Homegrown cosmetics brands have room for further growth
Cosmetics

Homegrown cosmetics brands have room for further growth

In the early 2000s, a face full of makeup in India was reserved for special occasions – a Diwali party or the wedding of a close friend. Today, beauty regimes are part of the millennial woman’s vocabulary and daily routine. Be it for formal in-person or virtual meetings, or casual catchups with friends, she does not shy away from using her setting powder, adding a hint of eyeliner and mascara, and applying her favourite shade of lipstick. In fact, beauty products are used daily by the top quartile of cosmetics users in the country, as frequently as their use of shampoo and deodorant.

This phenomenon is not just restricted to India’s metros and Tier 1 cities. With smartphone penetration in the country now reaching more than 700 million people, women in Tier 2 and 3 cities are exposed to cosmetics as much as the girl in the big city and have similar aspirations to experiment with products. Our research suggests that more than 15% of occasional cosmetics users in India’s secondary and tertiary cities tried face primers, foundations, and BB creams for the first time over the past 2-3 years. In response, beauty companies have left no stone unturned to reach far-flung towns in states such as Himachal, Uttarakhand, and Bihar. It is, therefore, no surprise that the country’s beauty market has expanded from 5800 crores in 2016 to 9000 crores in 2021.

Interestingly, demand for beauty products persisted even when people did not leave home for business meetings or social gatherings during the lockdowns in 2020 and 2021, attesting to the resilience of the sector’s expansion. This can be attributed to India’s digitally native Millennial and Gen-Z consumers, who want to look good on screen when working from home and are ‘always on’, frequently uploading stories and reels onto Instagram, Takatak, or Moj. Such consumer behaviour has supported the growth of platforms such as Nykaa, which generated approximately 3700 crores of revenue in FY22, a significant jump from 1800 crores in FY20.

Amid this backdrop, several homegrown, online-first brands have emerged in the last couple of years. Recognizing that long-term success in the cosmetics sector tends to be predicated in part on building emotional connections with consumers, many of these brands have digital-first business models that leverage social media and the power of local celebrities to develop user relatability. Sugar Cosmetics, for instance, has attracted more than two million followers on Instagram and achieved best-in-class consumer engagement rates through its use-case-focused content and regional influencer marketing. Similarly, through a spree of content platform acquisitions, The Good Glam Group has effectively leveraged a content-to-commerce strategy to drive mass traffic to its website and products.

However, building a brand in the country’s beauty market has historically been harder than building one in its personal care space, where we have seen the mushrooming of many more brands. This is largely because product variety is more critical in the beauty market, where customers want several shades and formats of products, depending on their skin tones and textures. With India’s limited capacity to manufacture cosmetics domestically, brands also need to source from across the world and manage complexities with import duties.

That said, based on our work with our extensive portfolio of more than 20 beauty and personal care companies across the world, we have observed that there are three things that companies can do to thrive over the long term.

First, maintain a good product portfolio with a balance of core SKUs and innovative new products to address the ‘fashion’ nature of the cosmetics category. Second, build an omnichannel presence for long-term scale in India. Even in developed markets with more mature offline and online ecosystems, cosmetics companies need to enable consumers to experience new products offline but replenish products at their channel of convenience. Third, reinforce a consistent brand story across marketing campaigns to continually stay emotionally connected to consumers over the years. While a range of brands across the world built scale quickly through strong online followership, such as Perfect Diary and Florasis in China, many have not been able to maintain their success as they lacked true consumer engagement and customer loyalty.

These measures are easier said than done, which is why India’s largest-selling beauty brand online is still Hindustan Unilever’s Lakmé. While there has been a change in investor sentiment regarding the defensibility of D2C brands in general, we nonetheless see an opportunity for high-quality homegrown brands to become category leaders on the back of strong product, distribution, as well as customer loyalty moats, and we remain excited about their prospects as the country’s consumers continue to evolve.

(The writer is partner at L Catterton, a consumer-focused global private equity firm. Views expressed are her own.)

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