Beauty unveiled -

Decoding the
success of pure-play
beauty companies
A report by Redseer and Peak XV

September 2023
© 2023 Redseer Strategy Consultants Confidential and Proprietary Information
About us

Redseer Strategy Consultants is a leading strategy consulting firm that has been at
the forefront of shaping the new age business landscape in India for the past 14 years.
Redseer’s relentless focus on innovation, deep consumer understanding, and strong
entrepreneurial mindset has established it as the go-to advisory firm for new-age
consumer-focused businesses. Redseer is the # 1 advisor to new age firms planning
IPO strategy, a leading advisor to PE on making the right investment calls and works
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and its partner OC&C with over 1000+ consultants, create positive impact for their
clients from 22 cities across 5 continents.

To see our work visit redseer.com, and follow us on LinkedIn.

Peak XV Partners (formerly Sequoia Capital India & SEA) is a leading venture capital and
growth investing firm investing across India, Southeast Asia and beyond. Peak XV
(pronounced Peak Fifteen) was the name used for Mount Everest before it was called
that. It embodies everything we believe about building long-lasting businesses that
stand tall and inspire greatness.

Over the last 17 years of our operations in the region, Peak XV has grown to manage over
USD 9 billion in capital across 13 funds and invested in over 400 companies. To know
more, check out peakxv.com.

© Redseer 02
Glossary

Beauty & personal care – includes products belonging to hair

1. BPC care, oral care, bath & shower, skin care, fragrance, make up,
and men’s grooming categories (excluding BPC appliances)

Value of all goods and services produced

2. GDP by an economy

3.
Umbrella term used to describe BPC regimes and
K-Beauty products from South Korea

4. Gen-Z People born between the years 1997 and 2012

Direct-to-consumer brands are independent brands which

5. D2C brands have more than 50% revenue from online channels, and
they must have own website /app

FMCG-led
6. brands or Players with products in multiple FMCG categories including BPC
companies

Pure-play
7. brands or Brands or retailers where BPC contributes more than 70% of revenues
companies

Shorthand for Electronic Retailing which refers to the

8. E-tailing sale of goods through the internet

BPC products that are made from natural, plant-based ingredients and
Herbals and
9. Organics
are free from synthetic chemicals, artificial fragrances, and potentially
harmful additives

Vertical
10. players
E-tailing players which sell (mostly single) specific categories

Horizontal
11. Players
E-tailing players which sell multiple categories

© Redseer 03
Preface

The Beauty and Personal Care (BPC) industry is a very attractive category globally. It is
a front-running category in terms of growth and profitability. In the last decade, it has
seen material changes to consumer behaviour. Consumers are increasingly adopting
the latest trends. Their expectations from BPC products are that they should be made
for them and solve their specific problems effectively. Further, with the effect of social
media and the internet economy, the number of touchpoints where consumers are
present have increased significantly. In this context of a highly attractive market and
rapid evolution, multiple brands are emerging in the market. Through this report we
have tried to identify the traits of successful BPC players.

In this report we have analysed multiple large BPC brands globally which are present in
multiple countries and compared their approaches to operate as BPC players. We also
compared their key performance indicators to identify which of the approaches work
better. Further, we compare the learnings from the global context to the Indian market
to better understand the Indian BPC players. Through this exercise, our goal is to
identify some of the best practices that enable success for BPC players globally and in
India, and to uncover associations between the traits of the companies that are leading
these best practices.

© Redseer 04
Executive summary

Globally, BPC is the most attractive sizable consumption category. It’s projected to be a US$
660 billion market and US$ 2.2-2.7 Tn market cap by 2027. Among the larger consumption
categories, it has the highest growth rate and the highest gross margin. The BPC
opportunities in developing countries like India and Indonesia are even more attractive.

Consumer behaviour in BPC has changed fundamentally and similarly across the globe. They
need localised products, want to keep up with the rapidly changing trends, are willing to pay
premiums for products that solve their specific issues. Further, they are looking beyond
offline shelves and into online and evolving technologies for their shopping needs. The
opportunity size and flux are leading to significant brand creation, filling the consumer
need-gaps with sharper propositions. To understand the key success levers in this
environment, we have compared the largest BPC companies and their brands in the world.

Focus is the most significant driver of BPC players’ ability to adjust to rapid changes. We call
these focused players as pure-play BPC players. Pure-play BPC players produce localised
products, are faster to market and engage and reach consumers across multiple channels
and are pioneers of the online channel. They hit the right checkboxes to align with the rapid
evolution of consumer needs. Hence, they tend to perform better on average against the
FMCG-led BPC players (players which sell multiple categories including BPC). Following are
the headline statistics. Average revenue growth (2017-22) for major pure-play BPC players
was ~5x of FMCG-led BPC players. Average gross margin (2022) for major pure-play BPC
players (2022) was ~1.6x of FMCG-led BPC players. And Pure-play BPC players are valued
better – P/E is ~1.8x of FMCG-led.

India is a shining star with the highest BPC growth rate vs. comparable countries (next best
are Indonesia and China). Indian pure-play BPC players are operating through the
philosophies of localization, fast execution and omnichannel disruption. Additionally, Indian
pure-play BPC players are getting better by layering their capabilities with learnings from the
incumbents. One of their key learnings is the importance of the offline channel. L’Oreal,
Nykaa and Honasa are among the front-runners of pure-play BPC plays in India.

While BPC is still evolving in India, as indicated by the low BPC spend per capita currently in
the country, Indian pure-play BPC players have the right ingredients for success and are
poised to do well going forward.

