The beauty business is exploding in India

Her purchase was from Too Faced. The brand’s mascara can cost upwards of ₹2,000 a piece. Deep discounts offered during beauty retailer Nykaa’s ‘Pink Friday Sale’ made the product suit every pocket.

Few shoppers in India would have heard of Too Faced—a brand owned by the French beauty company, The Estee Lauder Group—a few years back. But now, social media influencers have spread the word. They nudged Gill into placing the order. “I was following many makeup artists (on photo-sharing app Instagram) and everyone kept recommending using Too Faced for mascara,” Gill says.

Gill spends hours every day trawling her social media feeds, fishing for new beauty hacks. Large beauty companies, e-commerce retailers, and direct-to-consumer brands know it all too well. The companies and influencers today churn out millions of hours of makeup tutorials. The goal—make shoppers such as Gill spend more. Her shopping basket of the future now includes Huda Beauty’s lip colours that cost about ₹2,000 a piece. Huda Beauty is a fast-growing beauty brand started by Iraqi-American blogger Huda Kattan in 2013.

Young shoppers with disposable income, new-age brands, online platforms, and influencers are all shaping the new narrative of India’s booming beauty and personal care market. Estimates by financial advisory firm Avendus Capital, the investment banking arm of financial services firm Avendus Group, peg the beauty and personal care market to touch ₹2,800 crore by 2025. Sales through online channels is expected to grow at a faster clip. The market for such products online has grown from ₹1,400 crore in 2016 to ₹9,100 crore in 2020.

These are encouraging numbers. Beauty products companies may want to quip that the market is ‘looking good’.

Powered by women

Shalini Raghavan has spent over two decades working in the fast moving consumer goods industry and currently leads marketing at e-commerce platform Nykaa. She points to both an access and knowledge gap in India’s beauty industry up until a decade ago.

“The market had a huge gap for the first few years between what consumers accessed as information and an opportunity for them to make it their own. Several brands have definitely played a big role in bridging that gap,” Raghavan says.

She attributes this shift to a more dominant female consumer-base. Women now constitute 44% of online shoppers, up from 10% four years ago, according to estimates by Avendus Capital.

Women, Raghavan says, are expressing the right to make decisions for themselves. “Obviously, there are a lot more women who are able to and are willing to spend on themselves, which is a mindset shift from earlier,” she adds.

Others in the beauty industry point to a more aware shopper today—which they broadly link to the wider access to social media.

Nitin Passi, joint managing director of Lotus Herbals, a beauty products company, explains that apart from a general uptick in purchasing power, consumers are seeking products similar to what they find in markets overseas. “There is more money in the hands of the consumer. But more importantly, aspirations have gone up due to higher exposure to international media. Indian consumers are now truly part of the global ecosystem,” Passi, a second-generation entrepreneur, says.

Companies, therefore, cannot afford to be complacent and must match their offerings in line with global trends, he believes.

For the Indian skin

For years, the Indian market was dominated by traditional players that focused on their existing brand portfolio with few new launches.

Hindustan Unilever owned Lakme, which started out as a subsidiary of Tata Oil Mills Company, and eventually became the first cosmetic company to be set up in independent India, continues to be among the top cosmetic brands. At the other end of the spectrum is the world’s largest beauty group L’Oreal, which sells brands such as Maybelline, Garnier and Nyx, among others, in India.

This market is beginning to look a lot more diverse. There’s an influx of new-age, direct-to-consumer brands as well online marketplaces. They are solving for access and at the same time, have ushered in a certain aggression to the category, upping its pace of growth.

Niche direct-to-consumer brands are offering products better suited to the Indian skin, at price points that straddle across mass to premium segments. Some are even built on the clean-beauty premise—these products are not tested on animals, claim to use natural ingredients and packaging material that is sustainable.

Homegrown Indian brands such as Plum, Sugar, Kay Beauty now sit alongside foreign brands such as Smashbox, Huda Beauty, Elf and several Korean beauty brands on e-commerce marketplaces. The market is also witnessing some amount of acquisitions. Lotus Herbals picked up a 25% stake in clean beauty skincare brand Conscious Chemist. It also acquired Ayurvedic beauty brand SoulTree for a larger play in the premium as well as natural skincare market.

Vineeta Singh, CEO and co-founder at Sugar Cosmetics, a company that sells products ranging from makeup to skincare, explains that the makeup industry, a few years ago, had its own constraints. It was dominated by multinational brands, very few of whom developed products suited for the Indian complexion.

“This is why the audience either preferred to source makeup products from other countries or ended up with incorrect shades that wouldn’t pair with Indian skin tones,” says Singh. Sugar was conceived to plug this gap.

Such new-age brands will make further inroads into Indian households, argues Abhishek Goenka, head and chief investment officer at early-stage consumer venture capital fund RPSG Capital Ventures. The firm has invested in companies such as mCaffeine, Vedix and SkinKraft.

