Small brands aren't holding back this festive season to beat the slump

Mint

14 hours ago

Bengaluru: Brands that directly sell to consumers have realized that usual festive preparations won't be enough to lift them out of a demand slump this year.
Ahead of the period considered auspicious for buying everything from appliances and cars to jewellery, such small and medium-sized businesses are front-loading investments in inventory and spending more on promotions than in the previous festival seasons. Much of this is aimed at stocking up for quick-commerce, one channel that has so far been immune to subdued consumption.
Many brands are seeking as much as 40% more working capital this year compared to the previous year, according to Atul Khichariya, co-founder of Velocity, a platform which helps businesses sell online. Velocity offers cash flow-based loans to small and medium-sized businesses and startups to expand operations to meet seasonal rush. Last year, it earmarked ₹400 crore to support brands.
'The ticket size of loans is also on the rise, especially with quick commerce becoming a wellspring for growth. They all want to expand quickly," Khichariya said. 'The number of brands showing interest this year is also nearly 60% higher than last year."
Urban spending on discretionary products from apparel to appliances has stayed subdued so far this fiscal amid global trade uncertainties. Summer sales, too, underperformed because the monsoon rains arrived early. While consumer goods makers saw a mixed first quarter ended June, there were early signs of recovery in some categories, Mint reported earlier.
To build on these green shoots, brands are recalibrating their approach to the festive season, which in India typically runs from August with Raksha Bandhan and Independence Day until December and accounts for the bulk of yearly sales.
Recur Club, a debt marketplace for small businesses, has seen wider categories of brands approach for capital assistance this year, led by health food and beverages and personal care companies. 'Some brands are borrowing more than double of what they did last year, thanks to quick commerce," Eklavya Gupta, founder of Recur Club, told Mint. 'We have also expanded our scope and will allocate as much as ₹200 crore towards working capital loans this year."
Quick commerce wave
Quick commerce continues to provide robust tailwinds to fulfil consumer demand, said Anant Vidur Puri, partner at investment firm Bessemer Venture Partners. 'The festival season provides a trigger and opportunity for consumers to further fulfil their aspirations."
Ugaoo, an urban gardening brand backed by V3 Ventures and DSG Consumer Partners, plans to triple its production capacity to 6 lakh plants every month, anticipating a surge in festival gifting demand on rapid delivery platforms including Blinkit, Zepto and Swiggy Instamart.
'This is a crucial time to be available through every channel, so we've borrowed more debt this year," said Siddhant Bhalinge, founder and chief executive of Ugaoo. 'This also gives us a chance to reach tier 2 and 3 cities like Ludhiana, Indore, and Kanpur."
According to Rishav Jain, managing director and co-lead (consumer, consumer tech and retail) at Alvarez & Marsal, inventory is the biggest contributor to working capital during the festival period. 'Given the sales spike, most brands and channels produce and stock in advance to avoid stock-outs," he said. 'In case of a poor season, this could potentially lead to higher inventory and hence higher future discount and returns."
Online shopping portals have started reporting festive spikes in demand. Raksha Bandhan, which fell on 9 August, saw e-commerce order volumes jump 24% over the same period last year, and gross merchandise value (GMV) or the total value of products sold spiked 27%, according to estimates by e-commerce enablement platform Unicommerce. Tier 2 regions, including Jaipur, Coimbatore, and Nagpur, drove the highest order volume growth this year, it said.
Lightspeed-backed Zepto reported a 30% rise in average order value on Raksha Bandhan, with order volumes surging 150% over the year-ago period, it said in a statement.
'Not the time to go slow'
Many brands are also investing far more on promotional activities this year. The Baker's Dozen, an artisanal bakery chain backed by Wipro's venture capital arm, will spend the majority of its marketing budget on quick commerce, specifically around Diwali and Christmas when baked goods sell as gifting items.
'We're already seeing that our sales through quick commerce are doubling this year compared to last, so now is not the time to go slow," said Sneh Jain, co-founder and managing director of The Baker's Dozen.
Simran Khara, founder and chief executive of home and hygiene products maker Koparo, said that increased marketing spends are justified during the festival period as the conversion rates are high. 'The traffic is generally very high-intent, so it's all about marketing in the right channels."
Ugaoo's strategy this year is different–it will spend less on influencer marketing and more on high-impact offline marketing campaigns such as in-flight magazines and digital billboards.
'Many online avenues like influencer marketing are getting lost because people's attention spans are deteriorating," said Ugaoo's Bhalinge. 'The visibility of offline modes provides more value in the long run, especially during festive periods."
According to Jain of Alvarez & Marsal, most brands have certain times of the year or properties where they invest disproportionately. 'Given the Q3 festival period is that time for many brands, most of these spends are budgeted in advance," he said. 'But most of these spend ends up being tactical /promotional in nature to generate sales, rather than awareness."