© Redseer 05
1.
BPC is the most
attractive sizable
consumption
category globally
and it is undergoing
landscape-altering
changes.
Globally, BPC is projected to be a US$ 660 Bn+ market valued at
US$ 2.2-2.7 Tn by 2027, growing faster than other large consumption categories

BPC is a highly resilient category as it’s a fundamental
human need. Its resilience came to the fore during the
2020-21 lockdowns, when BPC saw 4% YOY drop in sales,
whereas many major economies had contracted much
more significantly. This was driven by consumer behaviour
shifting to include practices like online shopping and
home-based routines.
BPC’s attractiveness is further underscored when it’s
compared to other sizable consumption categories. BPC’s
growth is the highest compared to sizable consumption
buckets like fashion, packaged food and beverages and the
overall global retail market. The forward-looking growth of
the global BPC market is 1.5x that of retail.

Global BPC market size Projected growth rates (CAGRs)

US$ Bn 2022-27P

By 2027, the global BPC market will be ~ 2% BPC is among the fastest growing
of the global retail market consumption categories
xx Estimated total market
capitalization (US$ Tn)
BPC
+6% 5.8%
COVID-19 661
+7%
-4% 531 Fashion 5.7%
+3% 498
473 455
421 Foods &
Beverages 4.3%

Retail 4.0%

GDP 3.1%
2015 2019 2020 2022 2023P 2027P

1.3+ 1.5-2 2.2-2.7

The growth acceleration of BPC is being driven by multiple factors coinciding, as below:

Increasing awareness and usage: Investments into
customer education and awareness, along with growing
prominence of influencers is driving the industry forward.
Trade-up to premium or masstige products: BPC
products are becoming increasingly more effective and
are able to target specific consumer issues. Consumers
are willing to pay more for such products and that’s
driving value.
Supply evolution in the face of evolving consumer
needs: Evolving consumer behaviour is driving disruption
and brand creation, with supply doubling down on
innovation, creating significant value.
Rapidly expanding developing countries’ markets: As
emerging economies prosper, consumer spending on
BPC products rises sharply. Growing middle classes in
countries like India, Indonesia, and Brazil represent
significantly large and untapped markets of
brand-conscious consumers, driving demand across
BPC categories.

Projected growth rates (CAGRs) of BPC markets in the countries Annual BPC spends per capita < US$ 150
2022-27P Annual BPC spends per capita > US$ 150
10%
8%
Projected CAGR of the
7% global retail market
6% 6%
5% 4% in the same period (4%)
3% 3% 3% 3%
2% 2%
1% 1%

India Indonesia China Canada Brazil USA Mexico Italy Germany UK Japan Spain South UAE France
Korea

India stands out as one of the largest and fastest growing BPC markets across the globe.

© Redseer 07
BPC has highest gross margin among the large consumption categories

Avg. gross margins (global)¹

2022

BPC² 72%

Jewelry &
72%
Watches

Fashion 54%

Pharamacy 54%
& Wellbeing

Packaged 44%
F&B

Home &
Living 34%

Consumer 31%
Electronics

Consumer 30%
Durables

Note(s): 1 Avg. of leading companies globally in each category 2. Players for which BPC contribute more than 70% of revenue

BPC lends well to premiumisation, which drives its gross Jewellery and Watches, a much lower frequency category
margin. As seen above, it has the highest gross margin in with higher average spends is the only comparable
comparison to categories such as fashion, pharmacy & category here.
wellbeing, packaged F&B, home & living, consumer
electronics, etc.

© Redseer 08
The global BPC market is increasingly being characterised
by the significant evolution

Consumer behaviour has transformed, from having simplistic awareness of BPC and using generic-use products to
adopting newer trends and seeking products that meet their specific needs.

Consumer traits in BPC in early 2000s

Lack of awareness about Exposure largely limited to Influenced by mainstream

ingredients general-use products celebrities

Consumers had limited awareness Consumers used shampoos, facewash Makeup trends were largely influenced
(at scale) about the effect of ingredients etc. but didn’t expect the products to by the mainstream pop culture and the
that were used in beauty & personal address their own unique issues or to most popular celebrities of those times
care products be made for them specifically

Current BPC trends (2010 onwards)

Black Beauty Halal Beauty Diversity & Inclusivity Beauty Tech

Clean Beauty Gen-Z Influence Minimalist Skincare K-Beauty

Gender Neutral Brands Live Commerce Men’s Grooming Influencer Marketing

Source(s): Secondary research and Expert inputs

© Redseer 09
While change is associated with most consumption
categories, but nowhere is it more transformative than in
BPC. Social media has increased awareness and amplified
the need for BPC products. Consumer experimentation
has opened up new regimes and practises that need
specific products. There is a paradigm shift in perceptions
around gender and beauty.
Consumers care more about inclusive beauty,
beauty-tech, and experimenting with new ingredients
class like Halal. Further, there is stronger demand for
sustainable and clean products, and greater influence of
generation Z customers.

Consumer behaviour evolution can further be summed up under 3 buckets

1 Seeking ‘made for

them’ products 2 Exploring various
shopping avenues 3 Willing to pay
premium
for what works

Consumers are seeking
products to solve their
pain-points and that are
suitable for their skin/
body type
Consumers are using internet
and consulting people to learn
more about BPC products,
while they search online as
well as offline to find products
that they like
While consumer demands have
evolved, their willingness to
pay has also increased for safe
and effective solutions.

© Redseer 10
 1 Consumer demands for clean products, inclusivity and
personalization has increased

Seeking personalized/ localised

Preference for clean ingredients Appreciation for inclusive offerings
solutions

Consumers want clean and
sustainable products that are
toxin free, ideally based on vegan/
organic ingredients
They appreciate brands that are
environmentally safe and
cruelty-free
With increasing sensitization
around gender equality, consumer
expect their BPC brands to follow
the same standards of inclusivity
in their offerings
Consumers want products that
are made for their skin types and
that do not cause any side effects
They also expect brands to
personalize products for them
better

Consumer are There is increasing Consumers want

consciously looking prominence for products that suit their
for products genderless beauty specific skin colour.
containing clean and
toxin-free ingredients

Consumers have Consumers are exposed

Consumers want
become aware of what to tech solutions want
products that align
kind of ingredients that that can customize
with their social and
suit them and make products (like serums)
cultural beliefs
ingredient specific to their needs and
purchases skintype.

