Why Mamaearth follows the 'House Of Brands' strategy

“India’s BPC (beauty and personal care) penetration is lowest among sizeable economies, even lower than Bangladesh. The only way is to go up from here from a penetration perspective,” says Varun Alagh, co-founder & CEO at Mamaearth. Alagh, who helms a startup unicorn and in the process has access to a spate of consumer data, cites certain trends to validate his reasoning. “We have seen that the consumer’s wallet in the BPC category is being spent on different kinds of propositions,” Alagh tells Fortune India.

The consumption basket is getting individualised. For instance, a consumer may opt for a Mamaearth product when it comes to face wash but in the case of shampoo, the same user may prefer a more performance-oriented or a salon expert shampoo, explains Alagh. A growing economy and rising disposable incomes with young professionals who have a knack for experimenting with new brands are some of the tailwinds supporting this consumption pattern. Alagh says there is an emerging ‘premiumisation’ trend at play. “Movement of consumers from middle class to upper-middle class is going to be a very large trend over the next couple of decades and whenever the shift happens, people will opt for better brands which are more premium,” says Alagh.

Companies are tapping into this opportunity to build what is being popularised as a ‘house of brands’ strategy. The idea is to develop a portfolio of brands to cater to varied individual tastes and corner a significant market share. While some firms like The Good Glamm Group have focused more on acquisitions, others are also exploring developing their own brands.

As Alagh points out: “if we don’t provide these (different) propositions as a company, the consumer will find alternate brands and as an organisation, I will lose the opportunity to gain that (consumer) wallet share.”

Mamaearth is crafting a build and buy strategy. It has built three skincare brands — two-year-old The Derma Co. and younger brands Aqualogica and Ayuga. Earlier this year, Honasa Consumer, the parent company of Mamaearth, spent about ₹135 crore to acquire the BBlunt business from the house of GCPL (Godrej Consumer Products Ltd.), while also broadening its product portfolio by acquiring a majority stake in skincare brand Dr. Sheth’s.

The Derma Co. has become a ₹100 crore brand already; Mamaearth had taken another 12 months to reach a similar size, claims Alagh. The firm’s play is going to be “far more aggressive towards build than buy”, says Alagh. Valued at a little over $1 billion, Mamaearth managed to reverse losses of close to ₹6 crore reported in FY20 to post profits of ₹24.6 crore in FY21. The brand today is subscribed to by some seven million customers; its D2C platforms serve more than 3,000 Indian towns and cities, claims Alagh.

With BBlunt now in its fold, Mamaearth’s plan is to grow the brand. Although Alagh didn’t elaborate, he hinted at the possibility of introducing a new range of products. As far as the salon business is concerned, the company might look at expanding its footprint. Currently, BBlunt salon is present only in Mumbai and Bengaluru. The immediate opportunity is the other metros, says Alagh. To be sure, the BBlunt product business will be handled by Honasa Consumer completely; the salon business will, however, be a wholly-owned subsidiary of the firm, led by Spoorthy Shetty and the current team. The acquisition of BBlunt adds to Mamaearth’s broader strategy of reaching upper-middle-class customers across the country.

“We are an upper-middle-class targeting company, which is looking at the premiumisation trend that consumers are moving towards,” says Alagh.

While the long-term fundamentals bode well for the industry, inflation may play a spoilsport in the short term. Rising inflation and an unabated uptick in commodity prices may necessitate price hikes. Alagh says commodity prices have shot up by as much as 200% in the case of certain items. The firm, though, manufactures all its products in India, it does import some proportion of raw materials and packaging materials. “We might have to take price hikes. The impact of (rise in prices) of palm oil, crude is seen in different kind of ways. The cost of logistics is going up,” says Alagh.