Sugar Cosmetics targets breakeven this year: Kaushik Mukherjee

Those who didn’t know about them now do, having made a splash on Shark Tank. The second season of the business reality show featured Sugar Cosmetics CEO Vineeta Singh as one of the judges, and in an unexpected twist, Singh pitched her own company to other judges in the show’s finale, netting Rs 5 crore from them. In a conversation with Storyboard18, Kaushik Mukherjee, co-founder and COO, Sugar Cosmetics, said they saw an increase in keyword searches for the brand coinciding with the airing of the show, which drove traffic to their stores and website.

But their story started way before Shark Tank in 2015 when they transitioned from a beauty subscription service to launching their own brand. However, the real turning point was when an investor questioned them about whether they wanted to become a large digital beauty brand or a large beauty brand overall.

As of today, Sugar’s products are currently available in over 45,000-plus retail outlets and they plan to amp this up to 100,000 outlets by FY24.

Expansion is not the only thing on the bucket list—Mukherjee shared that there are bigger ambitions, including breaking even, going public and a lot more.

Edited excerpts:

From being a new brand to coming where you are in these eight odd years, how has the brand evolved? What have been the primary learnings in the brand-building process?

In the past, traditional brands relied on distribution power and celebrity endorsements to build and launch new products. Digital brands like ours, however, faced the challenge of limited distribution and financial resources. We took a different approach.

Phase one for us was creating a product that addressed a need not met by competitors. We found success with a matte formulation that appealed to the younger audience (18-24 years old), which was often overlooked by larger brands targeting an older demographic.

Phase two involved building distribution gradually. We started by proving ourselves on third-party platforms like Amazon and Nykaa. Once we gained trust and a customer base, we expanded to our own website. Eventually, demand grew enough for people to ask for our products in retail stores and apps.

Having established a strong product-market fit and distribution, we entered phase three, where we utilised traditional means of advertising. We now work with celebrities and invest in television ads. However, we believe it's crucial to have both advertising and widespread distribution for customers to easily find and trust our brand.

Our journey consisted of focusing on product development in phase one, followed by building distribution in phase two before investing in large-scale advertising. Currently, we have achieved a balanced approach to brand building.

Every business has a turning point. What’s that for Sugar?

Throughout our journey, one significant pivot occurred when we transitioned from a beauty subscription service to launching our own brand, Sugar. As we gained popularity on e-commerce platforms and our website, an investor posed a crucial question: Did we want to become a large digital beauty brand or a large beauty brand overall?

This question held great importance because while being a D2C (direct-to-consumer) brand garnered hype and publicity, it was challenging to control customer acquisition costs in the long run. It often led to excessive spending and discounts, creating a downward spiral. In India, building a substantial business solely online is nearly impossible since the majority of sales for successful brands come from retail.

Realising this, we understood the need to establish a strong presence in the retail sector. We acknowledged that big brands would eventually invest in scaling their e-commerce efforts, making it essential for us to expand our retail muscle. This pivotal moment prompted us to shift our mindset and pursue retail expansion.

Currently, we have over 100 unique Sugar stores, 600 stores in modern trade, and our products are available in 40,000 general trade outlets. This strategic decision aligned all our efforts toward becoming a large and successful company, not just digitally, but also in retail.

How did the brand's presence on Shark Tank help?

Every digital-first D2C brand is always on the lookout to reach out to audiences beyond their forte of digital marketing and social media. Shark Tank's popularity across the country and age groups exposed Vineeta (Singh) and by extension the brand Sugar to audiences who are hard to reach online. We've seen an increase in keyword searches for the brand coinciding with the airing of the show which drives increased footfalls in our stores and visits to our website. Although conversion and measurable direct sales are not immediate, just having the additional boost in awareness helps grow the equity of the brand in the minds of our consumers.

How different is your marketing strategy compared to other new-age brands in your segment? What is the budget for the year looking like for Sugar?

In a rapidly evolving market where hacks are quickly replicated, it's challenging to stay ahead of the curve by relying solely on shortcuts. Instead, we have invested in content, which has proven to be a valuable long-term strategy for us.

Our approach to content differs from the norm. We focus on specific platforms, such as Instagram, where our target audience is present. Understanding that people visit Instagram for entertainment or education, we have prioritised creating engaging and educational content. Rather than overtly selling products, we showcase how to achieve various looks and repurpose makeup. This strategy has helped us cut through the clutter and gain a significant following on Instagram.

Our content strategy extends to YouTube as well, where we recently surpassed 1.4 million subscribers. We take pride in this achievement and emphasise the importance of preserving the brand's integrity and long-term success over short-term targets and discounts.

Regarding marketing budgets, we allocate approximately 27percent of our overall expenses to marketing. This includes both performance marketing, which is a variable cost, and fixed costs associated with television advertising. As our revenues increase, the fixed cost component scales accordingly. So, for the current fiscal year, we estimate that the percentage allocation for marketing budgets will decrease to around 18percent.

Have you achieved breakeven?

In recent years, our company has experienced significant top-line growth, averaging 85 percent to 90 percent year on year. For this year, we have set a growth target of 80 percent to ensure a path to profitability and break even. With our healthy gross margins of 72 percent, we have already improved our EBITDA (earnings before interest, taxes, depreciation and amortisation) profile by 15 percentage points in the previous year. The goal now is to increase it by another 50 percent and achieve breakeven.

A lot is being said and done about influencer marketing in terms of regulating the space. Given that your brand works extensively with creators, what’s your take?

There has been a lot of discussion and noise surrounding the regulation of the influencer industry. However, we believe that influencers should be treated no differently from traditional celebrities when it comes to disclosure and transparency. Just as celebrities appear in advertisements without disclaimers, influencers should be held to the same standard. The audience has expanded its circle of trust and now seeks relatability and authenticity from a wider range of individuals.

While it is fair to request influencers to disclose paid partnerships, placing a cap on the products they receive can be a knee-jerk (reaction). Monetary caps may hinder the genuine exchange of valuable products and experiences. Smart influencers and brands will find ways to maintain authenticity without restrictive measures. Authenticity has always been a consideration, even before the rise of influencers. We have been influenced by celebrities without always knowing their true secrets or motivations. Ultimately, if an influencer is genuinely loved and trusted by their followers, their recommendations should be accepted at face value. As the audience matures, it is important to apply consistent rules and standards to both influencers and celebrities.

There have been talks of going the IPO way. Tell us more about it.

The past 12 to 24 months have taught us that building businesses requires more than just selling stories. Startups often rely on storytelling to secure funding, but the public markets have shown us the importance of substance and long-term vision. As a promoter, my focus is on building the brand over the next 20-30 years, with an IPO (initial public offering) being just one milestone along the way. It's not a high-pressure exam to score top marks and then be forgotten. Our goal is to achieve 80 percent growth and breakeven this year, followed by steady growth and a 10 percent EBITDA in the subsequent years. By FY26, we aim to present a strong and responsible growth story to the public market, highlighting sustainable profitability. While we're not in a rush to go public, we anticipate attempting a listing in the third year from now.