“Earlier, the concept of clean beauty did not exist. The awareness has now increased substantially. From an innovation perspective, the incumbent brands would at the most launch one or two products every year. Some of the new companies are coming out with 10 or 20 new products every month. I think that’s the shift—in both research and development and the ability to launch new products,” he says.

Up the ladder

Meanwhile, many Indians have become more prosperous over the last two decades. This affluence has fuelled interest in non-essential categories.

In the beauty market, this translated into consumers moving up the value chain to buy more expensive, specialized beauty regimes or even experimenting with more coloured cosmetics. Consumers are sharing images on social media more than ever—the appeal to look a certain way and buy into certain brands are, therefore, growing.

Vasudha Rai, author of two beauty books and a columnist, argues that Indian women have always followed beauty rituals and spent money on regular visits to beauty salons. She links the more recent interest in skincare and beauty products to a greater desire to spend as well as awareness.

Several executives Mint spoke to also pointed to a growing consumer base emerging from India’s smaller cities that they believe are currently under-served.

In November 2021, Falguni Nayar led FSN E-Commerce Ventures Limited—that runs the Nykaa beauty and fashion platforms in India—made a blockbuster debut on the bourses. The company’s draft red herring prospectus released earlier gave investors a rare peek into the forces at play within the country’s rapidly-growing beauty market.

Nykaa mentioned that it considers consumers in the 25-35 years age group to be the most active beauty and personal care consumers. Their buying behaviour is at odds with that of a traditional Indian shopper. These shoppers also have a relatively sophisticated make-up and skincare regime and tend to buy into brands based on the latest trends, while also being open to experimenting with newer product categories. They also tend to buy more ‘prestige products’, it stated. By ‘prestige’, companies mean more premium products.

The red herring prospectus also underlined the rapid rise of consumers from tier two and three cities—they are displaying an appetite to spend on branded products, albeit at lower price points.

For many beauty companies, sales from non-metros are already growing at a faster clip. Nykaa’s Raghavan says this is especially true post-pandemic.

Kunal Gupta, chief executive officer at cosmetics brand Faces Canada—recently acquired by online beauty retailer Purplle.com—says the company’s business from tier 2 and 3 markets is growing faster than the rest.

Sugar’s Singh points to a “massive” audience in India’s smaller cities that’s waiting to consume beauty brands like never before. For Sugar, smaller towns are growing at twice the pace of metros. The brand draws half its sales from non-metros. A combination of money, education, and awareness is driving this revolution of sorts. In small towns, people are more particular about their looks and very loyal to a particular brand, she adds.

All this growth is backed by wider access to platforms such as YouTube where videos posted by users help build consumer understanding of makeup as a category and its application. Product reviews help, too.

For instance, in Telangana’s historic city of Warangal, 23-year-old beauty influencer Susmita Siddhi started posting beauty tutorials online especially driven by the pandemic-induced boredom. The Doctor of Pharmacy student says her interest in the category arose after watching similar videos online. Siddhi ,who goes by the handle brown_girl_susmitha, uses her page to endorse brands and even host product reviews.

Siddhi says she largely relies on online marketplaces to ship brands such as Nyx, Maybelline, Makeup Revolution and Mac to Warangal as she fears stores in her city are largely understocked or perhaps sell fake products.

The market’s belly

Selling in tier two and three comes with a catch. To win, the price points got to be more accessible, industry players believe. While many consumers have risen up the economic ladder, some economists have argued that in the context of the pandemic, India’s economy is perhaps being driven by the top 100 million consumers. And despite all its recent growth and projections, let’s not forget that the Indian beauty market is still in its infancy.

Not all Indian women splurge on beauty products, with most settling for mass-market brands or home-made remedies. Their repertoire of make-up and skincare usage is still very low compared to other Asian counterparts. Korean women, for instance, are famous for their elaborate skincare routines. In the same draft red herring prospectus mentioned earlier, Nykaa stated the company’s average order value stood at ₹1,963. That’s a small number compared to what consumers in more advanced markets spend.

Raghavan of Nykaa reckons that India will continue to remain a very value-seeking market. “That is the belly of the market,” she says. Others largely agree.

Beauty companies such as French cosmetics group L’Oreal are betting that the younger, more digitally-connected consumer will trade up and spend on better brands overtime.

L’Oreal India’s managing director Amit Jain says that the makeup segment in India is going to see a secular growth story for the next 20 years. Barring more widely used products such as kajal and lip-gloss, the penetration of makeup in India is still low. “We believe that with the exception of kajal, and something like the lip balm, penetration of makeup in India is barely in the 20s (%),” Jain says in an interview. Jain adds that L’Oreal will drive the category through its more mass-market brand Maybelline since Indian consumers are still value-driven.

“Makeup will continue to see penetration growth for a long time because usage of makeup is so low. Our hope is to upgrade shoppers,” he says.

The thrust on value means companies have to drive more trials. For instance, companies sell ‘mini’ and ‘combination’ packs that allow shoppers to experience newer categories or try out some of the more high-end brands on offer.

It’s a long road ahead and beauty companies do have a tough job before the market generates handsome returns.