The need for transparency is accentuated by the
increasingly aware customers. This is more critical in a
category like BPC where customers are extremely
sensitive about the effect of various ingredients on
them. Also, with increasing awareness on empathetic
growth, consumers appreciate cruelty-free ways of
developing BPC products.
Consumers seek localisation in terms of specific
preferences, needs, cultural nuances, skin type, climate,
traditions, and beauty standards. Additionally,
personalization has gained more prominence with
advancing technology. Consumers seek personalization
and prefer products that cater to their specific needs
and pain points.

The enhanced focus on inclusivity is a result of

heightened awareness around diverse consumer
identities, skin tones and genders. Consumers
appreciate representation and value authenticity.

© Redseer 11
 2 Consumers are willing to pay premiums for what works for them,
as seen in the high growth of the masstige and premium categories

Consumers are willing to pay higher for products that are
suited for them and are effective against their specific
issues. There is a growing cohort of consumers seeking
elevated experiences while minimally stretching their
budgets.
As a result, we see the masstige and premium segments
in the USA, China and India growing significantly faster
than the mass market segment.

Change in market share of price segments Revenue segmented by price segments

Projected change between 2022 and 2027 By value

In the key countries, as consumer behaviour evolves, This is evident from the growth in revenue for premium
their willingness to pay premiums is going up calegories for large brands like Shiseido and L’Oreal

40% 46% Prestige

60% Category

Premium 60% 54%

40% Others

2016 2019 2022

Masstige

31% 37% 38% L’Oreal Luxe

Mass
69% 63%
In US & China, masstige and premium is more than 50% of the market 62% Others
In India, masstige is growing 2x as fast as the mass market (CAGR-wise)
2016 2019 2022

The growth of the masstige and premium segments is even more pronounced in India where they
are growing 2x as fast as the mass market segment. Also, the masstige and premium categories
have the highest growth across these 3 countries.

© Redseer 12
 3 Consumers are increasingly learning about and purchasing BPC
products across multiple channels

Today’s consumers purchase BPC products quite trust of talking to an expert in a physical shop, and while
differently from how it was purchased a couple of decades the first purchase could be in an offline store,
ago. In fact, consumers leverage multiple channels across subsequent purchases might be online.
their product journey. They build awareness through
influencers or by talking to their friends/ family or
beauticians, perform their own research on social media
and YouTube, like to try products offline, appreciate the

How they get to know about BPC How they research products
How they purchase
products before zeroing on a purchase

Consumers become aware about
products by talking to friends/
family, beauticians etc. or by
coming across online or offline
advertisements
To understand more about the
products and their uses, consumer
prefer to use online customer
reviews, blogs, interactive content
etc.
Consumers make their purchase
either online (as it is more convenient)
or offline (to get the touch & feel of
the product or to talk to the sales
expert) depending on their
preferences

© Redseer 13
This opportunity has led to significant brand creation, filling the consumer
need-gaps with sharper proposition

Given the attractiveness of the BPC market across multiple geographies and the disruption opportunities
provided as a result of the evolving landscape, there is a clear trend of new brands trying to enter the market.

BPC brands created across the last several decades

As depicted

Average number of companies

started per year
X ~15x ~110x

Indicative and non-exhaustive brands

Prevalence of traditional FMCG brands Emergence of Pure Play brands

with a focus on generic categories such to cater niche consumer cohorts
as bath and body care. as the consumer use cases and
Total GMV of Global BPC Brands

preferences evolve over time

BPC lends extremely

well to creation of
D2C brands
Emergence of BPC
Digitally led beauty and brands focused on
personal care brands personalization,
emerged with increase in sustainable
product personalization products and
demand inclusive beauty

Pre 1990 1990’s 2010’s 2020’s

In the face of the attractive opportunity and rapid evolution We explore the answers by examining the 2 most
in the BPC space, what does it take to succeed in this prominent types of BPC companies in the next section.
market?

BPC – A highly attractive market

US$ 660 Bn+ market by 2027
Faster growth and higher GM than most other retail
categories
Very high growth in developing countries

What does it
take to succeed
Consumer behaviour is evolving rapidly
Need localised products
Want personalization, transparency and inclusivity
Are willing to pay more
Leveraging online in this dynamic
market ?
Opportunity is attracting entreprenuers
Rate of brand-creation has increased dramatically
To put things in perspective, the avg. # of BPC
brands created per year over the last 2 decades is
almost 7 times that of the 1990s

© Redseer 14
2.
The players who
are only focused on
BPC can adjust to the
evolving consumer
needs better and are
well positioned to
win the market.
To understand the key success factors, we compared the 2 core BPC
models – pure-play and FMCG-led BPC players

Pure-play BPC players (global) Non-exhaustive

We compared these 2 types of models
Brands or retailers where BPC contributes more than on the below aspects
70% of revenues, are defined as pure-play players

Catering to the right customers to enable

Growth sustainable growth, with fast execution

Gross margins Pricing power of the brands

The trade-offs between maximising

Efficient reach targeted reach and costs
FMCG-led BPC players (global) Non-exhaustive

Players with products in multiple FMCG categories

including BPC, are defined as FMCG-led BPC players
Earnings How much money the business generates
before taxes

Market How investors value the businesses

Valuations

In the evolving BPC market, which is being driven by
innovation and rapid iteration, success depends on the
players’ capabilities to be agile and differentiated. To
accomplish the above, players need focus.
Focus is perhaps among the most significant
differentiators across BPC businesses because
consumers form brand associations based on specific
use-cases (issues). So, brands need to demonstrate
efficacy on very specific use-cases. But doing just that is
not enough. Because size of addressable markets shrinks
with increased specificity.
So, brands need to provide solutions for multiple
use-cases in their categories. This requires significant
research and development, keen understanding of
consumer issues, focus on iterations etc. The upside here
is the strong moats that are created through high brand
loyalty, recognition and word of mouth. Hence, the starting
point of dissecting BPC companies is the level of focus
they have on the category.

