Despite the dominance of decades-old brands from Emami, Marico, and Hindustan Unilever — Mamaearth has it written down in history to be considered one of the biggest disruptors of the traditional personal care space in India with its focus on natural, toxin-free products and a digital-first approach.
When launched in 2016, it came as a saviour to consumers looking for toxin-free products made with natural ingredients and a focus on sustainability. It is in fact known to be the fastest digital-first brand to attain a revenue of Rs 1,000 crore.
However, the brand now finds itself under scrutiny for all the wrong reasons- growing negative consumer feedback online, social media backlash, and concerns from distributors about large amounts of unsold inventory, have raised alarm bells.
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The negative limelight has the brand slowly losing consumer trust, according to experts and consumers themselves.
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The latest financial results of the brand, however, paint no less than a positive picture.
Mamaearth’s profits grew 33.3% to Rs 40 crore in Q1 FY25 from Rs 30 crore in Q4 FY24; revenue from operations increased to Rs 554 crore in Q1 FY25 from Rs 471 crore in Q4 FY24.
Ramkishen Y, Professor in Marketing, K J Somaiya Institute of Management, points out that the rise in net profit will provide Mamaearth with a financial cushion to tackle the current challenges that the company is facing. It might reinvest these profits into improving its inventory management, enhancing product quality, and addressing consumer concerns to sustain its growth trajectory in the near future.
Interestingly, its investors including Peak XV (formerly Sequoia India) sold 1.23 crore shares worth Rs 610.98 crore, and Sequoia Capital Global offloaded 28.71 lakh shares worth Rs 142.12 crore in bulk deals, last week.
Anil Joshi, Managing Partner at Unicorn India Ventures, shared that given that the overall D2C space is looking good and will witness positive trends, so will Honasa, being a category leader they will continue to grow. “The company has been consistently performing well with both revenue and profits growing. It has found the right mix of product lines that resonates with the consumer and being the first mover in D2C brands they have mastered the business front as well.”
Anand Mishra, Professor of Accounting and Finance, BITS Law School, remarks that people will continue to watch Honasa Consumer closely given the narrative of it being a “growth” company. In financial markets, the narrative has to be backed by numbers, eventually.
He also adds that a company can show higher sales by pushing its inventory onto distributors but only for a few quarters. “If it is true that Mamaearth brand offtake is slow, numbers will catch up and the market will not like them,” he says.
The company reportedly is working double time to lower the holding period of its inventory from 90 days to 40 days. FMCG companies typically supply stocks for 20-30 days. Distributors have claimed that the company is sending too much stock to the market whilst also being slow to replace damaged, unsold, and expired stock, as per reports.
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According to Anand Narasimha, Professor – Brand Marketing, generating positive numbers can easily be window-dressed — but if the focus isn’t on quality, there won’t be any long-term sustainable growth.
“In a large country like India generating volumes and numbers and profits is not a big deal because there are so many millions of consumers— you will always get somebody to buy the brand for the first time. Also, since the brand is starting from a very small base and acquiring new customers, so it is delivering the numbers. Retention rates could give a real picture,” he remarks.
Under the scanner
Experts tell Storyboard18 that most of the D2C brands, especially Mamaearth, are pretty savvy and aggressive with marketing online but are not putting adequate emphasis and focus on the quality of their products.
“Brand experience is always greater than brand frills. D2C brands are getting very carried away by the frills around their brand, be it all the marketing hype, the content, the influencers, and not paying adequate attention to the products and the product experience that their products deliver. They are making a lot of hyped-up promises in the media about their products and services. The result of this is consumer negative reviews,” points out Narasimha.
For its part, the company strives to inculcate feedback from its channel partners, consumers, and influencers on regular basis, and formulate, reformulate, or make amends as needed.
Narasimha adds that new-age D2C brands are getting a little carried away with marketing hype. Instead, they should be putting that kind of investment into the product development, R&D, and product testing process.
“Also, they are outsourcing a lot of these products- unlike traditional companies that have historically invested a lot of resources and focus on developing good quality products and testing of the products,” he notes.
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The Gurugram-based start-up which made its market debut in 2023 amid noise around its valuation, spent around 39% of its sales revenue in advertising and promotions spends in FY21, which increased to 41% in FY22 and then decreased to 36% in FY23 — still much higher than traditional consumer companies that spend about 12% of their expenditure on advertising. In FY24, the spends stood at around 35%. A substantial chunk of its A&P spends is inclined toward online spending, especially in influencer marketing.
According to the Advertising Standards Council of India (ASCI)’s annual complaints report (2023), Honasa had the highest number of advertising violations.
The ad industry body found the company to be the biggest violator with 187 such ads processed with its brand DermaCo range of products leading with 14, Mamaearth range of products with 10, followed by Aqualogica with 6, among other ranges of brands and products. In defense, the company revealed that almost 94% of the cases have been around influencer content, where the dynamics have rapidly been evolving.
Ankur Bisen, Senior Partner at Technopak Advisors, has an interesting point to make.
He believes that Mamaearth started its journey on a very high pedestal of customer expectations and tall claims, which further grew into a multi-channel business model with a house of brands.
“The equity that you created in the consumers’ mind starts to get roughed up and get frayed once the brand extends itself into multiple businesses. Not necessarily the brand is doing something bad but customers will always have higher expectations from it. Had the brand not started as a disruptor, I don’t think then the consumers would be so finicky about its brands, or near misses. However, the perception mismatch is real and it needs to look into that,” he concludes.