Can Mamaearth be the next P&G?
With Gen Z moving away from legacy brands to ‘cooler’ ventures, the D2C shift could nudge bigger FMCG companies to sweat it out.
Apeksha Roy, a 17-year-old high-schooler from Kolkata, knows all the lipstick shades sold by SUGAR Cosmetics. She has been using the eye and lip makeup products of the Direct-to-Customer (D2C) brand for the past two years. Quiz her about Lakmé, a brand her mother uses, and Apeksha immediately responds that it is a brand for ‘oldies’.
Young India doesn’t want to use brands of the ’60s and ’70s. Especially not Generation Z. These teenagers want to shop from newer brands that are personalised and innovative while remaining pocket-friendly. And that’s the sweet spot now being captured by D2C brands in India.
Be it SUGAR, Mamaearth, WOW Skin Science, boAt, Licious, Wingreens Farms, or Bombay Shaving Company. There is a wave of D2C brands, with nearly 800 homegrown brands operating in the market, as per the data provided by KPMG India. Changing customer preferences and a move to online shopping have played a big role in getting these D2C firms to become household names.
The impact is such that the D2C sector, worth $44.6 billion as of 2021, is expected to reach $100 billion by 2025. In this, the fashion and accessories market alone is expected to be worth $43.2 billion by 2025. And the D2C brands’ ambitions are only getting bigger, with these companies competing for head-on with the consumer goods corporations.
In February, D2C skincare brand Mamaearth bought salon brand BBlunt from Godrej Consumer. The six-year-old skincare startup and 2022’s first unicorn is now eyeing many more Thrasio-style acquisitions, a model under which popular-but-smaller brands in personal care will be acquired and scaled.
Making the cut
D2C brands were born out of a pressing need for affordable variety. Yes, there were established FMCG firms in the market offering choices but those seemed oversimplified.
Enter D2C. A better speed-to-market means that customers get access to innovative products more frequently. For example, SUGAR launches two products every month, giving customers almost 24 new items to explore annually. Typically, it takes between three to four months to launch a product after the initial conceptualisation stage. SUGAR beats the market by sourcing locally and ramping up its capacity in factories and warehouses.
The results have slowly started to reflect in the numbers. SUGAR Cosmetics clocked ~Rs 130 crore in revenue in FY21, offering 550 plus products in makeup and skincare verticals.
While not strictly comparable considering SUGAR’s low base, HUL’s Lakme Lever saw a 19% drop in business during the same period amidst Covid-led lockdowns shutting physical stores and salons.
Targeted product presence is helping D2C brands scale faster. Mamaearth’s FY21 revenue jumped four times to Rs 461 crore compared to the previous fiscal on the back of new launches. The country’s largest D2C brand in the beauty/skincare space also posted Rs 24.6 crore profits for the first time in its history.
Its biggest FMCG competitor Procter & Gamble India’s revenue rose by 7% to Rs 6,314 crore during the same period. While P&G continues to be the market leader in the baby-care space, the point to note here is that Mamaearth had started off with just Rs 17 crore revenue in FY19 and has seen a meteoric rise since then.
Currently, the market is thriving. India’s D2C brands could be looking at a $100 billion (Rs 74,681 crore) consumer opportunity in India by 2025, as per an Avendus Capital study.
It added that over 600 D2C brands have been present in the Indian market, rising expectations of consolidation in the next two to three years.
To grow bigger and compete effectively with the older FMCG brands and extend the product line, mergers and acquisitions (M&A) are one crucial step that is being taken.
Rather than invest in developing completely new product categories and burning costs, SUGAR is entering the skincare/haircare category by acquiring a majority stake in ENN Beauty. ENN sells non-toxic skincare products such as creams, shampoos, and scrubs.
Similarly, health-food D2C company Wingreens Farms acquired Raw Pressery to enter the cold-pressed juices category.
Interestingly, D2C firms are also eyeing buyouts of digital marketing and influencer platforms that can essentially help build their FMCG brands at little or no advertising costs.
For instance, Mamaearth acquired content platform Mompresso and its influencer engagement entity MyMoney in December 2021. For the D2C unicorn, this will help build stronger inroads into the mom-and-baby skincare market through organic community building.
