House of Brands or a House of Competition? From legacy players to early-stage companies, many are eyeing the HoB business model, leading to stiff competition in the space

House of Brands (HoB) as a business model has raised quite a few eyebrows in the last two years. Even though it was a natural progression that was waiting to happen, given the boom in e-commerce in India, its potential was hugely felt when players like MyGlamm, Furlenco, EatFit started moving in that direction with the launch of Good Glamm Group, House of Kieraya and Curefoods respectively.

Today, with the rise in the success of this model, many legacy players have entered or are closely watching the space, giving tough competition to existing players.

Competition from legacy players and others

In June last year, Indian conglomerate Aditya Birla Group made a foray into the space with the introduction of TMRW. With the launch, it announced its plans to acquire and incubate over 30 brands in the coming three years. Some D2C brands under its umbrella today are Berrylush, Bewakoof, Juneberry, Natilene, Nauti Nati, Nobero and Veirdo. In November last year, the company said that it expects TMRW to cross an annual revenue rate of over INRs 1,500 crore over the next 12 months.

"More FMCG giants will compete in this space. They have all the ingredients such as brands, robust supply chains, capital and customers. All they need to do is bring in tech talent and build the digital piece and they would completely emulate the HoB or digital-first model," said Padmaja Ruparel, co-founder, IAN and founding partner, IAN Fund.

Ironically, players like Mensa and GlobalBees are being called the digital version of companies like Hindustan Unilever (HUL) and Procter & Gamble (P&G). HUL had in fact said that its digital channel now accounts for 25 per cent of demand. It had said it reaches 9 million stores digitally and sells 60 billion units.

Experts feel that with the boom in direct-to-commerce (D2C), we will see more brands building out. According to a KPMG report, there are over 800 successful D2C brands in India today, with a sector valuation of $44.6 billion (as of 2021). "Small companies, especially in D2C, food, others are continuously emerging and will continue to face challenges of scale. HoB would be perfect 'houses'. These acquisitions are also good exit opportunities for early investors while helping founders monetize a part of their equity," Ruparel added.

In addition to that, the differences between roll-up commerce (also called Thrasio-style startups) and HoB (also called Marketplace-based aggregators) have been very few and are often put under the same category by investors and consumers alike. For instance, while HoB players like Mensa take a specialist approach, focusing on a specific segment, startups that come under the roll-up commerce category, such as GlobalBees, are sector-agnostic in their acquisitions. But, under both these models, the companies acquire digital-first brands and market or scale them individually.

"Levers for value creation are essentially the same, so in five years we might not be able to differentiate from one over the other," said Rohit Krishna, General Partner, WEH Ventures, in an earlier interview.

We also see many other growth and early-stage companies entering the space. For instance, the agarbatti maker MDPH is slowly becoming an HoB. SuperCluster Pi, an HoB startup, recently raised $2 million in a seed funding round. The company is targeting acquisitions of 6 to 8 D2C brands over the next 12 months, and aiming for $20 million in annualized gross merchandise value (GMV) run-rate. The startup has acquired a total of three D2C brands over the last 6 months, reaching more than 30,000 consumers every month.

Unicorns have also been keenly watching the space. According to news reports, Nykaa and Lenskart have had the vision to become HoB for a long time. Gurgaon-based Honasa Consumers which owns Mamaearth also houses The Derma Co., Aqualogica, and Ayuga and aims to become a billion-dollar FMCG conglomerate in the next five years.

Parallely, early movers in the space continue to raise funding and expand. GlobalBees, Mensa and the Good Glamm Group have all already touched the unicorn milestone. In FY 2022-23, Curefoods grew over 300 per cent year-on-year. The cloud kitchen operator recently raised INR 300 crore, led by Binny Bansal's fund Three State Ventures, with an investment of INR 240 crore along with other participant companies IronPillar, Chiratae Ventures, ASK Finance and Winter Capital.

"Our investors understand our brand vision very well and are aligned to our long-term goal of creating multiple 500 crore brands. This funding will allow us to reach new customers and markets while also targeting our offline model expansion," said Ankit Nagori, founder of Curefoods, in a statement.

Another interesting trend is the acquisition of established D2C brands by industry conglomerates. For example, Marico acquired Beardo last year and recently acquired Just Herbs, Emami has invested in The Man Company. This, the experts feel, is a path to creating a portfolio of digital brands, helping them scale and market.

Why the demand

Startup analysts feel that the demand has been largely driven by the emergence of small D2C brands that need the propulsion to accelerate their growth, which can be achieved via brand aggregation. "When we look at the incumbent consumer companies in the world, HoB seems like the logical next step for a startup that has scaled up its first brand to a certain level. Not many brands in the country have revenues of over 1000 crore as a single entity," said Sambit Dash, Partner, RPSG Capital Ventures.

Further, it helps cut down on expenditure. "By not needing separate marketing divisions, accounting teams, sourcing teams etc., the operating expenses are considerably reduced, and thus a higher EBITDA for the brands," said Tameish Sood, an expert on D2C.

Prominent House of Brands in India: An Overview

Challenges besides competition

Besides competition, which is in a way good for any growing space, there are a few other roadblocks as well. "At the outset, it is important to understand that what worked for one brand may not work for another. While there should be synergies in terms of channel knowledge, category knowledge, etc, the brand positioning, product benefits, and consumer expectations are all different. In the inorganics route, when it is about buying brands from outside, it is a challenge to integrate into the existing system which is already running at full speed. There are factors that need to be reconsidered including the team structure, ways of working, culture, target, and ambitions," said Dash.

Challenges in the successful execution and growth of an HoB will also be to ensure that the core of the house is well defined be it product or category, or distribution. "Managing multiple brands is complex and expensive, so the company must carefully balance the benefits of brand autonomy against the efficiencies of centralization. There is also a risk of cannibalization of products amongst acquired brands which can result in a negative sum-total under the house," said Ivy Chin, Partner, Inflection Point Ventures.

Chin also shared that another perceived risk is the challenge of creating a strong corporate brand profile as many times consumers relate to individual brands only and not to the House, which may not be an ideal situation from a long-term brand-building perspective.

While some challenges exist, with more and more D2C brands coming into the market, the House of Brands concept is expected to grow steadily. "HoB business model has been successful for many companies in the D2C space like Proctor & Gamble, Unilever, and Nestle. By creating multiple brands, companies can diversify their revenue streams, capture a larger market share, and leverage their existing infrastructure and resources. However, this approach requires careful planning and management to ensure that each brand has a unique identity and value proposition and that resources are effectively allocated to support each brand's growth," said Vikram Gupta, Founder and Managing Partner, IvyCap Ventures.

The space is expected to see a proliferation of legacy and smaller players alike. But, whether smaller players will be able to compete with industry conglomerates and the already established businesses in the space is something only time will tell. However, this approach of offering everything under one umbrella surely seems to help companies build a loyal customer base and also cut down costs.