Before deep diving on the driving forces of efficacy of BPC players, we define our consideration set as two kinds of BPC players
distinct from each other because of their different focus on the space. Below are the definitions of the 2 types of players:

Pure-play BPC players: Brands or retailers where BPC FMCG-led BPC players: Players with products in multiple
contributes more than 70% of revenues are defined as consumer categories incl. BPC, are defined as FMCG-led
pure-play players. BPC players.

© Redseer 16
 1 Growth rates for major pure-play BPC companies are significantly higher

BPC companies’ global revenue growth (CAGR)

2017-2022
Pure-play BPC Companies FMCG-led BPC companies¹
30%

8%
7%
6%
5%
4%
3%
2%
1%
0

Note(s): 1. Their BPC revenues

Source(s): Company filings

The ability to provide specialized products to consumers
through comprehensive product ranges has driven growth
for pure-play BPC players. Most of the disruptions in the
space were led by pure-play brands offering specialized
solutions, made with better ingredients. In fact,
specialization is one of the anchors and reasons to exist
for pure-play BPC brands. The efficacy of this strategy
has led FMCG-led BPC players to adopt it, building
capabilities through acquisitions.
The key to cracking specialisation is iterations and speed
of execution. Brands need to be able to tackle multiple
use-cases, to provide multiple purchase options to
consumers and be the first to do so. A good metric to
understand in this context is the number of products the
brands bring to the market.

Pure-play BPC brands disrupted the market And have much higher number of products vs FMCG-led brands,
by targeting specific use-cases showcasing their speed of execution

Number of products in the US¹

As of Aug 2023
(Beiersdorf Brand)
10X

Pure-play BPC brands

8X FMCG-led BPC brands
8X

Eucerin Anti – Pigment Dual Eucerin Hyaluron FillerVitamin

Serum C Booster
(Reduces pigment spots andprevents (An anti-aging serum with
re-appearance) 10% Vitamin C ) 5X

(Beiersdorf Brand)
3X
3X
2X 2X

Skin Caviar Luxe Eye Cream Cellular Hydrating Serum

(Lifting and firming eye cream) (Provides an intensive &
long-lasting hydration)

Note(s): 1 Number of Products are calculated from brand’s own website in USA

Propelled through fast execution, pure-play BPC players have 3x+ the
average number of products as FMCG-led brands.

© Redseer 17
 2 On average, large pure-play BPC companies command
28 p.p. higher GMs than FMCG-led BPC companies

Gross margins Pure-play BPC companies FMCG-led BPC companies¹

2022

80%

60%

40%

20%

Note(s): 1. For the FMCG companies' gross margin is calculated on overall company accounts due to unavailability of BPC specific data
Source(s): Company filings

Focusing on specific consumer needs allows brands to This is true across categories wherein the like-to-like, per
build trust, leading to consumers willing to pay higher. This unit price of pure-play BPC players is materially higher
targeted/localised approach empowers pure-play BPC than that of FMCG-led BPC players. This leads to
players to command superior pricing power. pure-play players generating higher gross margins.

Per unit price-points of comparable SKUs (targeting same use-cases) of Pure-play BPC companies
brands across select categories¹ FMCG-led BPC companies¹
As of Aug 2023

Shampoo Face Wash

4x 2x

x
x

Face Sunscreen Body Cream

2x 3x

x
x

Note(s): 1. Median per ounce prices shown in Amazon.com for each category as of 28th Aug 2023

The average GM for pure-play BPC cohorts is 72% vs. 44% for FMCG-led BPC cohort.

© Redseer 18
 3 Pure-play brands are increasingly investing in multiple
channels to meet consumers where they are

Offline
E-commerce D2C Live Commerce VR/AR Stores
channels

Brands such as L’Oréal,
Shiseido and Estee Lauder
continue to enhance
customer engagement via
their EBOs
Shiseido aims to pursue Beiersdorf launched Estee Lauder’s first Laura Mercier has
their goal of 35% online personalized AI powered stream was watched already introduced a
revenue contribution across D2C brand O.W.N. using by 8k+ customers and metaverse store that
geographies and over 50% multiple consumer survey witnessed 500% more features AR technology
in China soon data points for sale conversions
formulations

Estee Lauder’s online Companies like Loreal Shiseido partnering Loreal, Estee Lauder
sales grew by 11% in & Shiseido have with Isetan Mitsukoshi & Shiseido have
2022 & comprised deployed D2C strategy group to conduct live started embracing
L’Oréal leverages various
28% of the overall for their respective commerce sessions AI technology
offline channels including
global sales brands & partnering
hair salons, department
up with local players.
stores, drugs stores, etc.

With consumers leveraging multiple channels during their
purchase journey, brands are focusing on meeting the
customers where they are. This includes covering all bases
such as providing offline (general trade stores, EBOs &
MBOs) as well as online (e-commerce platforms, brand
websites, social media, etc.) modes of purchase.
Pure-play BPC players were the ones who led the online
disruption with FMCG-led BPC players playing catch-up.
Higher online engagement by pure-play BPC has led to
higher brand salience for them in the channel. Ultimately,
translating into higher online revenue contributions.

