Manish Taneja, co-founder and CEO of Purplle.com, the heavily-funded Nykaa rival in the online beauty ecommerce space, describes how in Seoul if you visit Myeong-dong market, you will find in its criss-crossing alleys over a thousand outlets selling millions of different Korean cosmetics and skincare products. Beauty is a mega business in South Korea.
India, for all its large size, is nowhere near tiny Korea in the beauty market stakes but given the frenzied pace at which the cosmetics and personal care business is exploding here – fuelled by hundreds of new D2C brands - it may not be too long before we reach the scale of the business in the Land of the Morning Calm. In 2021, India’s beauty and personal care space received a fund infusion of over $350 million – and these are very conservative estimates - compared to around $100 million in 2020. One lost count of the number of new start-ups entering the space – but one yardstick as Purplle’s Taneja points is that they have over 50,000 uniquely different products (SKUs) on the platform and are selling 25,000 unique items every month.
The booming BPC (beauty and personal care) market in India was estimated at $24 billion in 2021 and is expected to cross $40 billion in the next five years.
And that forecast will easily be met if you see how much funding start ups in the sector are attracting. Take the Good Glamm Group which raised $100 million in Series C round, in three tranches last year, with investors like Amazon and Wipro, or take Purplle which first got a $45 million infusion in a round led by Sequoia Capital, and a few months later raised $75 million from investors including Kedaraa Capital, capping it with another $38 million in a Series D funding. Then there is the poster kid of this space, Honasa Consumer, the parent of baby and skincare products company Mamaearth, which early this year added another $52 million to its funds kitty taking its valuation to $1.2 billion.
Buying spree
Armed with these rich war chests the aggressive beauty brigade is on a buying spree. Just last month Mamaearth acquired Mumbai-based BBlunt from Godrej Consumer Products Limited. Earlier it had picked up fast-growing content company Momspresso. Content-to-commerce conglomerate, the Good Glamm Group has been even more acquisitive – buying out The Moms Co and St. Botanica besides acquiring a majority stake in Organic Harvest and making a strategic investment in Sirona Hygiene, all within a few months of each other. Its portfolio now cuts across BPC categories from cosmetic, haircare, skincare, mom and baby, grooming, naturals, hygiene and organic among others. “We will continue to acquire or make strategic investments towards completing this portfolio and scaling the brands under the Good Glamm Group umbrella. We expect to complete more acquisitions in the first quarter of 2022,” declares a very bullish Darpan Sanghvi, Group Founder and CEO, Good Glamm Group.
Purplle with an overflowing kitty of over $160 million in funding– most of which, says Taneja, is still in the bank - has taken stakes in Juicy Chemistry,Good Vibes, feminine hygiene firm Carmesi, NYbae and most recently Faces Canada in a bid to diversify its portfolio.
Just before its blockbuster IPO – which has only increased the positive investor sentiments about this space - beauty and fashion e-commerce platform Nykaa acquired homegrown skincare brand Dot & Key.
Year of consolidation
It’s hard to keep track of these buyouts as there is one being sealed literally every other day. Which raises the question - is 2022 going to be a big banner year for M&As in the business of beauty in India?
All signs are there of a market poised to see an exponential rise in acquisitions. As Nitin Passi, Joint Managing Director, Lotus Herbals, points out, consolidation is imminent as in the last two years, digital, inexpensive, and more intuitive marketing initiatives have led to the emergence of “ innovative micro-brands” that penetrate more emotionally with the consumers.
Entry is commoditised now, agrees Shankar Prasad, founder and CEO of Plum, a D2C beauty brand started in 2014. He says access to products, access to marketing tools, access to media are at an all-time low and anyone with a passing interest in the category can get in. However, he says while barriers to entry have been breached, barriers to scale have not – hence we are seeing so much deals action.
The deals are mutually beneficial to both the acquirer and acquired. Take the case of Lotus Herbals which has acquired luxury Ayurveda brand SoulTree, picked up 32 percent stake in the dermaceutical company Fixderma India and 25 per cent stake in DTC brand Conscious Chemist.
