Last fortnight, Mamaearth announced that it was gearing up for a $3Bn IPO, hot on the heels of the company becoming a unicorn

Delivering a New Born Company

Age-old, enduring businesses are often born out of solutions to problems that founders took upon themselves to solve. Remember Tally?

Varun and Ghazal Alagh went through a similar experience before they decided to plunge into their entrepreneurship journey.

It all started when Ghazal and Varun were expecting their first child, Agastya. During Ghazal’s pregnancy, morning sickness became a routine. Ghazal was desperately searching for relief, but there didn't exist any safer alternative to pills.

When Agastya was born, the young parents wanted only the best products to groom their newborn child. It could be an utterly confusing affair for most new parents. 

The challenge? Finding safe and non-toxic products for their baby.

Can India Consume D2C Brands?

The Alaghs turned to Google to research all the ingredients that made up products that Agastya would use - right from feeding bottles, and shampoos to even the paediatrician!

They were disappointed when they discovered that most baby products, be it soaps or lotions, contained toxins which have proven to be harmful to the little ones. 

The problem further worsened when Agastya’s eczema - a condition where the skin is allergic to a whole lot of substances and turns red and itchy when exposed to them – got aggravated by using the toxin-laden baby-care products available in India at that time. 

In 2015, the Indian baby-care market was nascent. 

Generic products were mainstream, but they were not toxin-free. The products contained parabens, phthalates, sulfates and bleach which can build toxicity in a baby’s body. When applied to sensitive areas of the skin, these chemicals can also cause rashes, irritation and skin allergy. 

As a consequence, those products couldn’t be used on infants. 

The solution? 

Use toxin-free and natural products to ease Agastya’s skin condition. Varun and Alagh turned to their friends and relatives travelling to the US to bring back toxin-free skincare brands for their son.

It was an inconvenient arrangement. But this process led them to realise that most babies in their social circle faced a similar problem.

The struggle to find baby care products that were completely safe & certified toxin-free was real. 

A Rocking Start

There was a big gap in the demand and supply for toxin-free mum and baby care products. 

The Alaghs wanted to address that gap themselves, by building a trusted mum-baby-friendly brand.

A brand which develops products from world-class research that are 100% toxin-free and met Made Safe’s stringent international standards.

The couple invested INR 90 lakhs of their own savings in starting the business. MamaEarth was born, in June 2016.

While baby-safe products had to be imported from US, Ghazal found out in her research that the safe ingredients and their supply vendors were readily available in India. The challenge was to find manufacturing partners who were ready to work with a specified set of ingredients. 

The founders faced numerous rejections from manufacturing vendors across the country. 

Varun, with his prior experience managing FMCG brands for Unilever and Coca Cola, knew that all it took was one yes from his list of potential vendors.

The search ended in December of 2016 when they launched six products geared towards catering to pregnant mothers, new mothers and their babies. 

One of the products, a first-of-its-kind 100% natural mosquito repellant spray, immediately gained traction and stood out as their first hero product from their launch basket.

The founders knew that the Mamaearth brand story had to be purpose-driven, something that the consumers can take away and talk about. The focus had to be shifted to why should the consumers buy from Mamaearth. 

The answer had to be clear, and crisp.

Mamaearth positioned itself as Asia’s only Made Safe-certified (a non-toxic seal for products in personal care) brand, created by parents, for parents. 

Bringing in the emotional connect with its target group was the only way to succeed in the consumer market, which was competing with hundreds of already established brands. 

These emotional reasons meant that consumers aligned with Mamaearth’s brand philosophy of recycling plastic (that it uses in its product packaging) and planting trees.

Mamaearth seemed to have cracked the problem to target group identification, and alignment. It needed to crack the product and its sales channels.

That is when Ghazal (the Chief Mama of Mamaearth) decided to go back to basics - listen to the feedback from the moms for whom she was building. She’d talk to hundreds of moms every week to understand how Mamaearth’s products helped them.

That feedback would get incorporated into product innovations, after which they’d be approved for mass production. 

