Why are VCs investing in a cake company?
A cake business that makes ₹75 Cr
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67,385 babies are born in India every day. Most will celebrate 10+ birthdays in their lifetime. One thing that's common with birthdays - the "cakes". Here's a brand with ₹75 Cr in annual revenues selling "cakes"👇🏼
I'm talking about Bakingo, a 7-year-old cake startup based out of Gurgaon. With over 30 cities being served at the moment, the company recently received a $16 million cash infusion from Faering Capital.
But, is this whole cake market big enough?
Let's take a step back. The insight for Bakingo did not come from "let's launch a cake brand" but it came from the founder’s original business - FlowerAura, which is sort of a competition to Ferns & Petals - largely into gifting.
The insight?
More than 50% of FlowerAura's orders (& revenue) consist of a cake order in the gifting set. This made the Bakingo founders think about having their national brand for cakes considering FlowerAura makes ~ ₹60 Cr in annual revenues.
But, cakes & desserts are an extremely fragmented market all across Tier 1 India. Plus, they are easily perishable without the cold chain. This puts inventory losses and spillage at stake.
So, how did Bakingo become a VC investible business? 🤯
The opportunity 🎯
The global cakes market size is USD 90 Billion in 2022. If we look at India, it's around ₹4,000 Cr & growing at a healthy 9% year over year. Apart from Monjonis making ~₹150 Cr, Ferns & Petals making sub ₹500 Cr in 2023, there is room for growth.
The right to win 🥇
With the cloud kitchen model, the brand does not require prime real estate & hence doesn't need to compete with local bakeries. This reduces the majority cost to operate a location.
Plus, Bakingo has been online first approach through it's website & Swiggy/ Zomato's of the world. This means it needs to solve cost efficiency throughout supply chain optimisation & build an online first cake brand.
Building a brand is only by great consistent product quality & on point delivery experience - considering most of its orders are for special occasions. Bakingo’s kitchens and delivery piece is full managed, allowing it to control this piece.
The exit scenario 🎯
A comparable brand is Ferns & Petals with ~ ₹2,000 Cr valuation at a ₹500 Cr annual revenue rate. And Ferns & Petals is scaling internationally.
This means Bakingo will either become a really large business to beat FNP or get acquired by a larger player wanting to be in the cloud kitchen bakery business. One way or the other, it will be a large exit for early-stage VC bets.
Question(s) for you.
Have you seen a behavior change in where you order your desserts and cakes from? Are these purchases more last minute than planned ones now? What's your first point of search when it comes to cakes for special occasions?
There is a larger insight here that could open up other similar verticals inside the Swiggy/ Zomato marketplaces. All you need is a high ARPU, high intent product that drives gross margins than anything.
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Thanks for sharing these valuable insights on cloud kitchen and how Floweraura solved this expanding into Bakery. This will help me thinking and deep dive more into this, which might help me in starting something of my own soon.
You write amazing articles..I must say 🙌