Social media engagement1 Google search trends % revenue contribution of online channels
# in Mn, As of August 2023 2004-23 2022

Pure-play brands engage better with Pure-play brands have higher demand among Thereby leading to higher online revenue
consumers on social media consumers who shop online contribution

53
Pure-play BPC brands
11 Pure-play BPC brands Pure Play BPC² 40% FMCG-led BPC brands⁴
FMCG-led BPC brands 50 FMCG led BPC³

45
30%
40

35 20%
5
30

25 10%

20
1.1 1.0 0.8
0.6 0.4
15 0
2000 2005 2010 2015 2020 2025

Note(s): 1. Number of Instagram followers 2. Average search trends is calculated from CeraVe, L'Oréal, Garnier and Revlon search results 3. Average search trends is calculated from Dove, Olay,
Braun and Vaseline search results 4. For the FMCG companies’ % of online sales are calculated on overall company accounts due to unavailability of BPC specific data

Source(s): Company filings, Secondary research, Amazon.com and Instagram

© Redseer 19
Beyond just sales, pure-play BPC players focus intently on educating
customers through the right mediums

Pure-play brands invest to educate customers not …and focus intently on selecting the right mediums
only about their brands, but also about the trends to pass on their messages
(driving demand)…

Pure-play brands design specific campaigns to educate

their consumers about the new trends, which Pure-play BPC companies invest heavily into brand building
generated demand through EBO’s, building trust and credibility via different
customer touchpoints and introducing of new product lines
Trends awareness
Brand awareness

La Mar’s product review videos

Estee lauder is implementing Shiseido’s personalised skin

influencer driven campaign care consultation, salesperson
focused on product education educating consumers on
and demonstration product characteristics Influencer marketing L'Oréal Ad on Burj Khalifa, Dubai
and benefits campaign by Clinique

With high-speed innovation around niche offerings, To reach the right set of customers for their specialized
pure-play brands invest in educating consumers about products, and to provide elevated experiences, pure-play
the uses and benefits of the products, to create demand. brands leverage various marketing channels with a key focus
on influencer marketing and providing unique experiences

Consequently, pure-play BPC brands end up spending higher in marketing (in proportion) than the FMCG-led BPC brands.
Marketing spends¹
2022

40% Pure-play BPC companies FMCG-led BPC companies²

30%

20%

10%

Note(s): 1. As mentioned in company accounts 2. For the FMCG companies’ market spend % is calculated on overall company accounts due to unavailability of BPC specific data

Source(s): Company filings

Investing in growth is warranted due to importance of having first-mover advantage in

brand association. Now is the right time to invest in growth.

© Redseer 20
 4 Despite materially higher marketing spends, the pure-play
BPC players have largely comparable EBTs

While marketing drives growth, the best performing players We analysed the earnings before taxes of the 2 sets of
design their marketing activities with the strategic players and they were largely comparable.
prerogatives and margins in mind.

Earnings before taxes as % of revenue

2022

Pure-play BPC brands FMCG-led BPC brands¹

30%

20%

10%

Note(s): 1. For the FMCG companies’ EBT is calculated on overall company accounts due to unavailability of BPC specific data

Source(s): Company filings

This reinforces the fact that analysing just a few cost
metrics (say, marketing) may not provide the correct
assessment of BPC companies. Especially in the context
of higher gross margins and the outsized impact growth
investments have.
In fact, with the size of the BPC opportunity and increasing
competition through brand creation, not making growth a
primary prerogative might be materially detrimental for the
BPC companies.

© Redseer 21
Benefitting from higher growth, pure-play brands are valued better than
FMCG-led BPC companies. Average P/E ratio of pure-play BPC cohort is 51,
which is 1.8x of FMCG-led BPC cohort’s 28

P/E Ratio and EBT multiples Market Capitalization- L'Oréal vs Unilever (historical trend)
P/E ratio as of August 2023, and EBT at the end of 2022 US$ Bn, 2018-23

300
P/E - Pure-play BPC companies
250
P/E - FMCG-led BPC companies

Market Cap
EBT multiple 200

100 60 150

50 100
80 2018 2019 2020 2021 2022 2023
40
60 EBT multiples - L'Oréal vs Unilever (historical trend)
2018-22
30
40 50x
20 40x

EBT Multiple
20 30x
10
20x
10x
0 0
0x
2018 2019 2020 2021 2022

Source(s): CompaniesMarketCap.com, Market Watch, Company Annual Reports and Redseer Analysis

Investors are rewarding growth potential and high GMs of pure-play BPC companies. Accordingly, the valuations assigned to higher
growing nascent pure-play BPC players is significantly higher

To summarise, the rapid growth of pure-play BPC brands in This analysis helps us answer the question raised in the
the market can be attributed to their focused customer previous section - what does it take to succeed in this
approach, swift execution, and investment in customer market? While the answer will vary depending on the type
education. These factors have collectively propelled them and scale of companies, market context etc., but some
to leadership positions in the global market. They have definite key success factors are specialisation,
significant growth runway as they continue investing in the differentiation-led ability to charge premiums,
above, especially as the investments are cushioned by high investing in growth through customer education, and
gross margins. Therefore, they are more favourably valued. a 360 degree approach to reach those customers.

