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In a span of five years, Gurgaon-based Hector Beverages has raised close to Rs 250 crore in funds from a clutch of investors including the likes of Infosys co-founder NR Narayana Murthy. His Catamaran Ventures has invested three times in the venture.
The latest round, which concluded earlier this month, saw the fast moving consumer goods (FMCG) start-up raise Rs 183 crore from not only Catamaran and existing investor Sequoia Capital, but also new players Sofina and Hillhouse Capital.
Then there were independent investors too who participated in the funding, which was Hector's third. They included Shripad Nadkarni, who a decade ago was the marketing head of Coca-Cola India and now runs a consultancy called Market Gate, part of the Publicis Groupe, and Kanwaljit Singh, ex co-founder and senior managing director of Helion Ventures, who now runs his own venture capital fund called Fireside.
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Both Nadkarni and Singh are considered to be FMCG specialists. Clearly, these men have not only brought in the money, but also their experience to Hector.
Hector, which began in 2009-10, draws all its revenue from its Paperboat range of drinks, which it launched in 2013. The company had debuted with Tzinga, the energy drink, in 2011. In May this year, the country's apex food regulator, Food Safety and Standards Authority of India, ordered recall of Tzinga for being unsafe.
Neeraj Kakkar, co-founder and CEO of Hector Beverages, says the company is re-formulating the drink to meet the regulator's standards. "We are keen to bring Tzinga back," he says.
How big is Hector? Kakkar declines to comment on his company's total revenues. Industry sources have pegged it at around Rs 20-25 crore in FY15. In FY14, the firm had revenues of around Rs 16 crore.
But it is interesting to note that Paperboat superseded Tzinga in terms of revenues within the first year of launch. Kakkar is honest enough to admit that by the end of FY14, 75 per cent of Hector's revenues came from Paperboat, not Tzinga. Today, it is 100 per cent.
The revenues are a good indicator of where Hector's priorities lie in terms of its product portfolio. The company has two plants at Manesar and Mysuru (earlier Mysore) to produce Paperboat and is now looking at setting up a third plant. Kakkar says this is in response to the rising demand for Paperboat and the third plant should be commissioned by next year (2016).
"Our Manesar and Mysuru plants can together produce 10 million packs per month. If we have to improve Paperboat's reach and take it to many more markets, we will need to produce more of it," he says.
Bridging the divide
Strong largely in the north - it first gained sales traction in the supermarkets in and around Delhi - , Hector has in the last one year gone to markets in the south, west and east. The south, says Kakkar, actually gives Hector more revenues than the north now - 33 per cent compared to 30 per cent from the north. The balance is contributed by the west and the east.
The plan is to fortify Paperboat's presence across markets and regions, and take it to more outlets. It is currently available in 15,000 stores across the country. The company wants to take this number to 100,000 by the end of the current financial year.
It also plans to look at a second advertising burst around the festival season. The first national campaign by the start-up was launched in March this year.
Also on the cards is a push into overseas markets such as the US, UK, Canada and UAE. The plan is expected to gain steam in the coming months, though Kakkar says Hector is unlikely to stretch itself thin on this front. "Our first priority will be the domestic market. Yes, export markets will be there, but that will not be a focus area for us at this point of time."
But will Hector continue to operate as a niche beverage player? Will it ever get into the mainstream market? Kakkar is clear he has no plans to set foot in the larger carbonated or juices market? "We carved a niche for ourselves by identifying and nurturing the ethnic beverages market. We have no plans to look elsewhere for now. At this stage we are not considering any new product launches," he says.
The fortified functional non-carbonated drinks market in India is projected to cross Rs 1,000 crore by end-2015, according to industry estimates. This is much less than the carbonated drinks market of Rs 10,000 crore.
While Hector has a different product portfolio and distinct positioning, it has competition in the segment. Dabur has entered the functional drink market with its aam panna. And, beverage giants PepsiCo and Coca-Cola, which have a presence in the non-carbonated drinks space, are said to be watching the ethnic drinks space closely.
Paperboat, sold in sleek, single-serving flexible packs and with price starting at Rs 30 in metros (and Rs 25 in non-metros), is now available in 10 varieties. "We will be increasing this as much as possible, sticking to our core: traditional Indian drinks made from local fruits, spices, flowers and even pulses," Kakkar says. The plan is to take the number of variant to 15 in the next few months.
Besides, the company is stitching up new marketing deals. In April, Hector signed a partnership with Japan's Indo Nissin Foods to help it expand into small towns and villages and double its retail contact points to 30,000. The company also sells online and is expected to aggressively explore the e-commerce channel.
