Daybreak - What does it take to launch a budget skincare brand today? 30 days and a penchant for marketing

Episode Date: November 7, 2024

Ever since the pandemic, the world of skincare has witnessed nothing short of a revolution. Almost overnight, that jar of Ponds cold cream that had stood the test of time on dressing tables across the country was replaced by elaborate six-step skincare routines. The legacy brands we grew up with – the likes of Loreal, Ponds, Johnson and Johnson – were dethroned almost overnight. In their place came an explosion of new brands.  Today, everyone wants some skin in the game. Traditional FMCG companies like Tata, Marico, Dabur and Godrej all want in. So much so, that it's hard to keep a tab on the list of D2C skincare brands available in the market now.  But what does it take to launch a skincare brand? Turns out, not a lot. All you need is a contract manufacturer, 30 days, and a penchant for marketing. Tune in. We are hosting our first live recording! If you are in your 20s, like to run or just enjoy meeting new people, sign up for The Ken X 56 Run Club. This is for our Bengaluru-based listeners only. We meet at 7:30 am near Tonique on Kasturba Gandhi road. 

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon, Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. What does it take to launch a skincare brand today? Ever since the pandemic, the world of skincare has witnessed nothing short of a revolution.

This was a market once dominated by a handful, of legacy brands. But at some point in the last five years or so, something changed quite drastically. It all started when that one pot of pawns coal cream that sat on dressers across the country was slowly but surely replaced by a plethora of products. Serums, masks, acids, all sorts of lotions and potions.

The legacy brands we grew up with, the likes of L'Oreal, Pons, Johnson and Johnson, were dethroned almost overnight. And in their place came an explosion of new brands. Now, of course, this revolution largely had a lot to do with venture capitalists or VCs suddenly taking an interest in some newbie D2C or direct-to-consumer brands. And it also had a lot to do with us, the consumers who became more discerning users of skincare. The six-step skincare routine was normalized by beauty influencers on social media and readily adopted by millions.

In fact, what ended up happening in the process was that the target demographic for skincare also expanded. Skincare brands started attracting a whole new generation of shoppers, teenagers. There's even a term for it. They're called the Sephora Generation. And they've earned quite the reputation in the process. And today, everybody wants some quote-unquote skin in the game.

Traditional FMCG companies like Tata, Mariko, Darber and Goddridge all want in. So much so that it is hard to keep a tab on the list of D2C skincare brands available in the market right now. But launching a skincare brand is no cakework. In fact, in one of the first special episodes that we did on daybreak,

we'd spoken to Shamika Haldipurkar, the founder of Dew, a relatively new skincare brand. She told us it took her team a year worth of R&D before actually launching. How then are we seeing so much many new and quite affordable brands pop up all around us.

Well, the Ken reporter Sedationa Ray wanted to understand just that. So she went undercover. She posed as a new skincare brand owner and approached a bunch of different contract manufacturers. Now, these are people who actually manufacture skincare products for different brands. And she asked them, what does it take to launch a skincare brand? And the answers that she got were pretty much. surprising. The first most surprising thing was I didn't have to come with formulation. So usually contract manufacturers are the step where you take formulation and they will make the product for

you. You decide packaging, they will package it for you. But for most people that I spoke with, the formulation I would get from them, the packaging I would get from them as well. And I could even choose the popular product I wanted from the market and they claim that I would get the same one. When you purchase skincare, the ingredients that actually go into the product are top priority, right? That's exactly why Sudezhena was surprised when the manufacturer made coming up with a formulation sound like a piece of cake. Well, she spoke to them some more and realized just how it was that easy. They weren't reinventing the wheel. They were offering the same formulations across products across beauty brands.

They would just tweak the fragrance or colour a little bit. So it's actually the same products but with different labels and marketing. Soudesha was stumped, but she kept probing. So the next most obvious question was for me, how long will it take for me to get started with one? And for the time varied, but for most of them they said that in a 20 to 30 day period, you'd be up and running with a brand of your own. Yep, you heard that right. Less than one month to launch a whole new skincare brand.