Avg. Rev Growth Avg. Gross Margin Avg. Marketing Spends

(2017-22) (% rev, 2022) (% rev, 2022)
Pure-play¹ FMCG-led² Pure-play¹ FMCG-led² Pure-play¹ FMCG-led²
5x 1.6x 2x
10% 2% 72% 44% 26% 13%

Avg. EBT Avg. P/E

(% Rev, 2022) (Aug 2023)
Pure-play¹ FMCG-led² Pure-play3 FMCG-led²
0.9x 1.8x
12% 14% 51 28

Pure-play BPC players have high growth and better gross margins, which enables them to invest in growth, while earning
industry-comparable margins.Hence, they are valued higher

Note(s): 1. Pure-play brands considered are L'Oréal Paris, Estee Lauder, Beiersdorf, Shiseido and Natura and co. 2. FMCG-led brands considered are Unilever, Procter and Gamble,
Colgate Palmolive, Kao and Henkel 3. Pure-play brands considered are L'Oréal Paris, Estee Lauder, Beiersdorf and Shiseido

© Redseer 22
3.
Although the
Indian BPC market
is nascent, it’s
witnessing similar
trends of disruption
by pure-play
BPC players.
India is uniquely positioned as one of the most attractive
BPC markets globally

The Indian BPC market is poised for rapid expansion, to Also, currently India’s BPC spends per capita is very low
be sized at $30 billion by 2027, comprising ~5% of the compared to other countries. As India prospers, the growth
global BPC market. As more consumers seek headroom will materialise strongly.
higher-quality products and adopt beauty and self-care
routines, the market offers a promising landscape for
brands to tap into and has witnessed the emergence of
various home-grown brands as well.

Indian BPC market overview

As depicted

India BPC 2022 India BPC 2027P

US$ 19 billion 1.6X US$ 30 billion

Total BPC GMV Total BPC GMV

US$ 3 billion 3.3X US$ 10 billion

Online BPC GMV Online BPC GMV

67 million 2.2X 150 million+

Online BPC users (ATU) Online BPC users (ATU)

Note(s): The BPC market sizes mentioned here do not include the market size of BPC appliances

BPC spend per capita – Global benchmarks

US$, 2022

Significant growth headroom for Indian

BPC given its current under-penetration

313

38

30

14

© Redseer 24
India’s growth is propelled by various factors

Rising incomes Rapidly rising middle-class

GNI per capita – India Indian Population (Households) segmented by Income

US$, 2016-22 As depicted, 2022, 2027
2022 2027
High Income
39 M households 58 Mn (16%)
2,500 (12%)
Upper Middle-
66 Mn class Households 89 Mn (25%)
(20%)
2,000
Middle-class
100 Mn (31%) 109 Mn (30%)
Households

1,500 121 Mn (37%) Low-income 105 Mn (29%)

Households
2016 2017 2018 2019 2020 2021 2022
Rising incomes leading to a large middle-class population,
which is a key driver of private consumption.

Urbanization Women increasingly participating in the economy

Urbanization as % of Population Employment in services 2016 2019

%, 2016-22 % , 2016, 2019 3 p.p.+

35% 35% 36% 35.0%

34% 32.0%
3 p.p.+
33%
28.0%
25.0%

Female Male

Further growth potential to be unlocked with increase in

2016 2019 2020 2021 2022 participation of women in the labor force, particularly services.

1 Rising incomes leading to higher consumption

The increase in income strongly fuels greater private spending, and this is quite evident in India. BPC benefits
disproportionately from that increasing consumption pool as it is a fundamental need.

2 Upward mobility giving rise to sizable middle-class which can buy premium products
Middle-class households are exposed to good quality products and have higher awareness; hence they have higher
propensity to purchase branded products and through organized channels.

3 Urbanisation leading to higher brand creation

Urban areas have higher concentration of relatively higher income individuals, particularly among millennials and
generation Z. This allows smaller brands to come up with sizable target audiences readily available in dense urban
clusters. Higher urbanisation will potentially lead to newer brands.

4 Material value unlock with higher prominence of women shoppers

Educated and financially empowered women play pivotal roles in household decisions, including for BPC needs. This is
more true for a category like BPC. There is significant growth to be unlocked here.

© Redseer 25
In line with global trends, pure-play BPC brands are disrupting the market,
growing 2x+ as fast as the FMCG-led players

As the market evolves and grows ahead, the growing success of pure-play BPC brands will
lead to creation of multiple hundred-million-dollar+ pure-play BPC brands in India

Indian BPC market split by type of brands

Market size in US$ Bn, bubbles represent CAGR

16 19 30

30% 9% 15%
Pure-play 33%
42%

70%
4% 67% 7% 58%
FMCG-led

2019 2022 2027P

Note(s): 1.Brands or retailers where BPC contributes more than 70% of revenues, are defined as pure-play players

Traditionally, the Indian BPC market has been dominated
by large FMCG players. It was because India is a large yet
fragmented market that is significantly unorganised. Now,
the traditional FMCG players had developed supply chains.
And, with technology and emergence of new-age logistics
partners, the barriers to entry have lowered and the
market has opened for a larger set of players.
With pure-play BPC brands gaining prominence, similar
patterns are playing out as seen in the global market.
Therefore, the strategic advantages that work in other
markets also apply to India. Advantages like agility,
specificity, innovation, new-age focus, online orientation
are helping the Indian new-age pure-play BPC brands
scale fast. Pure-play BPC brands in India are expected to
contribute ~42% of the market by 2027.

The rate of growth of pure-play BPC brands is more than twice

that of the FMCG-led BPC brands.

© Redseer 26
Like their global peers, the Indian pure-play BPC players are executing fast to
address the evolving needs of the Indian consumers

The awareness of Indian consumers regarding their BPC
needs is evolving swiftly. A quick analysis of google search
trends clearly highlights the growing prominence of
evolved consumer needs. The same is also clearly visible in
how the Indian BPC market segmentation is evolving. The
market share of specific use-case products in the Indian
skincare market is expected to be 60% by 2027. The trend
will only intensify, as already seen in the global markets.
Pure-play brands have led this disruption through their
specific and differentiated offerings.
Pure-play BPC players have made conscious strategic
choices that have made such specificity possible.
Specificity needs localisation and fast execution.
Pure-play BPC players in India have adopted leaner R&D
and product development cycles, effectively
shortening the time it takes to bring products to
market by around 50% in many cases. As a result, they
efficiently introduce new offerings and capitalize on
emerging trends, thereby solidifying their position in the
market in niche use-cases. More importantly, the speed of
execution enables them to target a greater number of
specific use-cases, maximising their addressable market.