The consumer-first approach, and a word of mouth publicity by “influencer” moms, allowed Mamaearth to reach INR 25-30 lakhs in turnover within six months of launch. 

It had hit its product-market fit, and the pre-Series A fundraise of $1M was a testament to that milestone.

Mamaearth was onto something big.

Rattling the Consumer Market

Mamaearth was building on years of effort trying to make D2C happen, which started a decade ago. 

In 2009, two unknown engineers quit their jobs to build a website to sell books to Indian customers. They called it Flipkart. For the average Indian, having a smartphone was ultra-luxury. India Post was still the preferred means of sending parcels. 

The concept of D2C seemed Distant To Customers.

By 2011, Bonobos, a US D2C startup saw its website crash due to unforeseen traffic on its website. Strong undercurrents were palpable even in India. 

Mukesh was digging up the ground, not in search of oil, but to lay fibre optics cables. Jiofication was still half a dozen years away. Indians were warming up to the concept of buying from a website, instead of a brick-and-mortar shop.

By 2013, there were 100M Indians using the internet. Data was cheap, the internet had penetrated Tier II cities, and smartphones were not unaffordable. Online players such as Lenskart, Zivame, Bluestone started picking steam. Nykaa was just getting started.

The ecosystem was evolving rapidly. Customer analytics were becoming smarter. User behaviour could be mapped accurately to re-target products that had a maximum likelihood of purchase. 

By 2015, the knowledge a local shopkeeper gained over decades about its customers in his neighbourhood, artificial intelligence allowed brands to know that in minutes, at scale across the nation.

New consumer brands starting “Direct to Consumer” or D2C then were taking baby steps. Mamearth was no different. 

All the sales that happened so far were via the marketplace presence on e-commerce websites such as Amazon and Flipkart. Scaling up exponentially was a challenge if the brand relied only upon third-party marketplaces.

The need to migrate to its own D2C website was apparent. Going D2C allowed more control to have personalised communications with customers who visited the website and show them the content they'd like to see. 

If the customer came to buy a hair mask but also checked out a shampoo and a serum, Chief Mama would know exactly about what to talk to them the next time they came to the website.

But it needed more than just that to fight the giants who literally owned all of the distribution.

Fighting Scary Big Consumer Monsters

By 2017, India's growth rate was one of the world's highest, with an inflation-adjusted growth rate of more than 8% year-over-year. 

Growth in the gross domestic product (GDP) is important because private consumption plays a critical role in the GDP's growth, and the middle-class fuels private consumption.

Private consumption in India was almost 60% of the GDP, and this growth had accounted for 70% of Indian growth since 2000.

On top of it, India had 60 mn households categorized as upper middle class and high-income class, close to 20% of the population. No wonder India's middle class was called the "bird of gold."

It was not easy to start a business, however, given how tough this market was. It was necessary for the products to have a demand and a compelling case to attract users.

Pegged at USD 3 billion, the child care market in India was growing at a healthy rate of 15%. The beauty care market was a crowded space as well.

These markets were dominated by giants like Johnson and Johnson, Dabur, Himalaya, and Hindustan Unilever. Nestle, for example, held 96% of the infant food market - which was sized at Rs. 1,500 crore - through its brand Lactogen. Food, accessories, and diapers dominated more than 70% of the child care market.

The newer players couldn’t take on the giants’ physical distribution play. 

Mamaearth’s decision to leverage the presence of the likes of Amazon, Flipkart and FirstCry’s last-mile logistics for distribution was due to this. At the same time, they decided to focus on just one category, which was the child care segment.

The reason for listing on these platforms like Amazon was to target tech-savvy customers. The messaging had to be appealing too. 

Mamaearth positioned the brand as built by parents for parents. The products were safe and non-toxic, and the idea resonated with the urban parents.

The stage was set for Mamaearth for the next phase of growth.

Catching A Viral Fever

By early 2017, they were catering to 10,000 customers. 

However, they were still struggling to create their distribution. Mamaearth had to rely on online websites to generate sales, and starting a physical distribution from zero was impossible.

