India’s beauty brands battle hard in a crowded market

The recent years have seen a host of new brands enter the market, aiming to break through to the Indian diaspora by offering skincare and beauty products on parity with international standards.

Listed beauty marketplace Nykaa (including its fashion vertical) saw expenses rise to ₹1,731 crore in the June quarter of FY25, up from ₹1,418 crore a year earlier. Another listed consumer brand, Honasa Consumer, which owns Mamaearth, Aqualogica, and The Derma Co, reported ₹520 crore in expenses during the period compared with ₹443 crore a year earlier.

“Only the fittest will survive, which means only brands that differentiate and continue to innovate will stick around,” said Zoeb Ali Khan, investor at early-stage venture capital firm Sauce.vc. “Else they will perish since the overall landscape is fast changing and relying on third-party manufacturing is not the best way to stay ahead. Since formulations are not proprietary.” 

India’s beauty and personal care (BPC) market is expected to grow from the current $21 billion to touch $34 billion in the next four years, making it the fastest growing in the world, according to Nykaa’s beauty trends report from last month.

However, the influx of companies chasing the big opportunity has resulted in overcrowding and proliferation of me-too brands, making continuous product innovation integral to growth. Moreover, only sustained unit economics will attract late-stage investors, according to Khan.

Overcrowding

The expanding market as well as fairly low barriers of entry have prompted the entry of a host of players in recent years. A total of about $2.4 billion has been raised in the sector in the last five years, according to data by market intelligence firm Venture Intelligence, signalling confidence of venture capital investors.

Thanks to easy access to outsourced local manufacturing and sourcing of materials for products such as moisturisers, shampoos, face serums, and even lipsticks, a greater number of players have found the segment lucrative, according to Shankar Prasad, founder and chief executive officer of skincare brand Plum.

Brands can also enter the segment with fewer products comprising tried-and-tested formulations, allowing sufficient room for experimentation, Sauce.vc’s Khan told Mint. Moreover, BPC typically sees higher margins compared to other categories like food, allowing brands to enjoy better earnings, Khan noted.

“The success stories of listed player Mamaearth and Minimalist, for instance, have inspired many founders to set foot in the space,” he said.

Mamaearth’s parent Honasa Consumer listed on the bourses last year, giving bumper returns to many of its early investors including Snapdeal’s Kunal Bahl, Fireside Ventures, and actor Shilpa Shetty Kundra.

But, according to Kaushik Mukherjee, co-founder and chief operating officer of SUGAR Cosmetics, the bar for beauty and personal care brands is very high today. “You can’t just make a random product, slap a label on it, and expect it to do well,” Mukherjee told Mint in an interview last week. “There are a lot of brands that come hoping to make a quick buck. But it’s tough to survive.”

SUGAR is doubling down on its younger consumers aged 14 to 24 by accelerating product launches and introducing more value-conscious items, pinning hopes on the ability of the youth to drive its next phase of growth.

Tweaking strategies

Many brands are now re-evaluating strategies to incorporate more sustainable business practices such as cutting down frivolous spends and investing more in product research, industry executives told Mint.

Unilever Ventures-backed Plum is willing to increase its market research budget by as much as 20% this year compared with the previous years, to help accelerate product development processes as well as keep up with changing customer preferences, founder and chief executive Shankar Prasad said.

“As the segment grows, brands will realise that there is no substitute for reading the consumer’s mind,” Prasad said, adding that the move is an extension of the brand ethos.

Arjun Soin, founder and chief executive officer of Y Combinator-backed dermatology brand Clinikally, said the firm is doubling down on investments to enable more personalised products and services for its customers. It is also focusing on expanding its portfolio of clinically proven formulations that could give the brand a leg-up over rival players.

Plum’s expenses rose to ₹375 crore in FY23 from ₹218 in the previous year, while net loss widened to ₹52.9 crore from ₹31.8 crore.

SUGAR Cosmetics reported a 68% surge in total expenses in FY23 from the year-ago period and its net loss remained flat at ₹76 crore.

Premiumisation

Direct-to-consumer brands are now pulling focus towards high-margin and high-frequency products like cosmetics and daily-use creams and shampoos, especially those priced above ₹600-800.

“Customers are also looking for more premium experiences. The ability to pay for premium products is much more now compared to five years back,” Plum’s Prasad said, adding that the makeup segment is growing as fast as personal care.

Plum has been working towards widening its portfolio of colour cosmetics, which tend to have higher margins than basic skincare products, offering consumers a wide range of products to encourage repeat purchases.

Gurugram-based Clinikally, which launched a collection of premium skincare brands called Luxe in March, is keen to accelerate product launches in the segment in the next few months, as well as building a platform designed by dermatologists for specific skin and hair concerns, chief executive Soin said.

Marketing focus

Marketing is big cost centre for consumer brands and it’s likely to only increase as brands prioritize product launches and market research. Consumer brands tend to spend as high as 50% of their overall expenditure on marketing and promotional expenses, a component hard to overlook.

Plum’s Prasad said marketing strategies are also expected to witness modifications. For instance, Plum has already started directing attention towards influencer marketing over the traditional performance marketing methods, given creators’ growing relevance, especially among younger audiences.

However, according to Sauce.vc’s Khan, while marketing spends and brand-building are essential, only a customer-focused approach with up-to-date understanding of the market can create differentiation for firms.

Moreover, in the age of social media, beauty and personal care brands could face the heat from ever-changing trends, which could force them to speed up innovation.

The advent of quick commerce has also prompted firms to fulfil deliveries faster. About 70% of Clinikally’s orders are now delivered the same or the following day. Platforms like Blinkit and Zepto are also emerging as fast-growing sales channels for consumer brands like Plum and SUGAR.

On the contrary, Sauce.vc’s Khan believes that while channels like quick commerce platforms can help with discovery and growth, brands will struggle to improve their bottom line if they don’t find a way to acquire customers in a cost-effective manner.

Despite strategy shifts, said an e-commerce executive on the condition of anonymity, operational expenses will continue to impair growth in the long run given high customer acquisition costs and complex distribution systems.

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