Google search trends – Face Serums (India) India skincare market Average product launch time comparison
2004-22 US$ Bn Months

There has been a sharp increase in the consumers’ Driving the growth of BPC specific Pure-play BPC players have an advantage to cater
interest in ingredients that tackle specific issues use-case products to these specific needs due to faster execution

80 Vitamin C Serum CAGR

(2022-27)
Salicylic Acid
70 14-15 Months
Niacinamide Serum
Use Cases¹

Hyaluronic Acid
Specific

60
50%
60% 16%
50

40

30 6-7 Months
Use Cases
Generic

20
50%
40% 7%
10

0
2005 2010 2015 2020 2025
2022 2027P FMCG led BPC Pure Play BPC

Note: 1. Specific Use Cases include skin protection, skin tone management, anti-ageing, acne management, etc.

Source(s): Google, Redseer IP and Expert inputs

© Redseer 27
Pure-play brands are able to leverage the online channel effectively through
better engagement and ‘presence’

BPC is one of the categories that has done well in the new features like virtual try-on tools, personalized
online channels in India. This is helped by the fact that BPC recommendations, in-depth product reviews, and
products have compact sizes leading to ease of shipping, interactive content.

Instagram following1 Google search trends

000’s, As of Aug 2023 2016-2023

Dotted lines are pure-play FMCG brands and solid lines are
1300 FMCG-led BPC brands

776 Pure-play BPC brands

FMCG-led BPC brands¹

80
75
70
461
65
60
55
50
45
40
35
30
130 121 25
20
15
10
18 17 16 12 5
0
2016 2017 2018 2019 2020 2021 2022 2023

Note: 1. India Specific pages are considered for Instagram following

Source(s): Instagram, Google

Recognizing the power of the online channel along with the
effect tailoring messages to specific consumer segments,
various brands have now shifted to influencer-led models.
But not all brands have been able crack the code. Pure-play
BPC brands, which led the disruption of leveraging
influencers in marketing, tend to be the most effective at it.
By leveraging influencers, brands are able to solve for
relatability and nudge the consumers to purchase more
effectively.
Consequently, brands adopting targeted marketing
strategies, experience significantly greater engagement
on social media platforms and higher recall.

© Redseer 28
The pure-play BPC brands have had significant learnings from incumbents
and are developing omnichannel capabilities accordingly

Brand journey comparison- Unilever and Honasa

Descriptive

Mass Product Specialized Higher Priced Category

With FMCG players having seen multiple market cycles and iterated accordingly… Product Product Expansion

Launched Lifebuoy in Launched LUX & Added multiple sub- Launched Axe Body Added hair oil Entered D2C online
1895 as second product acquired Pears categories with Close Spray Acquired Calvin category market with Dermalogica
after Sunlight soap in up and Sunsilk Klein Cosmetics Company with Indulekha & Acnesquad
1888 shampoo & Dove
soap bar

1890’s 2020’s

…new-age pure-play BPC players have benefited immensely from their learnings

Launched Certified as Asia’s Further expands Received cruelty-free Launched skincare Launched Acquired Bblunt
Mamaearth with 1st ‘Made Safe’ product lines in certification by PETA. brand The Aqualogica & Dr. Sheth’s
a catalogue of brand. In 2017, existing categories Continued expanding Derma Co. & Ayuga
6 baby products launched beauty & launches new product lines Launched makeup
categories such as Crossed annual Opened 1st EBO & fragrance
& skin care
haircare, serums, etc revenue of INR for Mamaearth categories
products for 1,000 million
moms

2016 2022

New-age pure-play BPC players in India benefit immensely Touch and feel are a necessity of many Indian consumers
from the learnings of FMCG-led BPC players in India. They who are yet to build confidence in online shopping.
have been able to fine-tune their strategies, avoid pitfalls, Therefore offline is important. While many will try offline
adopt best practices, and optimize their operations. So, expansion, the way to differentiate is through high levels
the pure-play BPC players have had a good launchpad. of seamlessness and integration across the online and
offline channels to provide consumers unified shopping
The most significant of those learnings is the importance experiences.
of the offline channel in India. India is a unique market
compared to other (especially, western) markets being
characterized by deeply ingrained offline purchasing
habits.
Despite its advantages, eCommerce is yet evolving in India… …Hence, new-age pure-play BPC players are increasing their
offline presence
Offline
8-10%
50+
Ecommerce penetration (as % of overall retail) by country Luxe Stores
%, 2022
Offline channel contribution 50+
27% to GMV (FY23) On-trend Stores

15% Offline
1.1 lakh+
General Trade
stores
32-36%
6%
Offline channel contribution 30+
to GMV (H1 FY23) Modern retail
channel

35+
EBOs

Therefore, new-age pure-play BPC players have proactively expanded their offline presence.

© Redseer 29
Several Indian pure-play brands have achieved notable
success in the market, showcasing the potential of
growth for other pure-play brands

L’Oréal, India has been a flag-bearer for Indian BPC brands through its
resilient performance across several years

L'Oréal India has been a flag-bearer for Indian BPC brands,
showcasing its resilience and consistent performance over
the span of several years. Its remarkable journey has
involved more than just business success — it has played a
crucial role in sensitizing Indian customers towards global
beauty and personal care standards.
The brand has effectively bridged the gap between global
beauty norms and Indian sensibilities, becoming one of the
pioneering global pure-play brands to adeptly tap into the
potential of the Indian market.
It was already a INR 3000 cr+ brand in 2016. It has scaled
significantly ahead post that, with multiple brands, some
of which are category leaders.
It is also known for being a strong professional services
brand with high recall in that channel. The introduction of
Redken is indicative of the brand’s commitment to
double-down on India salons, especially in the premium
segment.

