influencing what people consume,” said Manu Chandra, Founder and Managing Partner at Sauce VC, a New Delhi-based early stage consumer-focussed venture capital firm. “The way it has panned out now is beyond what we had anticipated.”
Chandra emphasized that consumers are increasingly mindful of their consumption choices, attributing this shift to the wealth of information readily available on social media platforms.
“Earlier, your source of information would be a trainer or nutritionist but now there are influencers like Andrew Huberman, Cyriac Abby Philips (The Liver Doc), Revant Himatsingka (FoodPharmer) who are household names, and they are the ones who are perpetuating awareness and it’s becoming more mainstream,” he said.
While brands continue to invest in raising awareness, companies are actively exploring diverse strategies to expand their operations.
Suhasini Sampath, Co-Founder of Yoga Bar, stated that the brand anticipates its next phase of growth to come from offline channels. In January 2023, the cigarette-to-hotels conglomerate ITC announced its plan to acquire a 100% stake in Yoga Bar within a three-to-four-year timeframe.
“For Yoga Bar, which has the support of a strong distribution network, offline is a huge growth area. While you can be a brand that can primarily serve through quick-commerce, presence offline is critical. Food, as a category, has low gross margins of 30-40%, which makes it difficult to sustain growth either as a D2C brand or primarily serving online,” Sampath said.
“We’re actually cutting back on D2C because it is impractical to scale beyond a point. Once you cross the INR 100 crore scale, you have to make sure you’re sustainable in the long run and the focus is now moving away to getting the brand into DMart and Reliance Retail,” she added.
Yoga Bar expects to achieve a 50% revenue growth in FY24, surpassing INR 130 crore.
However, The Whole Truth, a relatively newer brand aiming to double its revenue growth in FY24, will continue to focus on the top segment of the market.
“All the brands (in this space) are premium brands and that’s largely because input costs for good ingredients are higher. It’s still largely a top 8-10 cities phenomenon,” said Shashank Mehta, Co-Founder and CEO of The Whole Truth.
In January 2023, the startup secured a $15 million investment round, with Peak XV Partners (formerly Sequoia Capital India) leading the funding.
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“It’s not a mass offering that allows us to go to tier-II, tier-III yet, and it is largely being driven by quick-commerce, modern trade, and top general trade play. We can’t build a large food brand in India without going offline…but for brands like ours, the focus is not to go to 80 or 100 cities but to target top 8-10 cities and go deep,” Mehta said.
According to Chandra from Sauce VC, startups within this segment are poised to evolve into mid-sized brands, potentially being acquired by strategic investors if they offer something absent from their portfolio.
Apart from ITC, FMCG giant Marico acquired a 54% stake in Pune-based healthy snacks brand True Elements in May 2022, while Tata Consumer purchased Soulfull, a direct-to-consumer (D2C) brand, for INR 156 crore in 2021.