Mamaearth found its answer in social media. More than 200 million people were using various social media platforms in India by 2017. 

Content was getting created and consumed at a fast pace via social media. On top of that, social media content had a virality element; hence, the distribution could be achieved through social media.

Mamaearth decided to focus on social media content creators. The idea was simple - incentivize the creators so that they plug Mamaearth’s products in their content and thus expose the captive audience to the upcoming brand. 

This was a Eureka moment for Mamaearth and the birth of a new form of marketing. This single play changed Mamaearth’s fortune. And soon after, the entire startup ecosystem.

Advertising via influencers had its own set of advantages. First, the strategy’s performance was measurable along with being cost-effective compared to other traditional forms of advertising. Second, focused targeting was possible based on the audience catered by the content creator. The content creator lead distribution doesn’t put manpower-specific pressure on the organization.

This was a win-win scenario for Mamaearth on all fronts.

Mamaearth quickly moved ahead and roped in celebrity mothers like Shilpa Shetty, and Amrita Singh as anchors to strengthen their messaging. Mamaearth also collaborated with 500 mother bloggers to spread the word about their products. 

Within a year, Mamaearth was serving more than 100,000 customers, with more than 50% of the customers landing on their platform via creator-generated content. 

This further propelled the growth to ~1Cr a month of revenue run rate by 2018, from just 3 lakhs per month in 2017.

This was a big win for Mamaearth, and they decided to raise Series A to propel their growth further.

Post-Series A, the push was to break into omnichannel, through partnerships with large-format retail stores such as Shoppers Stop, Central and standalone retail stores. 

Mamaearth no longer had to fight for attention while on the shelves with hundreds of other brands. It had built out its brand presence by going native D2C in its formative years. The brand had its distinctive recall because it already understood what its consumers wanted by talking directly to them rather than “leverage website analytics for customer behaviour”

It had solved for discoverability. Customers would walk into an offline store and ask for Mamaearth’s brand.

But was this growth, like many startups, going to be fueled by heavy losses?

Building Diaper Thick Margins

Despite it having a smaller market size than the beauty segment, the Alaghs made a conscious decision to enter the childcare segment. 

The answer lay in the margins.

Understandably, parents are generally very protective of their kids and the products they use for their kids. It was clear that consumers want quality, which is unlikely to be price-sensitive.

However, companies have two choices in offering products. First, through its platform and generate leads through marketing and influencer-led channels. Second, through marketplaces where the companies like Mamaearth need to provide the market palace commissions.

The margin is among the best in the child-care segment compared to any other personal care segment. As a result, Mamaearth’s gross margins were close to 65% by 2019, one of the highest in the industry.

Owing to this, Mamaearth just took three years to reach a revenue of Rs. 100 crores compared to Revlon, which took 20 years to achieve the same landmark.

However, the child-care segment had its limitations. Parents were very conscious about products they use for kids’ during the initial years. Beyond a certain age, the demand disappears, or parents become cost-conscious again.

The above scenario suggests that churn is more significant in the child-care segment than in other segments. The customer will move to a different platform if relevant products are not offered.

This churn was “natural” as the baby graduated to not being one. Mamaearth would need to take its playbook to another market. 

Mamaearth found its new product segment in the form of beauty care. The foundation to grow beyond Rs. 100 crore mark was laid.

Bouncing COVID Boosters

By early 2020, Mamearth had its eyes firmly set on beauty and personal care. 

The category had been witnessing rapid growth. Most markets in beauty follow the trajectory of wardrobe, face and home. With apparel exploding, the next stage for the growth of the beauty market was facial. 

A young, millennial population across Asia was fuelling this growth.

South-East Asia in general and India, in particular, were seeing high growth rates when it came to D2C as a category. The overall market itself was growing at 6% a year, with direct growing even faster.

Then COVID happened, temporarily killing and then exploding the market.

With the first few months of 2020 in lockdown, most consumer brands thought they were dead in the water. But once the lockdowns were lifted, direct-to-consumer brands went from good to have to must-have.