The brand has a marked presence in the salon market

L'Oréal is one of the front-runners of the
Indian BPC landscape, having almost INR
3000 Cr. of revenues in 2016, where BPC Loreal has been a pioneer brand for launching professional products that
was still very nascent are widely used in salons

L'Oréal understands the Indian market, and has a

wide portfolio to cater to Indian needs

15
Brands Loreal recently brought in Redken to India and plans to boost its
premium salon presence in the country

Mass Hair Selective Diversified marketing approach to reach a wide consumer base
market & salons distribution

L'Oréal India employs a diversified marketing approach ranging

from mass marketing using famous celebrities to targeted
marketing via social media influencers. This approach enables to
connect with diverse consumers and boost brand salience

Source(s): Company filings and website, Secondary Research and Redseer Analysis

© Redseer 30
Nykaa has been a one-stop solution for all BPC related needs
Nykaa, a prominent player in the Indian BPC market, has
achieved remarkable success. As a platform, Nykaa has
shaped the growing trend of online shopping, offering an
extensive array of BPC products from both international
and local brands. It has scaled fast and is a sizable BPC
player now. As of FY23, it had BPC revenue of INR 4,482Cr.
Its user-friendly digital interface, enriched with informative
content and customer reviews, has ensured a seamless
shopping experience for users.
INR 4,482 Cr
Revenue¹
Building partnerships to provide wide assortment
of options
As of March 2023, Nykaa has partnered with 3400+ international
& domestic brands including multiple brand launches
Nykaa created a shop-in-shop experience with
Lancome; offering tools such as ‘Skin analyser’
to Retail customers
Reaching customers where they are
Nykaa has expanded offline by leveraging three different types of
concept stores
Note(s): 1. FY23
Source(s): Company filings, Secondary Research and Redseer Analysis
© Redseer
Nykaa’s strategic move into private label products has
enabled greater control over branding and quality, while its
engaging marketing campaigns and loyalty programs have
fostered a loyal customer base. Moreover, Nykaa’s
expansion into physical retail outlets has complemented
its online presence, establishing a strong omnichannel
approach.
By staying attuned to market trends and swiftly adapting
to emerging demands, Nykaa has continually refreshed its
product offerings to align with customer preferences.
937 Mn INR 1,857
# of visits¹ Avg. order value(AOV)¹
Leveraging innovative ways to enhance customer
engagement
Nykaa has been very successful in engaging
with customers across channels. It effectively
uses its platform and collaborates with
various influencers to create stream about
product reviews, tutorials, etc.
31
Honasa is a high-growth and profitable House of Brands

Honasa has pioneered the digital-first approach in the
Indian BPC space, establishing a prominent presence by
curating a portfolio of leading direct-to-consumer (D2C)
brands in India. Noteworthy brands under their umbrella
include Mamaearth, The Derma Co., Aqualogica, and
Ayuga. Launched in 2016 by Ghazal and Varun Alagh, the
company has emerged as India’s largest digital-first BPC
company in India in terms of revenue from operations for
FY22. Further, as of September 2022, Mamaearth had
emerged as the fastest growing BPC brand in India to reach
an annual revenue of INR 1000 Cr (in the preceding 12
months) within six years of launch. Honasa’s revenue grew
at a CAGR of 193% for FY20-22.
Honasa’s foundation is based on tailoring its brands to
resonate with distinct consumer groups and sensibilities,
along with compelling brand positioning, innovative
product offerings, robust marketing strategies, and
efficient distribution channels. Honasa’s brands stand out
for their ingenuity in addressing diverse consumer needs.
For instance, Mamaearth gained recognition as a
trailblazer by introducing natural and organic personal
care solutions for babies in the Indian market.

Building partnerships to provide wide assortment Championing ‘House of Brands’ Strategy

of options

CAGR 193% Adjusted EBITDA

(Revenue) (FY20-22) +ve in FY21

Honasa is a pioneer in effectively using a vast network of

influencers

Honasa’s brand building playbook

Helps in scaling the newer brands at a fast pace. These

playbooks are powered by consumer centric approach across:
Innovation process
Digital-first omni-channel distribution
Technology and data-driven marketing and consumer engagement model.

Also, enables company to cater to consumers with different needs

and paying capacities

Mamaearth has created a
highly engaging community of
more than 3000+ influencers,
who help in increasing brand
awareness along with several
celebrity engagements
Widening its net, reaching consumers through various
touchpoints, including salons
Honasa acquired Bblunt to expand its salon footprint.
This gives Honasa an opportunity to push its products
through salon stylists, given they have a high influence
over customers

Source(s): Company filings, Secondary Research and Redseer Analysis

© Redseer 32
Summary – The report, in numbers

BPC’s attractiveness Pure-play BPC Pure-play BPC

globally performance globally performance in India

By 2027 Avg. rev growth (2017-22)

Indian BPC snapshot (2027):
Pure-play FMCG-led
US$ 660 Bn market size US$ 30 Bn market size
5X
US$ 2.2-2.7 Tn 10% 2% 3%
US$ 10 Bn online market size
market capitalisation (~33% online penetration)
150 Mn+ online BPC users
Avg. Gross Margin (2022)
CAGR (2022-27):
Pure-play FMCG-led
BPC
Retail 1.6X
GDP 72% 44%
Avg. rev growth (2022-27)
6% 4%
3% Pure-play FMCG-led
2X 1.5X
Avg. EBT (2022) 15% 2X 7%
Pure-play FMCG-led
0.9X
12% 14%
Gross Margins (2022):
Pure-play BPC market
BPC
Retail share (value) 2027
F&B Avg. P/E (Aug 2023) 2022
72% 48% 2019
44% Pure-play FMCG-led
42%
1.6X 1.5X 1.8X 30% 33%
51 28

© Redseer 34
© 2023 Redseer Strategy Consultants Confidential and Proprietary Information