Hello and welcome to another special episode of Daybreak. I'm Snigda. And I'm Rahil and every Friday we come together to talk about something in business and tech that interests the both of us. And it won't just be us. Depending on what we're talking about, we will have some really interesting people joining us on the show. In this episode, we were joined by our very own, the Ken reporter Suryeshna Ray. Now, before we get started, we have a small request for you. Many of you may have already done it, but we know for a fact that a lot of you have not rated us or followed us on whatever podcast platform you listen to us on, Apple or Spotify.

So please, if you'd be so kind, take a second to follow us and also give us a rating. Also, please tell us what you think of our episodes. You can send us a WhatsApp text. The number is in the show notes. Thank you so much. And now on to the episode. Last month, the Tata Group officially entered the mass market beauty and skincare space. It launched Zudio Beauty, a new line of deodorants, makeup remover wipes, sheet masks, the works.

Now, I'm sure you've heard of the Zudio brand. It's known for its affordable but trendy clothing. But let's try and unpack why it decided to enter the beauty. beauty space. So ever since it was carved out of the Tata-owned star supermarkets chain and established as a brand in its own right, there's been no looking back for Zodio. It's become a real growth driver for Tata Group's Trent Limited, which also happens to be one of the fastest growing retailers in the country today. Zudio has gone from a little more than 50 stores in 2019 to more than 500 by June 2024. You remember how for Nica, the beauty and skin care,

marketplace, moving to fashion was almost like a natural progression. It's the same for Zudio, except it's gone from fashion to beauty and skincare. But you see, Zudio is a budget brand. And the skincare or a budget territory is tricky business. So how do you growth hack the value skincare segment? Well, Trent is doing it by applying the same tried and tested Zudio strategy. No advertising, no discounts and 100% in-house brands. And the irony here is that the actual products that they are selling, their ingredients and what they do for your skin seem to have very small role to play in this whole strategy.

Sudeshna paid a visit to a local Zudio outlet as well as a Star Bazaar to compare the skincare aisles at both stores. Zodio, Soudesna said, was like heaven for anyone looking to purchase budget skincare. So, Zudio and Starbazar were very different experiences. In Starbazar, there were a lot of people. In Zodio, it was more empty. But they were, like, as compared to, say, like, Nike or a Sephora in a mall, there were more people. And there were a lot of SKUs.

Like, unbelievable amount of one-one-one-one lipstick. Like, so many SKUs. for every single product. So it's a little bit of a fairyland, especially for people who are aspirational and can't afford it. Now, this is a space where they can afford it. So that's what we were focusing on when we went. Like Sudea mentioned, Zudio Beauty took a page out of the Sifora playbook.

So shoppers were encouraged to try out all the products before they actually bought them. Funnily enough, that was the case even in. at Starbazar, the budget grocery supermarket where they had testers for Sky, Tata's cosmetics brand. But on closer inspection, she noticed some startling similarities between the products on offer at Starbazar and at Zudio. So when I went to Star Bazaar, I picked up a few face musks. I didn't know which ones would be the same or not at Zudio. And at Zudio, I picked up all of them also. And I found one which was exactly the same. a vitamin C face mask.

The packaging was different. Tata Sky's version was more looking like Garnier. It had more words on it. Zudios was more minimalistic. Designed more clean. But the manufacturer was the same. Like Sedationa mentioned, both masks are produced by the same contract manufacturer,

Jainam InverMed Private Limited. This also happens to be the same company that makes vitamin C sheet masks for McAfeene and Renee Cosmetics. So how does it work, Soudethe? I mean, are you literally like replicating these products for all these brands? So say something like an onion hair oil, which has been very popular in the market or a coffee face wash. Some of these manufacturers that I spoke with happened to work with more than one of these brands which had the same onion. and hair oil a product.

And they just said that they know the formula and so it can be made. To which I asked, would that not be a problem in terms of the product that's there? And they said they just change the percentage slightly or they will throw in a fragrance or the ingredients will sometimes be different. But it's common practice for a lot of these manufacturers to sow. ingredients also for the customer. So it seems like contract manufacturers have now become this one-stop destination for a brand to go and get everything from and doesn't seem like formulation is something you need before you go to them. But what if you decide to do things, you know,

the old-fashioned way? So in my hypothetical journey of starting a skincare brand, I also wanted to know if I legit wanted to start with formula, how long would it take? And I did get to know that the nuances of formulation are not that different, even other than what the manufacturer said, there would be small percentage differences, there would be different active ingredients. But even if the percentage differences are very narrow, the whole process of getting this done takes a few months. So say three months or four months goes into this process. After which you have a formula, you test it out yourself, then you send it for lab testing.