“From 2019 onwards, our strategy got recalibrated towards acquisitions and investments apart from nurturing our current business with an omni-channel future-ready approach. We have drawn a strategy of either owning such businesses or partnering with passionate founders who need mentoring and access apart from the capital to realise their ambitions,” explains Passi.
For firms like Lotus, and traditional personal care giants like HUL, Marico (which acquired Beardo), Emami (with significant stake in the Man Company) and Dabur, which made its intentions to acquire clear, there are rich pickings available.
As Mohit Malhotra, CEO of Dabur India, said during the company’s recent investor call, “We are working very aggressively and we are not just open to organic entry but also open to inorganic plays here and that’s why we have a war chest of around ₹5,500 crore kept in the balance sheet because it’s a quicker ramp up through inorganic and there are a lot of start-ups which are available.”
The dozens of entrepreneurs we spoke to for this story all say they have got offers galore. Take Amritha Gaddam, Founder & CEO of The Tribe Concepts. “Yes we have been approached by big companies not just in the domestic but also from the international market. We however, are taking our time and evaluating all the offers and running them through a fine comb,” she says.
Gaddam says, there are ample benefits and limitations around the consolidation we are seeing. “When a big brand comes in to consolidate a lot of emphasis is paid on quality checks, certifications, conflict of interests and founder chemistry. I see this consolidation trend increasing in the near future because we as a country are seeing a surge in start-ups and this chain of thought is being encouraged very positively which is great because I think this disruption in the market was much needed,” she adds.
Growth and consolidation
But talk to investors and entrepreneurs and almost all say that while consolidation is taking place, the growth phase is still very strong and there is huge headroom for new brands to still come in. Kannan Sitaram, venture Partner at Fireside Ventures is emphatic that there is space for more investments into start-ups with differentiated offerings – describing how they have just funded in one such brand called Pilgrim, which is bringing global beauty practices into India, launching handpicked products from different geographies (vinotherapie from France, and concepts from Jeju in Korea.).
As Sanghvi of Good Glamm Group explains, “It’s a space (BPA) where many brands can exist and succeed, however it is extremely important to establish a USP or differentiator to make consumers understand why they should choose you. This is not a winner-takes-all market.” By Diwali 2023, the company aims to get to the billion dollar revenue scale and be significantly profitable. “At that point, I think we will be IPO ready,” Sanghvi adds.
Taneja of Purplle.com concurs. He points to how the gross margins in beauty are so high and the white spaces are so many that hundreds of brands can co-exist and he goes back to his favourite Korean example to describe why more players can co-exist. “Beauty is very personal, exploratory, and has diverse needs. There are different skin types, skin tones, weather conditions and textures. You will see more brands catering to each of these areas,” he says.
From vegan, organic, fruit based, Ayurveda-based, problem solving formulas for different needs (acne, dryness, hairfall, etc etc), interesting new make up concentps, new niches are emerging. Categories that did not exist a couple of years ago are flourishing now.
Also Plum’s Prasad says that the market has evolved to such an extent it is easy for new brands to do a crore a month in sales now. The gross margins are so good in this business that many feel even a stagnating brand will survive easily, so does not really need to sell out.
On the same page is Vineeta Singh, Co-founder & CEO, SUGAR Cosmetic who says. “While it might seem that consolidation has picked up significant momentum this year with a lot of established businesses acquiring budding brands, I believe there is a tremendous value that is yet to be unlocked amongst these emerging players and there is merit for these brands to scale individually.”
With SUGAR Cosmetics, she says, “our key strategy will remain to grow organically and we will opportunistically look at acquisition opportunities in the future. The brand has a current ₹500 crore ARR and we are scaling at equal level across units so we are not looking at capital-infusion at the moment.”
The optimism displayed by the players seems justified when you look at the consumer landscape. Just last week India’s largest modern retail store chain Shoppers’ Stop opened a standalone luxury beauty store called SS Beauty in Mumbai. Nykaa has been expanding its offline presence with two sets of segmented stores – one aimed at premium customers and another at a more mass consumer base. Similarly, Internet and online retailer Myntra – more known for its apparel collections – recently said that beauty and personal care will be key focus areas in 2022. Clearly, the beauty pie is getting bigger and bigger.