Sleeping Beauty wasn’t called that for nothing. Sleep, say scientists and ‘natural philosophers’, is great for the skin and soul. Therefore, even with her gummy eyes and drool from taking the longest nap ever, Princess Aurora (Disney’s Sleeping Beauty) captivated Prince Charming. Indians aren’t gifted that way, in sleeping well and for long. A study by Fitbit, after going through 10.5 billion data points across 18 countries, declared that we are the second-most sleep deprived nation in the world.
Indian start-up Wakefit (after asking 92,000 respondents) found that about 20% suffer from insomnia, and nearly 80-85% wake up about one to three times every night. Instead of tossing and turning over it, Chaitanya Ramalingegowda and Ankit Garg decided to cash in. In India, the $1.7 billion mattress industry is served by two extremes — neighbourhood shops with lumpy foam or big brands such as Kurl-on, Sleepwell and Duroflex. Founded in 2016, Wakefit realised there is a market in between. Other start-ups soon came in, including SleepyCat, Wake & Nod, Flo and Sunday. How do they plan to shake up this dozy market?
Good night’s sleep
For one, they have funky marketing videos. What is not to like about talking cows and sleepy cats? Along with that, they offer convenience, affordability and quality with a magic ingredient — memory foam. This mattress material was developed by the most powerful space agency in the world, NASA. It was invented for the comfort of astronauts, more than five decades ago. Then, it found its way into the mattress industry.
These mattresses had been highly priced. Big players in the industry even quoted Rs.40,000-Rs.200,000, and Wakefit found this ridiculous. They say it takes only a fraction of that to make these mattresses. The start-up managed to retail it for Rs.6,000-Rs.25,000 by cutting out distributors! They also made it way cooler – with temperature control, orthopaedic support and consistent airflow. Then they delivered the ultimate convenience – they packed the whole thing into a box, so that it could be easily shipped to the customer. Usually, says Ramalingegowda, a mattress goes through at least two to three layers of middlemen or distributors. With each layer, a commission is added, which means a consumer pays almost 50% higher for a mattress.
Mariwala scion Rishabh Mariwala’s Sharrp Ventures, which has invested in SleepyCat, another start-up in this space, believes direct-to-consumer (D2C) is a novel go-to-market model that has substantial supply chain cost savings. For instance, there is no storage cost at retail locations, or cost for distributing it to stores. In fact, SleepCat was the first start-up to introduce bed-in-a-box concept in India in 2017. Wakefit followed.
Wakefit received Rs.650 million in funding from Sequoia Capital in 2018 for 31.9% stake, and is now the largest company in this segment. Early movers have an advantage, but they also have to educate the market. Both Ramalingegowda and Garg had engineering backgrounds — with the latter trying his hands with two other start-ups (one was a mattress venture) that failed and the latter having worked with a German MNC that manufactured foam for mattress and automotive companies. They knew that there was scope for disruption in the market where there was no innovation and sales revolved around commissions. “Instead of understanding the customer’s pain point, the retailer would check your budget and suggest products that would give him better commission,” says Ramalingegowda.
After investing more than a year to research, they started Wakefit and in the initial year, the two simply assembled mattresses with plans to set up an R&D lab. Then they set up their R&D labs, to study the material on temperature control, spinal alignment and humidity management among other things, and also opened three factories by sourcing machinery from Europe and the US. Finally, with their product ready, they reached out to their target audience through social media where micro-influencers would unbox Wakefit’s mattresses. Today, the company ships 1,000 mattress daily, with 70% orders coming from Tier-I cities, and the remaining 30% coming from top 20 Tier-II towns, which was less than 5% in the first year.
To reach their younger, experimental audience, these companies have tried unusual ways of marketing. Most of it is geared towards attention grabbing, but reasonably priced, methods. Like Wakefit had social influencers recommending its products, Wink & Nod’s Sandeep Prasad approached his neighbourhood PVR theatres in Pune and struck a deal where their mattress atop a bed is set up in the waiting area allowing movie-goers to sit and test the product. Next, Apollo Pharmacies and Wellness Forever stores were sent free paper bags with its branding. Similarly, neighbourhood gyms sported Wake & Nod standees and newspapers carried fliers. “With minimal spending, we were able to hit the same customer through four different touch points,” says Prasad.
All of them also offered a killer deal — free trial. Wakefit and Wink & Nod offer 100 days, with a no-questions-asked return policy. SleepyCat’s is for 30 days. Happily, the return rate so far has been fairly low for each company — 3% for Wakefit, 6% for SleepyCat and less than 5% for Wink & Nod. Ankur Pahwa, partner & national leader, e-commerce and consumer internet, EY India, says these start-ups are changing the ecosystem and giving more power to consumers. “They are investing heavily in customer feedback and R&D to ensure that returns are kept to a minimum,” he says.
Upgrades and innovation are truly common in this space. For example, a year after hitting the market, Wakefit moved to the bed-in-a-box model. The company upgrades its portfolio every four to five months – their flagship orthopaedic mattress is the 16thedition. The company closed FY20 with Rs.2 billion in revenue, and is profitable.
