SUGAR Cosmetics sees bottomline improvement in FY23; banks on Tier II, III markets for growth

SUGAR Cosmetics, the direct-to-consumer (D2C) makeup brand, has seen an improvement in its bottomline by about 15% in FY23, Co-founders Vineeta Singh and Kaushik Mukherjee told YourStory.

Without divulging numbers, Singh and Mukherjee said the beauty startup brought down its cash burn significantly in the last fiscal, helping it improve profitability prospects. “We expect to achieve profitability in the next two to three months as we operate at a 75% gross margin,” Vineeta Singh, CEO of SUGAR Cosmetics, said.

Despite tremendous growth in revenue, SUGAR spent heavily on advertising and branding expenses in FY21 and FY22, accounting for 20%-30% of its total expenses in both years. However, these costs have now come under control, Mukherjee, COO of SUGAR, told YourStory, adding that the company benefitted from growth in scale of distribution channels.

“We spent a lot of money on marketing efforts to steal market share in the beauty segment. Now, we have brought down performance marketing expenses, which has helped control overall spends,” Mukherjee added, without revealing FY23 numbers as it is yet to be filed. “Investing in infrastructure helped build scale and optimise costs in distribution,” he added.

Most of SUGAR’s investments over the last three years were in two main avenues–offline stores and marketing–both of which are discretionary expenses for the company, Singh said.

The Elevation Capital and A91 Partners-backed startup opened its 200th exclusive retail store in Bengaluru earlier this week, marking a milestone in its aggressive expansion strategy. It has opened 100 stores across India in the last 12 months alone.

In just four years, SUGAR managed to clock Rs 100 crore in annual revenue compared to legacy cosmetic brands like Revlon, which took 20 years to reach the milestone in India. Singh credits much of the success to its offline bet, omnichannel approach, and development of its own app.

In 2021, Singh had told YourStory that the company’s focus on retail will continue to dominate the sales channel over the next few years. SUGAR also invested in physical stores in 2020-2021 to leverage cheap property rentals. Today, it has more than 45,000 retail touchpoints, including a presence across modern trade stores and kiosks, with brick-and-mortar sales accounting for more than 50% of its overall revenue.

However, Singh doesn’t necessarily want SUGAR to be an offline brand. “Product discovery happens both digitally and in the stores. We are okay with customers walking into the store to browse, test, and get makeovers without purchasing a single product. We are confident they will buy it through online channels,” Singh said, noting that physical stores help enhance brand awareness.

It has also helped bring down the cost of acquisition for digital consumers significantly, Mukherjee said. “Our focus hereon is to build brand awareness and ensure repeat purchases,” he added.

Speaking about SUGAR’s next target for offline, Mukherjee said that the company isn’t chasing a number, but will continue to grow its offline presence steadily going forward, keeping in mind the demand and needs of consumers.

SUGAR is also looking at a public listing in the next two to three years, subject to market conditions, Singh said.

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More than 60% of SUGAR’s sales comes from Tier II and III towns and cities, Singh said.

“Consumers in non-metro areas shop differently–they are heavily influenced by what they see in stores than the Internet, although a small portion does shop online,” she added. 

While the average order value (AOV) of purchases (Tier I, II, III included) made through SUGAR’s offline store is Rs 1,800 and Rs 1,200 online, Singh said these values are bound to go up with time. Especially for physical stores, rise in infrastructure rentals among other factors could push up the AOV over time.

More than 70% of SUGAR's retail touch points are in Tier II and III cities, Singh said.

India has witnessed an influx of beauty brands over the last few years, fuelled by the growing demand propelled by social media influencers and aspirational consumption.

However, the growing competition does not seem to concern SUGAR’s co-founders who said the total addressable market is large enough for several players to operate in.

Singh, in fact, had told YourStory in 2021 that SUGAR aspires to be among the top 3 makeup brands in India within five years. “We’re already among the top in terms of market share. SUGAR does have a chance to be India’s biggest brand in the next 5-10 years given that over 65% of the population is under the age of 35 and the growth in consumption will come from the exploding middle class,” Singh added.

(Cover image and infographic by Winona Laisram)

(The story was updated to reflect SUGAR's retail touch points in Tier II and III cities)