“It’s the hardest decision I have had to make,” said Rahul Agarwal, founder of Organic Harvest, on selling a majority stake in his all-organic cosmetics brand to the content-to-commerce company The Good Glamm Group in January 2022.
Agarwal’s decade-old company was bleeding cash at -30% Ebitda Ebitda Earnings before interest, taxes, depreciation, and amortization , and its growth had stagnated. The brand could use some instant buzz. “We were predominantly an offline brand, to think DTC (direct-to-consumer) was not in our DNA,” he added.
It was a good deal, though. With an infusion of Rs 75 crore (~US$9 million) and a roadmap for growth, he would continue to run the brand as a separate unit.
The US$1.2 billion-valued Good Glamm, which has bought 12 brands over the last two years, is known for acquiring brands that are “better than average but unprofitable”, according to a former senior employee of the company. DTC e-commerce roll-up player Mensa Brands, which has the same valuation as Good Glamm, invests in profitable brands.
Good Glamm’s network of 1.5 million social-media content creators and influencers, along with 200 million monthly users (MAUs), helps brands improve visibility, says group founder and chief executive (CEO) Darpan Sanghvi.
It has helped his eight-year-old beauty-and-personal-care brand MyGlamm see a ~6X rise in revenues in two years. The company claims that the newly acquired brands exhibit 250-300% growth in revenues in 12 months, albeit off a small base. According to Agarwal, even Organic Harvest has grown 400% in the ~13 months since the acquisition, and half its sales now come from DTC channels.
But at the heart of this growth is the group’s free-product campaign—a person can get a free product called ‘magic bullet’, usually a brand’s bestseller, by paying a Rs 99 (~US$1.2) delivery fee. All they have to do is answer a few questions.
The survey, in turn, helps the group collect valuable data, which allows it to retarget these customers for upselling and cross-selling. But here’s the catch: the campaign has been pulling in bargain hunters. According to the ex-employee, the group’s customer-retention rate through the scheme is less than 5%.
Sanghvi said it is the company’s online version of in-store product sampling, and “it’s technically not free”. The company breaks even on each product, he added.
A close look at the company’s financials reveals a different picture. In the year ended March 2022, the group’s marketing and promotion expenses amounted to ~60% of its revenue of Rs 250 crore (~US$31 million). These revenues are after discounts of ~Rs 125 crore on the products sold. Overall losses were up 6X at Rs 270 crore (~US$33 million).