Even though SleepyCat was founded after Wakefit, Kabir Siddiq was actually the first one to introduce a mattress in a box in the country. Siddiq says, “We started slightly late and Wakefit was already offering good products at cheap rates. So, I wanted to build a different brand.” He didn’t even chase the same target as Wakefit’s. For starters, their cheapest mattress is priced at Rs.10,000 as opposed to Wakefit’s Rs.6,000. The six-inch SleepyCat original mattress sells over 1,000 pieces per month. They also recently introduced a latex version, which has gained popularity amongst those with higher spending power. Seeing promise in the start-up, Sharrp Ventures and DSG Consumer Partners invested Rs.110 million in SleepyCat, which will clock FY20 revenue of Rs.210 million and profit at 5% of Ebitda. Mariwala says, “What interested me about the start-up was that the founder had achieved a fair amount of traction even when he was self-funded and was operating with a small team.” In the first year alone, with an initial investment of Rs.350,000, the company had bagged profit of Rs.8 million on revenue of Rs.130 million.
Perhaps, the quirkiest products come from Wink & Nod’s stables. There is the ‘Jeeva’ range, a patented ayurvedic mattress, which has plant-based oils such as groundnut and peanut oil and herbs. Its foam is infused with sandalwood fragrance and lavender. Prasad says that it rubs off on the skin of the sleeper, and the fragrance lasts for about three years or 150 washes. These add-ons help them sell at a premium. The Jeeva range is priced around Rs.30,000. Their best-selling range is Emperia, which counters a foam mattress’ heat emanation. With a metallic element in the sheath of the top layer, the mattress stays 3° Celsius cooler than its surroundings. The eight-inch mattress costs approximately Rs.20,000, and brings in a third of the company’s mattress revenue.
Most of these start-ups, including Wakefit and SleepyCat, make a large chunk of their revenue (80%) from mattresses. The rest comes from accessories (12%-20%). Wakefit also sells beds, which bring in 8% of its sales. The start-up that is most dependent on accessories is Prasad’s Wink & Nod, the last to enter the scene. 30% of the start-up’s revenue comes from mattresses; accessories such as pillows, bed linen and other sleeptech solutions make up for 70%. Prasad is planning to further build on this skew. The company launches at least three new products every month, and he expects to have 50-60 SKUs by the end of 2020. To cash in on the rising fitness and wellness trend, the company is working on creating a night lamp, which does not transmit the blue LED wavelength emitted from mobile screens and other lights that affects sleep. There is also a sleep tracker in the works, which will track everything from sleep and snoring patterns to heartbeat. In the lifestyle category, the start-up will soon launch blackout curtains, calming and therapeutic shampoos for better sleep and chamomile teas. Prasad believes companies pay a lot of attention to health and wellness, and ignore ‘sleep’.
EY’s Pahwa concurs and says Prasad is on the right track. He says that the online mattress market is still nascent, only 2% of the entire market. So, the opportunity is in the frills. “There are multiple areas where traction is picking up including sleep wearables, and therapeutic treatments yet to be explored,” he says.
Ambitious dreams
The start-ups’ growth story has been good so far, but the founders are getting ambitious. Siddiq is looking to take SleepyCat offline eventually, to reach beyond niche customers. That means heavy operational costs. After all, New York-based Casper, the poster boy of bed-in-a-box model, failed due to aggressive marketing and offline expansion. So much so that it has still not turned profitable.
But Sequoia India’s VP Sakshi Chopra is excited about offline expansion. “Offline as a channel will also fast evolve from third-party dealer network stores to exclusive brand stores as the unit economics of operating your own network of stores is very attractive,” she says, adding that every transaction could be profitable since they will stick to the D2C model — from their own warehouses to the stores.
Sharrp Ventures wants SleepyCat to have experience centres, since Mariwala was impressed deeply by Casper’s Dreamery, a state-of-the-art napping studio in NYC. “These can be seen as brand experience centres when the time is right,” he says. All of this means cash burn though.
Another challenge that the start-ups may face is incumbents rising from a slumber and defending their turf. Fifty-five-year-old Duroflex has already done that with its own bed-in-a-box brand SleepyHead. It has been one of the pioneers in the coir and spring mattress, but MD Mathew Chandy confesses that they had to change with the trends, and put their decades of experience and network strength to good use. Launched in 2017, SleepyHead is now the second-largest brand in this space, selling around 5,000 to 6,000 mattress per month with sales worth Rs.35 million -40 million.
Chandy says, “We created SleepyHead so that we can be agile without changing the existing line of business. Having both in our portfolio, we would be better placed while we continue to grow with the existing business.” SleepyHead was launched as a millennial-attracting online channel, with limited options of three mattresses just like its peers. The company also launched Duropedic, a medically certified orthopedic mattress range, 16 months ago. Pahwa of EY adds that while traditional players are gradually adapting, it will take some time for them to catch up. “Their biggest challenge is tinkering with their supply chain, especially enabling their distributors and retailers to adapt to this new-age ‘lean’ model,” he explains.
In both cases, in fighting the incumbent and in expanding, the start-ups will need to be flush with cash. Also, in a country like India, experimental consumer companies find it hard to attract investors. Prasad says, “In India, there are only 20-30 people who invest in consumer companies and they want mass market. The risk appetite of investors is low as compared to the US where there will be 10x more interest around such products.” Despite all this, these start-ups continue to dream, COVID-19 or no COVID-19.
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