Mamaearth hikes prices by 3-4 percent, but won't suffer shrinkflation

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Skincare brand Mamaearth has undertaken price hikes in the 3-4 percent range for around 20 of its 300 products amid rising raw material costs, the company said. However, its products won't suffer from shrinkflation as it doesn't sell low value sachet packs.

“On the supply side, we have certainly seen raw material costs go up. So, for the first in the five years of our existence, we have had to increase prices by 3-4 percent in certain categories like facewashes,” Varun Alagh, CEO and co-founder of Mamaearth, said on an episode of CNN News 18's Bits to Billions.

The company said last week that the price increases were being undertaken recently and it is still waiting to see whether this would have any impact on consumer demand.

“We are very cognizant (of the impact) of passing the costs to the consumers. So, we are also trying to run interventions to hold back the price increases as far as possible,” said Ghazal Alagh, chief innovation officer and co-founder of Mamaearth.

“Some of those intuitive interventions are cost efficient formulations, value pack offerings. We also think that this is going to be a largely short term impact,” she added.

Of the 300-odd stock keeping units (SKUs) that the haircare and skincare brand sells, the hike in prices is going to impact around 20 SKUs.

 With fast moving consumer goods (FMCG) companies grappling with the effects of rising commodity prices, many of them have been reportedly decreasing packet sizes while keeping retail price tags the same.

Mamaearth, however, contended that the company has not decreased the volume or quantity of product packs – a phenomenon commonly referred to as ‘shrinkflation’ – to account for a rise in input costs.

“We don’t see any shrinkflation in our products as we don’t have the Rs 10 or Rs 20 packets. I am not sure if we will ever have those kinds of small packet sizes,” said the CEO.

Moneycontrol reported earlier that e-commerce companies are feeling the heat of rising inflation as big ticket purchases dwindle. Meanwhile, direct-to-consumer (D2C) brands – a term that is often used to encapsulate new consumer companies that primarily sell online – have been the hardest hit as their offerings are more premium on pricing.

“When we started, a lot of people told us that there is not a single Rs 1,000 crore consumer brand in the country that does not have a sub Rs 10 pack which is true. But we have proven that it is possible to build a sizable brand play (even otherwise),” he added.

The company said that it considers the middle class as its target audience – and hence does not have any plans in the short and medium terms to sell sachet packs.

Founded in 2016, Mamaearth has become popular in India with its range of "toxin-free" products such as face washes, shampoos and hair oils. It competes with Unilever's India unit, Hindustan Unilever, and Procter & Gamble Co in the booming personal care industry.

The company was last valued at $1.2 billion in January this year when it raised fresh funds from investors including Sequoia and Belgium's Sofina.

Mamaearth is in talks to raise at least $300 million in a planned initial public offering (IPO) next year, according to a Reuters report last month. It is said to be targetting a valuation of around $3 billion in an initial public offering next year – 10-12 times forward earnings based on sales growth and future revenue potential.

However, the company declined to confirm the timeline or fundraising details of the IPO.

“These things are very dependent on external things like markets. Do we believe that we will hit the public market someday? Yes. That is a journey for any company to undertake and we will hopefully also reach there,” the Mamaearth CEO said.

A year after multiple unicorn startups like Zomato, Paytm, Nykaa and Policybazaar went public in quick succession, a slew of companies such as Oyo, Ola and Mobikwik are now having a hard time in floating their IPOs amid choppy public markets.