And then when you're happy with the final product, then you think about packaging it and how you're going to market it. And then you release. So this whole six to eight month process, which is actually required. to start a brand if you're going to work on formula has been bypassed because contract manufacturers have that formula and now it's more of a marketing game.

More on this in the next segment but before that, Rahil has a short message for our listeners in Bangal. I am interrupting this episode to make a very exciting announcement. If you've been on social media since the beginning of this year, you may have noticed that run clubs are really having their moment. They are blowing up. Or should I say gaining pace across the country.

And this resurgence of run clubs is largely being driven by young people, Gen Zs and late millennials. The best part is that most of these runners are first timers. So, we were curious. What is making hundreds of young people take to running? Are they all desperately seeking that runners high? Or is there something more to it? Well, to find out, Snigda and I will be joining the 56 Run Club here in Bangalore on Sunday morning.

The best part is that you can join us too. We are organising our first ever live recording. So if you are in your 20s and would like to feature in an upcoming episode of Daybreak, sign up for the Sunday run. The sign up link and the details of the run will be in the show notes of this episode. When it comes to skincare today, marketing is everything. Like we said right, skin care on a budget is tricky territory. No one wants to feel like they're using cheap products when it comes to their skin. But one of the contract manufacturers that Sudezsche spoke to

pop that bubble for us with what he said. He said, if your marketing is good enough, then even if you sell mud, it's going to fly. So how does it work? Well, remember how Sudezina went undercover as someone looking to launch a skincare brand? Well, the contract manufacturer she spoke to gave her the lowdown on how it works. So I had another interesting experience with this first manufacturer that I visited

and that day I put up a little bit of effort to you know, like I went to ask to start a brand so I felt like I should look like someone also who can start a brand right? So I put on a little like, I dressed up a little for the part. I asked him about how I should price something if I'm going to not have that marketing power or if I'm not going to be one of these popular brands,

how am I going to price it? And he said, oh, don't sell to the poor people. Sell to people like yourself. Sell to aspirational people because for this generation, even if you're earning 10,000 rupees, they are in the practice of splurging a large chunk of that into something that feels premium to it. them. Right. So, Sudec how exactly are these products priced? Can you tell us a little bit about

that? Like, are they all priced in a similar way or is it different? So like we spoke about discounts at Sky. For D2C brands, it's the same but a little different like this manufacturer that I visited told me not to underprice my products. I could later sell them at buy one, get one. You will see products from M-cafine, Vow Skin, which are three for $999, even buy $8 for $999. And these are like sort of bizarre discounts. Buy one, get one people have heard of, but these are something else. And the reason they do this is they want to appear premium and so they don't reduce the MRP. but then these are always available on discount

which shows something about something wrong going in the distribution end of it. The topmost priority for skincare brands is keeping up with the market demand. And in this situation, a contract manufacturer who can hook you up with a new product in less than a month is a real godsend. Many of these brands also choose to purchase white labelled products straight from the manufacturer without customization. What is a white label product, you ask? Well, it is exactly what it sounds like.

There is nothing on the label. Or the label is a blank canvas. These are products manufactured by one company that is sold to different companies. So, for example, if one company manufactures a hyeronic acid serum, it could hypothetically sell it to multiple players in the same space as is. These brands will just have to rebrand the serum, stick a label on it and sell it as distinct products. There's also another reason brands choose to purchase white label products. So I had a fun experience with this another manufacturer that I spoke with.

And I asked, well, I need a license for this. And I was speaking with two people at the same time. And one of them just slipped up and went, oh, you can do it on our license. It's okay. because if it's going to be manufactured at their facility, the testing or like the quality testing for everything is happening the proper way, they're printing the date or it's a hygienic space, all that will happen on the facility.

So one of them slipped up and said, oh, you can produce on our license. And the other one meant, oh, no, no, you have to get a license of your own. But that will just be for selling. this quality testing and like ensuring all the steps happen will happen for through our facility only and so you'll be able to sell in a brand right it makes sense to outsource your manufacturing then if you don't have to take on that responsibility for licensing you don't have to take you don't

have to think about formulation you don't have to think about licensing so what are the brands doing like what are they responsible for marketing smart packaging. Yeah. So it would be unfair to generalize this for every brand out there. But we're talking specifically about D2C brands that are mainly relying on the online space to market on one active ingredient, often available on high discounts. All of them suddenly come up with the same kind of product range.

