Deal focus: Venturi brings families into D2C

Every two to three weeks, Country Delight sends a testing kit to each of its approximately 200,000 customers, inviting them to verify the quality of its milk. Though easily dismissed as a gimmick, this is how the India-based direct-to-consumer (D2C) food brand cultivates trust and loyalty.

“They are saying, ‘You can test our milk and whatever other milk you are buying, so you can see we are fulfilling our brand promise of absolute quality.’ People can test the fat content, the water content – water is often added to milk in India to increase the volume,” said Nicholas Cator, a managing partner at Venturi Partners, which recently led a USD 108m Series D for Country Delight with Temasek Holdings.

This was the third deal from Venturi’s debut fund of USD 175m, following investments in Singapore interior design business Livspace and Muslim-focused personal and beauty care player Believe. Each one features a sizeable portion of co-investment, consistent with the GP’s pledge to provide one dollar in co-investment for every dollar put into the fund by LPs making commitments above a certain threshold.

Venturi invested USD 40m in Country Delight, with around USD 15m coming from the fund and the rest from co-investors. The identities of the latter were not disclosed, but Peugeot family-controlled Peugeot Invest, Belgian investor Ackermans & van Haaren, and Frederic De Mevius, founder of Verlinvest and part of the family group behind Anheuser-Busch InBev, are the three anchor LPs in Fund I.

They are part of a 35-strong investor base comprised entirely of family offices. According to Cator, who previously spent more than 13 years at Verlinvest and opened the firm’s Singapore office in 2014, the willingness of families to act on co-investment opportunities depends on their setup. Those structured as formal family offices or as listed investment vehicles generally have the resources to move quickly.

“We’ve done a few deals, so we know which ones are most likely to participate. If we need to shore up the amount, we can invite other families,” he added. “Our approach – guaranteeing 100% co-investment on a pro rata basis – is more transparent than most firms. They usually call up the largest investor and offer them the deal, and if they don’t want it, they just work down the list of others.”

Quality counts

Venturi focuses on opportunities in the USD 100m-USD 500m range where it can get a large enough ownership stake – typically 5%-10% – to qualify for a board seat. Series B through Series D is considered the sweet spot. The Fund I portfolio will be concentrated, with no more than eight investments, although Venturi expects to participate in multiple rounds for each company.

Country Delight met the basic investment criteria: a discretionary consumption play in India or Southeast Asia, which is a broad enough definition to encompass fast moving consumer goods (FMCG), education, healthcare, financial services, or anything branded; a large addressable market, so there is a path, and a clear product-market fit; and a strong founding team.

What made Venturi sit up and take notice was the customer feedback. “In surveys, freshness and quality were mentioned first, convenience was third,” said Cator. “And the cohorts were like nothing I’ve seen in this part of the world. After three or four years, 50% of customers are still buying. For most D2C businesses, if you can retain 20% after one year then you aren’t doing a bad job.”

Country Delight was established in 2013 by founders with traditional technology backgrounds. An integrated supply chain was always part of the plan – given the importance attached to quality and speed of delivery – and they started out keeping their own cows. The model soon switched to partnering with small-scale farmers and imposing rigid quality controls.

Milk is tested on site before being transported to one of six processing facilities, where it is bottled and dispatched to distribution hubs in key urban centres. Farm-to-home delivery is guaranteed within 36 hours from sourcing, which in the case of milk means within 36 hours of milking the cow.

Growth story

Cator noted that Country Delight didn’t begin scaling until year four because of the effort that went into building the supply chain. He believes that the company is ahead of its Indian peers in D2C meat and fish on integration. Moreover, Country Delight has made D2C work despite working with relatively lower unit prices than its peers in other segments. Dairy deliveries are made daily to generate strong gross margins; for meat, 2-3 times a month might be enough.

The company claims to have grown tenfold in the past three years, during which its product range has expanded from value-added dairy such as cheese, curds, and ghee to include daily essentials like bread, eggs, fruit, and vegetables. Fresh milk now accounts for less than half of revenue.

Country Delight has raised USD 147m in funding to date. Early backers IIFL Asset Management, Elevation Capital, Orios Venture Partners, and Matrix Partners India re-upped in the Series D, while SWC Global and Trifecta Capital came in as new investors alongside Venturi and Temasek. The new funding will go towards expanding the sourcing network and building out the fruit and vegetable supply chain.

Venturi looks to establish relationships with start-ups at the Series A and B stages, so it can move quickly when they reach appropriate size and contribute meaningful operational support. Searches for new targets in India’s D2C space have found that customer acquisition costs are rising rapidly, especially in areas like beauty and personal care, while truly differentiated offerings are limited in supply.

Cator added that the industry is still in its nascent stages, making up a small portion of e-commerce, which is in turn responsible for less than 10% of overall retail activity.

“D2C doesn’t change the fundamentals of any product or service – customers come back if they see real value,” he said. “But at some stage, these companies will have to go offline and that involves a different mindset: working with retailers, going through modern trade and general trade, being on the shelf. That’s how you get to the next stage of growth.”

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• Topics
• South Asia
• Consumer
• Expansion
• Technology
• India
• Venturi Partners
• Temasek Holdings
• Growth capital
• Elevation Capital
• Orios Venture Partners
• Matrix Partners
• Trifecta