Beauty e-commerce in India set for next level of growth, say experts

Mumbai: Still in its early days, the Indian beauty e-commerce industry could see a slew of acquisitions over the next 3 to 4 years as smaller, direct-to-consumer (D2C) brands reach scale, following a pattern established in the US.

With beauty marketplace Nykaa on a path to the public markets, the industry flush with funds, and increasingly savvy consumers, the time is right for the next level of growth, several investors told ET. In just the past three months alone, the D2C beauty space in India has seen more funding than in all of 2020, according to data from Traxcn. On March 22, ET reported that beauty marketplace Purplle had raised $45 million, giving early investor IvyCap 22x gains.

The global beauty and personal care market is expected to touch $725 billion by 2025, according to a report by Avendus. The fledgling Indian market is expected to grow to $28 billion by then, the report said.

Cosmetics giant L’Oreal, which owns Garnier, Maybelline, NYX, and L’Oréal Professional, has always used acquisitions to fill the white spaces in its portfolio. In 2013, it acquired Mumbai-based skincare brand Cheryl’s Cosmeceuticals. Globally, it has acquired brands such as The Body Shop, Vichy, Kiehl’s, Shu Uemura, IT cosmetics, and Urban Decay.

“For us, both opportunities exist. We will bring brands that meet the needs of the consumer either through our own innovation or through acquisition,” Kavita Angre, director of consumer & market insights and media at L’Oreal India, said on The Rundown by ETtech, our weekly show on Clubhouse.

Sakshi Chopra, Principal at Sequoia India, said, “If you look at the US market, almost 80% of beauty brands that get to $80 million to $100 million in revenue are lapped up by four or five natural acquirers. So if these indie-brands are growing at a nice clip, some of the larger acquirers are willing to give them a two-year forward multiple and buy them out. As brands start to hit this scale the mergers and acquisitions market will become more fertile in India.”

In 2016, US-based Dollar Shave Club, a razor blades subscription service, was sold to Unilever in an all-cash deal of $1 billion. Another US-based D2C skincare brand,
Drunk Elephant, was acquired by Shiseido for a reported $845 million in October 2019.

Now, Indian FMCG giants are testing the D2C beauty e-commerce waters by snapping up stakes in startups. Marico acquired men’s grooming startup Beardo in 2020. Other Indian FMCG majors such as ITC and Emami have backed Fireside Ventures, an early-stage fund focussed on consumer brands that has skincare brand Mamaearth in its portfolio.

Looking ahead, Chopra said the beauty e-commerce space in India will adapt to multiple models. Some brands will be acquired by big players and others will go on to build a house of brands, like a digital version of Unilever or Procter & Gamble.

“I think the winner will be the consumer because she will be spoilt for choice. This is great because I think as more supply comes in, some of the leading brands will be compelled to continue the cycle of innovation to stay ahead of the pack, and also outperform them on execution and thinking,” said Chopra, who is on Purplle’s board.

The organic market in India is nascent, and new-age, online-first brands such as Juicy Chemistry, which recently raised upward of $6 million, see plenty of room for growth. “Brands need to cut the noise and bring out a story through which they can connect with the consumer,” said its cofounder Pritesh Asher. “They are always looking out for the next best ingredient… to differentiate themselves from the market.”

Angre said that the rush of smaller players has acted as a catalyst for educating consumers and making the category more innovative and exciting. “You can hear people talking about [things like] hyaluronic acid and retinol. All that has happened because a lot of the smaller players have come in with very specific propositions,” she added.

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