Mamaearth became the leader when it came to baby and mother care products in India in the D2C space. It aggressively expanded to meet demand, ramping up supply.

The number of consumers in the age bracket of 20-30 years is increasing and these are the direct consumers for Mamaearth. Young mothers in today’s day and age are more inspired by Social Media than the traditional ways of maternity.

With a focus on health and better lifestyles, Mamearth’s positioning worked spectacularly. The company had gone from revenue of ~20Cr to 100Cr in FY20. 

The COVID booster would end up being even bigger. 

Proudly Profitable Parenting

As Mamaearth grew in 2021, it also achieved what most startups only dreamt of.

Mamaearth collected operating revenue of Rs 461 crore in FY21, a massive jump from the INR 109.8 crore during FY20. The firm made 98% revenue from its domestic sales (India) while its global sales, which formed the remaining, grew 9.5X during FY21.

The dream, though, was not on the top line but the bottom line.

Mamaearth recorded a post-tax profit of INR 24.6 Cr in FY21 as compared to a loss of INR 5.92 Cr during FY20.

This came from a healthy gross margin and marketing costs having been lowered over years through more effective marketing.

With an increase in demand, the cost of raw materials consumed by Mamaearth also surged 3.5X to Rs 133.1 crore in FY21 from Rs 38.3 crore in FY20. Transportation and secondary packaging costs also grew in line with the overall scale, surging 4.2X to Rs 62.7 crore in FY21 from Rs 15.02 crore incurred in the preceding fiscal. 

This implied overall gross margins of 58%, with 30% being cost of goods and 12% cost of transportation. 

Its marketing costs stood as the largest cost center, accounting for 44% of the annual costs in FY21. These expenses surged nearly 4X to Rs 192.23 crore in FY21 from Rs 49.2 core during FY20.

Assuming an AOV of ~INR 900 for Mamaearth, these numbers meant that it served 500K customers in the year. CAC, or customer acquisition costs were ~INR 384 for the year. 

On every order, Mamaearth would leave ~14% to cover team costs. As the company scaled, this would become easier to do. Economies of scale work so well to make companies profitable eventually. 

As Mamaearth ended 2021, its growth resulted in another round being raised. This time, it would also reach rarified air. 

The company would cross the $1Bn valuation mark, becoming a unicorn and just crossing the mark. The $50M round would be fuel for further growth.

2022 would be a dream start for the 6-year-old brand that was now becoming iconic

Peek a Boo Into The Future

Mamaearth’s flywheel which had been carefully crafted from day one was the reason for its growth.

Call it luck or first movers advantage, the company pioneered many new techniques that it used to the hilt. It had a strong focus starting from baby care and then moving to beauty care. It almost created the concept of influencer marketing in India. The product innovations kept them in sync with customers.

There is no doubt that this happened due to excellent execution. 

Mamaearth’s strong financials reflect this high quality of execution. The company plans to file an IPO in 2023 at a valuation of $3B, 3x their unicorn round. 

While the 10-12x forward revenue seems high in this market, there is a lot going on for the company. 

It is high growth and yet is the market leader. It has pushed back larger FMCG brands in reaching 100Cr of revenue in record time. The innovation flywheel and brand trust have given it a huge moat. 

All these put together have made it a brand that fledgling D2C startups aspire to be. 

India’s consumer market is yet to reach the scale of China, let alone the US. There is a large consumer story that is yet to play out. Mamaearth’s nimble, customer-friendly approach is in stark contrast to more lumbering large brands that have taken time to innovate.

The company’s aim to reach 1,000 Cr of revenue would put it in proximity to Dabur, which is at 2,000 Cr. While there is still a long way to go, Mamaearth has done in less than a decade what Dabur took many decades to do.

The company still has a lot of expansion to do in India, without even having touched adjacent geographies. The path to growth is there, with a long way to go.

The future looks bright for Mamaearth, which could become the Mother of new-age Indian beauty brands.

Writing: Bhoomika, Parth, Raj, Samarth and Aviral Design Omkar, Saumya

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