Since tier 2-3 consumers are value-conscious, Singh says they are launching their products in smaller pack sizes. “Our average price is ₹500 and we are looking at reducing the gap significantly.” Manish Taneja, co-founder of beauty marketplace, Purplle.com also agrees that tier 2-3 India is where growth is coming for most beauty brands. “Over 60% of our revenue comes from smaller markets. A large part of our private brand innovations is also based on insights that we get from these markets,” Taneja said in an earlier interview with Fortune India.

Sridhar Gundaiah, co-founder and CEO of the distribution company, Storeking, says that the small-town consumer by virtue of exposure to platforms such as YouTube is far more aspirational than earlier. “Challenger brands such as Sugar and Mamaearth have caught this trend and are proliferating into small-town India with lower priced SKUs.”

While on one hand, challenger brands such as Sugar and Mamaearth are deepening their reach, several other new-age brands are finding it difficult to sustain. This is primarily due to their digital-only focus. “A digital-only strategy will get you a revenue only up to ₹50-₹100. To grow beyond that, one needs to distribute through the traditional route. But traditional distribution is expensive and unviable for most of these challenger brands,” explains Rajat Wahi, Partner, Deloitte India.

Singh of Sugar agrees that though most challenger brands have done a good job of filling consumer gaps, they have been too reliant on digital platforms. “The challenger brands thought if they are good at optimising keywords on Google or Meta they have found their way. So, when the traditional companies started spending money on digital, the younger companies started multiplying overnight. The e-commerce market size was still in the 10%-15% range but the number of brands was too many. As a result, in the last six months, a lot of digital-first brands have become unsustainable.”

Singh says that Sugar was clear from day one that it would be an omnichannel brand. She claims her company was the most active during Covid in terms of physical store expansion. “The idea was to build a great brand for the consumers who are underserved by larger companies. To date, a lot of our business comes from D2C, from our app and our store, and it becomes easy for us to iterate and catch new trends before the competition does. But to build a long-term brand in India one will definitely need to be omnichannel and that is what we are doing.”

Sugar Cosmetics

Tier 2-3 India brings 60% revenue for D2C players Sugar Cosmetics, Purplle.com