Growth of Beauty Startups in India
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Today is a very exciting time for every industry, especially beauty. With the digital revolution, the emergence of e-commerce, home delivery and digital marketing: various direct-to-consumer Indie beauty brands (small independent beauty companies) have made a sudden influx. Economies of scale are easier to reach, barriers to market have been reduced and data is supporting highly efficient advertising spends. Through popular social media platforms headed by the likes of Instagram, the awareness of Advanced beauty products has exploded. These products are generally high priced and deliver increased value in terms of efficacy, safety and consumer experience.
Various beauty commerce platforms both online and offline have sprung up to capture the resultant demand and fighting for the lead among this awareness in India. They are driving sales of these advanced products with enhanced content delivery, customer education of the product offering and benefits helping several premium international brands make it big in India. The same companies and others that have identified this market are making swift inroads into the offline space, translating their online product successes into tangible experiences via physical retail, void eCommerce companies have often faced.
What Does the Data Say?
As per the latest data available, this awareness has led to a jump in the projected market size of beauty in India. The Indian Beauty & Personal Care (BPC) market is now estimated to reach USD 23 Billion by the year 2022 with a CAGR of almost 9 per cent, up by 3 per cent from its previous estimation of 6 per cent just last year in 2018. While the market is broadly subcategorized into make-up, skin care, men’s grooming, hair care, fragrances, bath and oral care, not every category is seeing the same growth rate. Make-up, Skin Care, Men’s Grooming and the trailing Hair Care are going to see the maximum growth and will encompass greater than 50 per cent share of this impressive market, with skincare & makeup leading the race and attaining majority share.
The Global skincare cosmetics industry is estimated to reach almost USD 45 Billion by 2023 and is growing at a CAGRs of 6 per cent, within which the Premium segment especially in India, is growing at an impressive 15 per cent CAGR - the highest ever. An upper shift in the socio-economic status of the Indian population leading to more spending money, aspirational demand, consumerism perpetuated by the increased availability of media content, and increased wallet output are some factors leading to this.
But the biggest has been increased awareness and content consumption through social channels be it digital media, celebrities or channelized influencers such as beauty salons, make-up artists, doctors, etc. Even global beauty conglomerates have identified this opportunity in the skin care market to the extent that they have made public announcements for acquisitions in the skin care space to fill gaps in their portfolio.
Why is it Different
A major reason for this is likely the sticky revenue potential of skin care unlike other categories like hair and salon. Skincare is very personal to a consumer. A successful product can gain loyalty which is difficult to displace and drives sustainable growth - a key metric of attractive businesses in the increasing trend and fad-driven beauty world. Another reason is that consumers are seeking more performance out of their products and are quickly getting disillusioned by brands making deceptively catchy or esoteric claims that don’t address real problems.
Herbal and Ayurveda based products were a trend until sometime back are now being overshadowed by the demand for high performance. Safe is the new truth and performance of the new aspiration, natural or not. This is good for the market as it allows companies to focus on the core issues of safety, not natural while delivering quality and efficacy. Competent R&D capabilities become key in the space and businesses with this ability will innovate and disrupt the market.
In the Past
Traditionally, Indian companies have restricted their product offerings in the low priced, high volume zones, often targeting the masses. Considering that India is the most populous country after China, this would make sense, but it comes with many drawbacks for Startups looking to make inroads into this socio-economic segment of the market. Low margins, high volumes, competitive customer retention, high marketing spends, and distribution challenges are common in this segment which create sever entry pressures with high startup costs.
It is the reason we have seen several startups aiming higher up in the income segments and bring out products at higher pricing with higher margins, utilizing neo-digital platforms to reach consumers. But many of these startups do seem to be playing safe and not venturing into the core of the premium space that is largely dominated by international players.
“Sellerism” a new Term
One of the reasons for this inhibition is the emergence of what we must call “Sellerism”, an attitude where startups are launching businesses with the mindset of selling them or getting acquired by larger players. The thought is that selling ‘mass’ is the only means to be attractive to acquirers without realizing that valuation drives acquisition, which does not just depend on revenue. If that was the case, there are several beauty companies in India with sizable revenues which would have been bought but have not. The role of intangible assets also strongly contributes towards valuation which has largely been ignored.
The pressure to exit very early is another reason for this attitude gaining momentum. The problem with Sellerism is that Startups often end up focusing on growth without sustainability, a key factor any acquirer is looking for. Historically, acquisitions that have taken place in the beauty sector have largely been for companies that have built incredible brands and gained a large loyal customer base.
Focusing on growth is like running after money rather than the source of it. Being acquisition oriented is fine but, understanding that it is not a goal, rather an eventuality is necessary for startups to become unencumbered and create disruptive attractive businesses. Having said that, the beauty startup world is not entirely obtuse to the notion of building strong sustainable businesses.
Some Indian beauty brands have embraced this premium space where unique selling propositions create demand niches which help brands cut through the noise and become known. This eventually helps them convert the niches into mainstream categories. This approach has the added advantages of helping brands become first movers and leaders in those categories without being overly competitive and extravagant with expenses. The US market has seen a lot of such brand strategies being played out by startups which have led to that market being the beauty M&A hub.
All in all, Beauty in India is a getting very interesting and increased activity in the space will boost sentiment among aspiring entrepreneurs and investors looking to venture into this arena. See you there!