Why is MamaEarth in news lately?

Author

Abhishek Yadav
November 30, 2024 • Estimated Reading Time: 12 minutes

In partnership with

Mamaearth has been in the news a lot recently. Some people are unhappy with the products, while others the defending them over X(previously twitter) and other social media platform. The founder Ghazal Alagh herself came down defending her brand. This has lef many wondering - what’s really going on with the company? Questions about its future and what its founders and management are doing about it are everywhere.

With so much talk around Mamaearth, this felt like the right time to look into its journey. The company grew fast, but now it seems to be facing some challenges, What went wrong, and how are they planning to fix it?

Let’s find out in this issue. But first, a quick note about the sponsor of this edition.

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For those who do not know what Mamaearth is and what they do, here is…

A quick introduction

Mamaearth is a prominent Indian brand specializing in toxin free personal care and baby products, founded in September 2016 by Ghazal Alagh and Varun Alagh. The company is headquartered in Gurugram and operates under Honasa Consumer Pvt Ltd. The brand is notable for being Asia’s first MadeSafe certified brand, emphasizing the use of natural ingredients free from harmful chemicals.

Since its launch, Mamaearth has expanded its product range from initial six items to over 300 SKUs, including skincare, haircare, and baby care products, which in part is also the reason why Mamaearth is making into the headlines. The brand emphasizes the use of natural ingredients sourced from certified suppliers worldwide, ensuring that all products are free from parabeans and other toxic substances.

Identifying the market gap: The beginnings

The founding story behind MamaEarth is quite interesting. As new parents, the founding couple faced challenges in finding safe, toxin-free baby care products for their son, Agastya, who suffered from skin issues triggered by conventional products. This frustration led them to search extensively for suitable alternatives, but they found that most available options contained harmful chemicals.

Recognizing a significant gap in the market for organic and safe baby products, Ghazal and Varun decided to create their own line of personal care items. Isn’t parenthood a powerful force? Powerful enough to motivate people to start a company and turn into a billion dollar firm. Mamaearth began with an initial offering of six baby care products under the umbrella of Honasa Consumer Pvt. Ltd, the parent company. Their goal was to provide high-quality, natural products that parents could trust. The brand quickly distinguished itself by obtaining the MadeSafe certification, making it Asia's first toxin-free brand to receive this recognition. This certification ensured that all Mamaearth products met stringent safety standards set by experts, reinforcing the brand's commitment to providing safe and effective solutions for families.

The period of Rapid Growth and Market Expansion

From its inception itself, the company experienced remarkable growth. By 2018, the brand expanded its product line to include skincare and haircare items for adults, responding to the increasing demand from millennial parents seeking toxin-free options for themselves as well. This introduction of innovative products like India’s first bamboo-based baby wipes and plant based toothpaste for children further solidified Mamaearth’s position in the market. My all time personal favourite has been the onion shampoo, the ultimate solution for hair-fall at that time.

Maintaining the momentum, the company achieved its INR 100 crore turnover within just 4 years of operation a testament to its rapid acceptance among consumers. The brand's focus on natural ingredients and transparency in formulations helped build trust with its customer base.

Covid-19, which was a doom for many businesses, turned out to be a great opportunity for Mamaearth. Initially facing uncertainty, the brand pivoted its strategy to leverage the surge in e-commerce during lockdowns. It launched new product lines that resonated with consumers' heightened focus on health and safety, resulting in an eightfold revenue increase between FY20 and FY22.

During this period, Mamaearth continued to innovate, introducing products enriched with vitamin C and turmeric that became bestsellers. The brand's emphasis on being toxin-free remained central to its marketing strategy, appealing to health-conscious consumers. It was not long after that the company achieved a billion dollar valuation in 2021, giving it a unicorn status.

The funding story

Mamaearth had humble beginnings. It started with an initial investment of approximately INR 90 Lakhs which were the founders own savings. And the rest of funding history looks like this:

  • 2018: Mamaearth secured its first external funding of $4 million from Fireside Ventures. This investment allowed the company to enhance its marketing efforts and expand its product line.

  • 2020: In January 2020, Mamaearth raised $18.1 million in a funding round led by Stellaris Venture Partners and Fireside Ventures.

  • 2021: In 2021, Mamaearth continued to attract significant investments, culminating in a $52 million Series F funding round led by Sequoia Capital. This round elevated Mamaearth's valuation to around $1.2 billion.

  • 2022: By the end of 2022, Mamaearth's parent company, Honasa Consumer Pvt. Ltd., filed for an IPO aiming to raise ₹400 crore. The company reported revenues of ₹920 crore for the fiscal year 2021-22, with a net profit of ₹24.6 crore, showcasing its financial viability and growth potential.

