Honasa Consumer, the parent company that runs several skincare brands, has hit a rough patch. Its flagship label, Mamaearth, is growing slower than expectations, the company’s co-founder and CEO Varun Alagh told Moneycontrol. Nursing the brand back to health is his number one priority as it alone brings in 65 percent of the company’s revenue.
The company also reported its first quarterly loss in five quarters. In the July-September period, Honasa Consumer incurred a loss of Rs 19 crore, versus a profit after tax (PAT) of Rs 29 crore reported in the year-ago period, and also saw its revenue decline 7 percent from Rs 496 crore to Rs 462 crore on a year-on-year (YoY).
The drag was because the company took a hit of about Rs 70 crore in the quarter as it altered its offline business model to go from supplying to super stockists to directly dealing with distributors as it grows its offline presence and removes an additional layer in retail. Since the company removed one level of intervention, it was left with products that could not be sold further.
“Inventory was one reason. The second, we had a certain expectation in terms of how Mamaearth growth will pan out which has not panned out in line. We’re relooking at the investment allocation playbook, and more, to understand how the brand will move from here to what we had originally planned…those are the two main factors that did not go our way,” CEO Alagh told Moneycontrol while adding that the company is working on solutions that will bring the brand back to its original pace in a few quarters.
Mamaearth has been criticised for its inventory approach earlier too. Its distributors, part of the All India Consumer Products Distributors Federation (AICPDF), had alleged a few months ago that the company was dispatching excess inventory to the market and also delayed the replacement of damaged and expired goods which cost distributors anywhere between Rs 50-100 crore.
Along with that, CEO Alagh said that consumer preferences are changing faster than anticipated which has impacted Mamaearth.
“The emergence of social media has led to trends shaping up far more quickly than they used to earlier. A lot of free content gets made by influencers and that can drive trend changes more quickly especially in the online domain,” Alagh said.
For instance, consumers, instead of buying a generic face wash, are now opting for a specific face wash that they need for a particular case. That may lead to people switching brands.
CEO Alagh also agreed that the competitive intensity has also gone up because quick commerce firms like Blinkit, Swiggy Instamart, Zepto, BigBasket and others have made it easier to discover and launch new brands,“I also think the rapid growth of quick commerce has increased competitive intensity to an extent. If you compare it to modern trade or general trade (like kiranas) then yes the impact is more but not so much when it comes to e-commerce firms like Flipkart or Amazon,” he added.
Nursing back
The company has roped in consulting firm Bain to help revive growth and will focus on reworking its distribution and supply chain as part of Project Neev, will invest in R&D, innovation and marketing and plug gaps in its portfolio. It will also work on focus areas instead of stretching itself too thin.
“We realised that we were allocating our investments over 10 different categories in Mamaearth and that was too wide. Our hero tools and categories were actually getting suboptimal investments because of that,” CEO Alagh said.
In the interim, it will also bank on its other brands.
While Mamaearth is the company’s largest brand, it also runs The Derma Co, BBlunt, Dr Sheth’s, Aqualogica, BBlunt and Staze 9to9.
“Our young brands, while small, grew 30 percent YoY and they will continue to grow strongly as they have – that’s a positive sign,” CEO Alagh concluded but refrained from saying if they can cushion in the interim as Mamaearth undergoes restructuring. “In any transitionary stage, it becomes harder to predict the short term. I wouldn’t make any predictions for the next couple of quarters. The focus will be on experimenting and getting your structural levers right.”
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