For D2C brands, Bertelsmann sees quick commerce as the next big growth driver

“We consider quick commerce to be the evolution of e-commerce," Makkar told Mint in an interview. He said even delivery platforms servicing giants like Amazon and Flipkart must seriously evaluate this strategy.

Personal care D2C brand Nat Habit, which raised about $10.2 million led by Bertelsmann last year, is the latest among the companies that are in talks to sell products through quick commerce. 

The investment firm, which also counts meat delivery startup Licious and furniture retailer Pepperfry among the companies it has backed, is primarily focused on consumer-tech startups which constitute 80% of its current portfolio.

Quick commerce gained popularity during the pandemic with consumers getting groceries and essentials delivered in less than 20 minutes. However, its use cases have expanded to include other items such as beauty, fashion, electronics and eyewear in recent months. Some major players operating in this space include Swiggy's Instamart, Zomato-backed Blinkit and Zepto.

Makkar said these quick commerce companies need to evaluate the right amount of stock-keeping units (SKUs) to avoid operational inefficiencies. 

"Quick commerce companies should prioritize fast-moving products over stocking all SKUs. Achieving this requires leveraging technology and advanced data analysis to determine the optimal inventory across urban dark stores. This approach demands significant innovation and effort."

Innovative business models

Bertelsmann India is also exploring "innovative business models" within the D2C space, "particularly those that have revolutionized supply chain operations", Makkar said. 

“Supply chain management tends to be one of the most challenging topics for companies to create massive Moats. We are highly enthusiastic about direct-to-consumer brands," he said. Moats is a business ability to maintain competitive advantage to sustain profitability and market share.

"However, we anticipate significant innovation not only in product development but also within supply chain management. As we identify more companies that meet these criteria, we remain committed to investing in them."

Last week, logistics firm Delhivery's chief executive officer Sahil Barua also expressed interest in operating in the quick commerce segment and stressed the company's efforts to play a role in the overall supply chain for clients such as Amazon and Flipkart that have announced plans to foray into the category. 

While Barua pointed to the large gap to fill between 10-15-minute deliveries and same or next-day deliveries, he said there is an emerging line of products that could come under the quick commerce segment involving two to four-hour deliveries.

Quick commerce, which is currently a $2.8 billion market, clocked a 77% growth in its gross merchandise value (GMV) last year and is estimated to sustain a 40-45% growth over the next three years, riding on promising user growth potential, according to a March report by Redseer.

Assisted commerce model

Founded in 2012, Bertelsmann India is a sector-agnostic mid-stage growth fund that typically focuses on series B and series C rounds. It does about four to six deals a year. Since the beginning of this year, the company has already done two deals and expects to do another four to five deals by the end of 2024, Makkar said. 

It is currently deploying capital from its second fund that it raised in 2022 and which is $500 million in size. Its previous fund is $250-300 million in size.

"We believe India has substantial growth potential, with strong underlying fundamentals and a favorable macroeconomic climate," Makkar said. "Consequently, we remain quite optimistic and will continue to invest in India."

Bertelsmann has also backed startups in other categories as seen in its investments in companies such as Rozana which operates in the assisted commerce segment.

Assisted commerce refers to startups that cater to first-time internet transactors in tier-2 markets and beyond by assisting consumers to make purchases online. 

In this model, companies such as Rozana appoint sales representatives at various touchpoints to help consumers become familiar with online shopping. In March, the rural startup raised about $22.5 million led by Bertelsmann India alongside other investors.

Also Read: Rise of tier-II online shoppers. Can they change Indian e-commerce?

"These assisted commerce services are designed to help individuals in tier 2 and 3 cities learn how to navigate e-commerce," Makkar said. "Over time, users receive assistance and gradually transition to completing transactions independently as they develop trust in the platform.

Assisted commerce models may also require an offline element to help customers in these areas build initial trust with the brand. These physical centres also serve as a point of contact for purchasing products that are in a complex category or that require some consultation or assistance at the time of purchase.

Offline expansion 

Beyond assisted commerce, even larger brands such as Nykaa, Wakefit and Mamaearth realise the opportunity of offline centres as people return to their normal shopping patterns post-pandemic. These players have been making rapid strides to set up more stores to expand their revenue channels.

Even investors at Fireside Ventures and Accel Partners have resonated with the shift in consumer behaviour and are increasingly backing only those online brands that have a longer-term offline strategy.

"Companies should launch their products across all channels, provided the unit economics are viable," Makkar said. Investors encourage this strategy and seek to support substantial businesses that leverage multi-channel access to generate increased demand and facilitate the growth of large companies, he added.