Honasa consumer Pvt Ltd is now a publicly traded company after their listing on October 31, 2023. The IPO was very well received, being subscribed 7.61 times on its final day of subscription. From being born to an IPO in 8 years is a feat many companies are still trying to achieve. This IPO marked a significant milestone in Mamaearth’s growth trajectory as it transitioned from a private startup to a publicly traded company.

So, the question that arises now is, after being such having such a successful run, what is Mamaearth doing wrong? Why is it in a bad books of its customers and why is the company facing losses?

The Downfall

After the IPO, Mamaearth enjoyed a successful run, buoyed by its reputation as a leading provider of toxin-free personal care products. However, this initial success was short-lived as the company began facing operational challenges.

In the second quarter of FY25(ending September 2024), Mamaearth reported a net loss of INR 190 Million i.e. INR 19 crores, a stark contrast to the INR 29 Crores profit recorded in the same quarter the previous year. The decline was primarily attributed to:

  • Revenue Drop: Revenue from operations fell by 7%, from ₹4.9 billion to ₹4.6 billion year-on-year.

  • One-Time Inventory Correction: The company underwent a significant transition in its distribution model, known as Project Neev, which shifted from super-stockists to direct distributors. This strategic overhaul aimed at long-term efficiency but resulted in short-term disruptions, including a substantial one-time inventory correction that negatively impacted revenues and profits.

  • Amidst these financial troubles, the All India Consumer Products Distributors Federation (AICPDF) raised alarms about unsold inventory reportedly amounting to ₹300 crore. Although Honasa Consumer disputed this figure, stating that their actual unsold inventory was around ₹40.69 crore, the initial claims created panic among investors and contributed to selling pressure on the stock.

To get a more detailed insights on this story, here is a video by Markets by Zerodha:

Now that you have a clearer understand of Mamaearth’s situation, let’s see how does the future outlook look like:

Future Outlook

Despite these setbacks, Mamaearth's management remains committed to turning around the business. They plan to focus on:

  • Product Innovation: Expanding their range of toxin-free and sustainable offerings.

  • Marketing Investments: Enhancing consumer engagement through targeted campaigns.

  • Distribution Revamp: Completing the transition to direct distribution channels to improve efficiency.

Management has indicated that they expect it will take 3-5 years for these strategic changes to yield significant improvements in performance.

Mamaearth's current challenges highlight the difficulties of balancing immediate investor expectations with long-term strategic goals. The company's ambitious plans for growth have been hampered by operational issues and market dynamics, leading to a critical juncture in its journey. As it navigates this turbulent period, stakeholders are left wondering whether Mamaearth can regain its footing and restore investor confidence in the coming years. As for people like you and me, it would be an interesting story to keep an eye on. On a personal level, I sincerely hope and believe that Mamearth is going to tackle these challenges better than anyone else.

That brings us to the end of this amazing company’s story. Now the most awaited part.

The Business Lessons

While the company is still standing strong, it has made its share of mistakes and moves that affected them badly, at least for now. But it serves as a wake up call for the rest of the players in this sector. Some lessons that we I believe every entrepreneur should learn from this ongoing saga are:

  • Embrace Flexibility and Adaptability: Mamaearth's founders initially focused on a niche market—baby care products—but quickly expanded into skincare and haircare based on consumer demand. This adaptability was crucial for their early success. However, the recent challenges highlight the importance of maintaining this flexibility, especially during significant operational changes like the transition to a direct distribution model. Companies must be prepared to pivot and adapt their strategies in response to market feedback and internal challenges.

  • Focus on Core competencies: While diversification into new product lines can drive growth, it is essential for companies to stay aligned with their core competencies. Mamaearth's rapid expansion into various categories led to operational strains that may have diluted its focus on quality and brand identity. Businesses should ensure that their growth strategies align with their core values and strengths.

  • Long-Term Vision vs. Short-Term Gains: Mamaearth's rapid growth trajectory during the pandemic contrasted sharply with its recent struggles post-IPO. This highlights the importance of balancing short-term performance metrics with long-term strategic goals. Sustainable growth requires a focus on building a resilient business model rather than prioritizing immediate financial results. This particular learning is my all time favourite and it is as basic as it can go, yet businesses tend to forget it very often

That brings us to the end of another great story. I really hope you liked it. If you did, share this within your network and if you haven’t subscribed to Think Tank already, do it using the link below.

I will get back to you with more stories like these. In the meantime, take a look at these other interesting case studies:

Keep tuned for more such case studies.
Until then,
Happy Reading!

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