Another D2C giant, the Good Glamm Group (that runs MyGlamm) had set a target of acquiring six consumer brands by March 2022. Staying true to this promise, the company acquired Baby Chakra, MissMalini, The Mom’s Co, PopXo, and ScoopWhoop. In January 2022 it bought Winkl and Vidooly, hiving off these influencer marketing platforms into a separate entity.
Why does it matter? Marketing gurus such as Scott Galloway have emphasised the importance of customer engagement, better visibility, and targeted marketing for any brand that has $100 billion revenue dreams.
Unless there is targeted marketing at all stages, attracting new customers isn’t easy. P&G can get Kareena Kapoor Khan or Anushka Sharma to appear in a few advertisements but the high endorsement fees could be prohibitive for D2C brands.
So, what is the solution for Mamaearth or MyGlamm then? Influencer marketing. And that’s exactly what these companies are now investing into. An added advantage of getting social media influencers to market producers is that they are able to convince Gen Z more effectively. These campaigns feel personal because the younger audience connects well with influencers and finds them more relatable than actors.
D2C consumer electronics brand boAt got Punjabi singer AP Dhillon for targeted campaigns among young users. The company that got popular purely through e-commerce sales is now among the top five wearables brands in the world.
But big-actor endorsements cannot be fully ignored. D2C brands are now getting artists, albeit at smaller budgets than the HULs and P&Gs. WOW, for instance, roped in Bhumi Pednekar as its brand ambassador. In addition, Disha Patani endorses the brand’s hair-care products.
Mamaearth, which previously had Sara Ali Khan as its brand ambassador, has now brought in Samantha Ruth Prabhu as its face. A popular face in South Indian films, Samantha could help bring the brand access to markets in Tamil Nadu, Telangana, Andhra Pradesh, Karnataka, and Kerala. ITC, P&G, and HUL dominate these states currently. This development comes on the back of Mamaearth’s parent company Honasa launching an Ayurveda-based brand called Ayuga to take on HUL’s Ayush Lever and Patanjali Ayurveda.
The physical touch
Tiny tweaks in the finished product are what could make the brand recall higher. A case in point is HUL’s Indulekha hair-care range whose scalp applicator design was convenient and caught on among customers.
WOW Skin Science seems to have taken lessons from this brand, by launching its own face wash range with an applicator brush. It also launched its onion-seed range of hair oils with applicators, and at a 20% discount compared to Indulekha Bringha.
For this, customers needed to touch and feel the product before purchase. This is where WOW invested in building a brick-and-mortar presence across the country. Apart from all e-commerce retailers, WOW products are available at specialty retailers and pharmacy chains. This has ensured that the brand doesn’t have to fight for premium shelf space at large supermarket chains where legacy players wield their money power.
For Mamaearth too while online constitutes 70% of the total sales, the thrust is on ramping up its offline presence.
FMCG brands feeling the heat
D2C brands are riding on the bandwagon of being non-toxic, healthy, and cruelty-free. Facing concerns of aggressive competition and rising popularity of the new-age companies, established FMCG giants are starting to make inroads into this path.
Reckitt Benckiser has invested in grooming brand Bombay Shaving Company, while Marico bought a majority stake in Beardo. Kolkata-headquartered Emami is the largest corporate shareholder in another grooming brand The Man Company.
That’s not all. As D2C brands start to eat into the market share of bigger brands, these conglomerates are responding by building their own direct subsidiaries.
ITC, for example, made its first foray into D2C by buying a 16% stake in the mother-child brand Mother Sparsh. This is part of the ITC Next strategy that will see the company develop more online-first FMCG ventures. Aditya Birla Fashion, too, is entering the D2C space by setting up a focussed subsidiary.
Silent leader P&G also took notice of the D2C boom in 2019 and set up its own e-commerce platform; its sales still rely overwhelmingly on offline retailers. HUL is also trying to downplay the rise in D2C competition. But the PE/VC arm of its parent company Unilever invested in skincare startup Plum almost four years ago.
India’s D2C brands have become too big to be ignored by the marquee consumer goods brands. With focussed spending and a customer-first approach, brands such as Mamaearth have gained a strong foothold in the MNC-dominated FMCG segment. Considering the revenue run-rate and expansion strategies of these digital-first brands, the rivalry is only heating up.
Young customers are already sliding into the D2C territory. While the big FMCG names have the big bucks to spend, the entrepreneur-led novel brands have the pull factor. While a Mamaearth may not be able to replace P&G on supermarket shelves in the immediate future, this is no longer an impossible thought.
