While Hindustan Unilever’s Lakme and Honasa Consumer’s The Derma Co have called a truce in their sunscreen battle, the episode once again underlines the fact that direct to consumer (D2C) brands in the online beauty and personal care (BPC) market have emerged a serious threat to legacy brands.
Over the past few years, over 35 D2C brands have thronged this category, though only a few have scaled up beyond the Rs 100-crore revenue mark. Only a handful — such as Mamaearth, The Derma Co and SUGAR Cosmetics — have reached revenues of Rs 500 crore.
At an overall level, legacy players are better placed for growth, thanks to their significant distribution strength, says Santosh Sreedhar, partner, Avalon Consulting. “D2C brands have realised that continuing to acquire customers through their own portal is a very costly game, and not sustainable. Their cost economics are open to many other brands that can easily replicate their model. And when funding-led discounts run out for digital native brands, the value proposition for customers will also no longer exist. That is when the strength of the legacy brands will come in,” remarks Sreedhar.
But thanks to e-commerce and social media, smaller companies can punch far above their weight. The barriers to market entry are lower; distribution is democratised and messaging is scalable.
The stakes are high indeed. According to a report by Nykaa and Redseer, the BPC market was $21 billion in 2023 and is expected to reach $34 billion by 2028, growing at a CAGR of 10-11%. The unorganised offline market has over half the market, while organised offline retail holds 28% and online holds 18% share. Both online and offline channels are expected to hold an equal 33% by 2028, indicating that online penetration is key to the category’s growth.
Little wonder then that legacy firms like HUL and L’Oreal have upped the ante. Procter & Gamble, for instance, is testing PG Shop, a platform launched a few years ago, which allows consumers to shop online for brands like Olay and Gillette. L’Oreal has announced plans to launch more of its global products in the Indian market. HUL also plans to expand its premium beauty business unit, which includes digital-first brands like Simple, Love Beauty and Planet, and UV Squad.
“Traditional companies recognise the competition from D2C players and understand the need for agility to create relevant propositions for the new Indian consumer. Many of these companies are launching India-specific products or they’re launching products targeted at specific consumer segments,” says Rohan Agarwal, partner, Redseer Strategy Consultants.
No easy wins
India is the fastest growing BPC market, as per the Nykaa-Redseer report, overtaking China, United States and Japan. But legacy companies still control a significant share of the BPC market across segments such as hair care and skin care. “There is plenty of headroom for growth in the online BPC market since per capita spends are fairly low compared with other markets. Further, the rise of quick commerce has added yet another channel for these brands to sell and grow,” says Redseer’s Agarwal.
New-age brands have an advantage here because of their speed speed and agility. “Closer-to-ground consumer insight generation, faster pace of innovation, digital-first marketing strategy that appeals to younger audiences, and strong e-commerce marketplace management are the key differentiators for digital-first brands. When you superimpose this with India’s very young population, it makes for a very interesting and impactful mix,” points out Shankar Prasad, founder & CEO, Plum.
He adds that Plum gets two-thirds of its revenues from online sources and that offline success requires high time commitment, capital, strong systems and processes, which is a natural advantage of the legacy players. Plum is one of the few D2C brands that has managed to sustain its growth, recording Rs 350 crore in revenue in FY24.
There is an opportunity here too for large conglomerates to acquire successful challenger brands and help them to build scale without cannibalising their own brands’ sales, adds Sreedhar. HUL did that with the Minimalist acquisition this year, Emami acquired The Man Company last year and Marico acquired Just Herbs and Beardo. Analysts expect to see many more such acquisitions over the next few years.
Beauty boom:
· The beauty market was $21 billion in 2023
· Expected to grow at 10-11% CAGR to reach $34 billion in 2028
· Online market is 18% while offline is 28%; unorganised is over 50%
· Both online and offline are expected to gain equal market share at 30% each by 2028
(*Source: Nykaa and Redseer Beauty Trends Report)
How D2C brands stack up
The opportunity
· Closer-to-ground consumer insight generation
· Faster pace of innovation
· Strong e-commerce marketplace management
· Digital-led marketing
The challenges
· Brand building
· High customer acquisition cost
· Offline growth
· Scaling up beyond Rs 100 crore