The FMCG industry: a perfect place to start your digital business

Food producers, bakeries, local fresh produce shops, drugstores, and office supplies providers are just a small part of the different companies that form FMCG’s valuation of over €100B globally. The industry is projected to reach over €130B by 2028. With an annual growth rate of less than 3%, this shows how heavily FMCG was affected by the COVID-19 pandemic, which kept people stick inside for months. With a predicted recession on the way, which leads to lowering consumption rates, the industry seems to be facing serious challenges. And a sure way for key players in the industry to tackle them is to double down on digital solutions to optimize the processes and fit the constantly-changing consumer mindset. With this in mind, we decided to share what FMCG startups need, and what VCs look for when investing in early-stage companies developing in the industry.

What do VCs want?

FMCG is not a sector that is traditionally very attractive to VCs. But with a large number of digital tools being implemented in the sector, a lot of investors are turning their focus on it. But what they look for in early-stage companies aiming to develop in the sector. At Innovation Capital, we take several factors into account when evaluating an investment in a startup.

The first element is where an FMCG company offers its services - online or offline. We aim to invest in startups that bring digital innovation to this traditional offline industry. With the growth in online sales in the past years, businesses should aim to utilize this method to expand their services and operations.

Another important aspect we consider is the level of automation that a solution implements. “Establishing such initiatives saves resources and time, and simultaneously helps founders grow their revenue and clients. We believe this is a crucial factor for success in the industry, so we aim to help our portfolio companies on their way to automation. By establishing meaningful relations with our strategic partners, our team can help with the integration of different systems for simultaneous placement in over 20 countries, marketing planning, automatic fulfillment, and warehouse and supply chain optimization”, Dimitar Kostov, CFA , Managing Partner at Innovation Capital explains.

Among the other elements of an FMCG business that we take into account are how startups sell products directly to their customers, and how they address certain changes in consumers’ needs.

“Our efforts are also to support companies that provide solutions for a certain part of the supply chain in the industry. Such startups aim to redefine how organizations from the FMCG industry use technology to drive growth and resource optimization. Novatio, for example, provides a software solution for the last-mile delivery of consumer goods. Another portfolio company of ours with great potential is Coshera JSC . It provides warehouse and delivery optimization for online stores through its marketplace”, Dimitar Kostov highlights.

What makes a startup stand out from the competition?

The first and most important thing for a startup to be successful is having a well-thought-out idea that solves a problem for a large group of clients. But that sounds very generic, so going deep into the topic, especially in the FMCG industry founders need to provide solutions that create added value for the customers.

Going through Innovation Capital’s portfolio, we can see what makes some of our startups unique and what makes them stand out from the crowd. For Cardinal Bites - guilt-free protein temptations , it is the goal to provide a healthier snack opportunity for people, which allows us to replace unhealthy sweets when we crave something small to eat. Currently, the sweet-but-healthy sensations are being sold in more than 150 stores across Bulgaria, and the plan is to expand on an international level, reaching 700 in the next 10 months.

Chill&Bite micro markets/ micro kitchen is also providing healthier snack solutions, but not by producing goods. The company specializes in operating self-checkout stores full of healthy foods to offices and coworking spaces. Using the company’s kiosks, you can always grab a healthier alternative for your midday snack at work.

Together with providing healthier options, reducing food waste is also another line that is becoming more and more important for both shops and consumers. 2 of our latest investments are in Foody and Foodobox . Both companies provide solutions that sell discounted food that was not sold during popular lunch/ dinner hours in different forms. The two organizations share similar goals, but their products differ significantly. To date, there are more than 60 restaurants that joined Foody.to’s platform for ordering food. FoodOBox creates a platform where different stores and restaurants sell mystery boxes of food surplus. Currently, there are more than 400 stores registered on it.

Among our first portfolio companies are Snack Art and Pastiamo. They may seem very traditional but this is only at first glance. Once you taste a Snack Art product?(www.scala.bg) you will definitely buy it again. The secret is in the ingredients and the feeling of a homemade snack. Can you combine fast food with healthy? If you doubt it, check out the Pastiamo Box (www.pastiamo.bg). You can prepare a five-minute dish, which brings the taste of Italy to your home with Leo Bianchi’s special recipes. The big plus is the natural ingredients, primary quality, and taste. No matter whether you are a beginner or a chef in the kitchen the result is the same.?

Overall we approach this category very broadly. In the D2C space, we tend to favor strong brands, founders with track records and utilization of digital tools and innovation, and the ability to synergize with other portfolio companies.?