Changing Shades of Beauty Industry
The pandemic has fast-tracked the growth of the cosmetic sector. What does the future hold?
Consider this: India's smartphone market is expected to achieve 173 million units in sales in 2021, taking the growth to 14% YoY.
At the same time, the cosmetic industry not only just withstood the pandemic and the lockdowns, but also came out stronger than ever. Online buyers for beauty products have increased 1.35X during the pandemic!
Ummm… Aren’t you wondering why we are discussing two completely unrelated industries together?
Here’s why.
The biggest game-changer for the cosmetic industry is e-commerce. So much so that the beauty & personal care industry is expected to grow to Rs. 111,000 crores (US$ 15.17 billion) by 2024, from Rs. 73,000 crores (US$ 9.98 billion) in 2019. And a major factor for this growth is the sales from tier-2 and tier-3 cities, which have also witnessed increased usage of smartphones.
Yet, not everything can be attributed to demand. The brands have done their fair bit to ensure increased consumption.
Rising awareness, affordable prices, flawless supply chain management, and influencer marketing are majorly contributing to the beauty industry's success.
Falguni Nayar's Nykaa’s sales from tier-2 and tier-3 cities have increased to 64% since the pandemic.
Nykaa's IPO is around the corner: again timed perfectly amidst the rising smartphone, beauty, and festive craze. After the $500-$700 mn raise, its valuation would go up to $5-$5.5 billion.
But Nykaa does not enjoy a monopoly. The competition in this segment is so fierce that brands are spending heavily on marketing, branding, and influencers to get consumer acceptance and stay in the game.
Some are even blatantly copying each other's strategies.
Purplle (which is in talks to raise $50-75 million, taking its valuation to $500 million) is successfully selling itself to investors as "Nykaa for tier 2- 3 cities and beyond."
Clearly, it’s not a zero-sum game or the winner-takes-it-all kind of market. It is just a game of hide and seek: where the customers are currently hiding, and the brand that finds them first gets a larger share.
Who can create a house of brands first?
Growing inorganically, or through acquisitions is nothing new in the edTech and finTech space. Now this bug has crept into the cosmetic space too.
Just in the first three months of 2021, the space received more funding than it did in the entire 2020! The funds have to be deployed somewhere. So the companies are now building a 'house of brands'.
MyGlamm has raised $71.3 million from Trifecta Capital and Stride Ventures, in addition to the funding from Amazon, Wipro Consumer, and Ascent Capital. So what has MyGlamm done with so much money till now? Well, it has partnered with POPxo, a digital community of women. Marico acquired Beardo, and L’Oreal has always been a serial acquirer in the space.
But who will these brands acquire?
Several new D2C (Direct to Consumer) brands have mushroomed during the lockdown. Individuals have learned the art of making skincare products at home in an organic and cruelty-free manner, and they have set up their shops on social media platforms like Instagram to promote their creations with ease. Yes, this is an unorganised sector that is gaining traction. But they don’t know how to scale up.
This makes them the perfect acquisition targets for deep-pocket players.
Still… is the unorganized sector lucrative enough?
Let's compare the cosmetic industry with the dessert industry that has seen exponential growth during the lockdown.
We were all used to buying cakes and pastries from branded companies. But, what did the dessert Instagram community do? They started selling homemade, absolutely lip-smacking cheesecakes for a less-than-the-market price! They innovated and uploaded videos of how they innovate, a.k.a. the ‘behind the scenes’.
That caught the potential customers' eye, added a personal touch, and highlighted the brand's unique story. And if these homemakers offer great taste and safe eating options, how many of us do you think would go back to the packaged food industry?
That is what is happening with the self-care industry as well. Skincare products is a sensitive issue, and when people trust a brand after it suits their body, they remain loyal to that brand until they don’t find a better substitute. And once they have amassed enough popularity, the big brands can simply buy them out.
So, brace yourself. A lot of acquisitions are coming your way in the beauty space. Which brand do you think will come out on the top?
A big shoutout to Janavi Lakhani for co-authoring this piece :)
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