So what happens in these cases is. when they want to sell a product on a large scale, they come up with a marketing prowess such that no one cares what goes in their product. It's all about getting your hands on the next big active ingredient. And this keeps changing. Unlike how it used to be earlier, this popular product of the month or couple of months keeps changing very frequently. This distributor was giving me his personal preference of brands.

He said that he used this one soap brand as a child. It's called Mysore Sandal. He distributes that soap. And I was curious to know what led him to choose that. And what he said is that back in the day, skincare products were built to last. They were built to be a product that would be used for years and that was the USB. But it's not so much anymore.

Now the products that you'll see are the innovation is not in the formula or the actual product, but in just switching it up, mixing it up for people to buy what's the new ingredient slash product of the season. The beauty and personal care market in India is still on the rise. In fact, it is still trailing behind not just developed nations, but also emerging markets like Indonesia and Bangladesh. So, the scope for growth is huge. And to add to that, there is the lipstick effect. If I'm to describe in simple words,

it means that consumers want to buy luxury items, even in times which are difficult or say even in conditions where they practically can't really afford them. So say someone is buying a lipstick for $3,000 a Mac lipstick or Charlotte Tilbury and they earn $10,000 a month. We do see that happening now more than the previous generation. This generation is interested in investing in luxury items or at least what, what feels like premium items to them. As more and more people become beauty conscious in India, there is a huge opportunity for skincare brands.

But the repercussions may also not be something that can be ignored. What I found in my reporting is a lot of these brands want high sales numbers. So when they want to show high numbers, they sell more products to distributors. these don't sell that well distributors have a pile of products and then these sort of bizarre kind of offers come out where they're selling

eight products for the price of one three products for the price of one because these products also have an expiry date to it right they have to move it before it goes bad so how are the brands okay with this how are the brands okay with... They're losing money no they would obviously be losing losing

money. They would be losing money on these sales but they're making money through investors on the perception of these high number of sales. Right. But Suryushan, the people that seem to be really suffering in the process are these distributors, right? Right. And the reason for this is like we spoke, brands are interested in jacking up their sales numbers. They want to show that they are selling more. But the distributor is not able to to distribute how much they want to sell, say, in a month. So, for example, if one distributor gets 5 lakh worth of products from a brand, I got to know that they are practically able to sell only half of that.

And the money for the rest half, they pay out of pocket. So they pay the brands out of pocket and they take, say, another month or more time to sell that remaining stock. and this is sort of a vicious cycle that keeps going on and since these brands are so popular they are sort of in a they have the shorter end of the stick where if they don't take how much product the brand wants to sell

the brand will be like oh we'll just go to another distributor so to be able to survive here distributors are essentially paying out of their pocket Sudisha but you know it just doesn't seem sustainable like how can this go on? Like how long can this go on? We recently saw that say Goodglam

put up three of its brands for sale and like the previous conversation brought up this jacking up of sales numbers showing investors that you are doing well even though if you look at the numbers of a lot of these companies they are in a loss

but sales numbers keep getting higher. Marketing expense keeps getting higher. It's a perception thing for the next investor to look at and buy and it's not sustainable but I don't think they are looking for it to be.

They want to build it up to something and sell it off to the next person which is what we're seeing happening in the industry. Right, but what does this mean for actual consumers? Is this just and you know enjoy it while it lasts kind of situation? So this is a double

legit thing, right? While some consumers do enjoy this XYZ ingredient, let me get on the bandwagon, the real question here is with brands approaching something that you put on your skin like this, do consumers even know what is going in the products that they use? If a lot of these have the same manufacturers, are they paying different amounts for essentially what is the same product? and is marketing an aspect that a consumer today is willing to shed so much money for?

Not to mention the impacts of using those products. Not all of these products are harmful per se, but they are not impacting them in the way that they are perceiving them to be. So here the real question is that do consumers know what's going in their skin? Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the Ken.com and click on the red subscribe button on the top of the Ken website.

Today's episode was hosted and produced by Rahil Filippos and I Sinktha Sharma, and it was edited by Raji 100.