India's beauty industry far from skin deep. What's driving the $34 billion ambition?

The Nykaa Beauty Trends Report states that trends like premiumisation of beauty, proliferation of homegrown brands, GenAI for personalisation are transforming the beauty and personal care market

By Naini Thaker Forbes India Staff

Published: Sep 5, 2024 03:54:24 PM IST

Updated: Sep 5, 2024 04:10:22 PM IST

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From left to right - Anchit Nayar, Executive Director and CEO, Nykaa Beauty, Falguni Nayar, Co-founder and CEO, Nykaa and Anil Kumar, Founder and CEO, Redseer Strategy Consultants unveil the first of its kind “Nykaa Beauty Trends Report” at the Nykaa Best in Beauty Summit

India is the fastest growing BPC (beauty and personal care) market globally, and is expected to touch $34 billion by 2028, states the Nykaa Beauty Trends Report. The study developed by Nykaa in partnership with Redseer was released at the Best in Beauty Summit in Mumbai on Wednesday. The Indian beauty market is expected to grow at 10 to 11 percent CAGR in five years, according to the study. “India’s beauty industry is at a pivotal moment in its journey—characterised by premiumisation, evolving consumer demographics and technological advancements,” says Falguni Nayar, founder and CEO, Nykaa. This report highlights nine compelling trends that are transforming the beauty industry.

Premiumisation of Beauty

One of the most significant findings in the report highlights the rise of premium beauty consumption, which is driving a seismic shift in the beauty industry. “Luxury is no longer confined to price alone. Today, premiumisation encompasses an expanded beauty basket, knowledge and regimen, influenced by a highly discerning consumer with evolving desires and an enriched beauty vocabulary,” explains Nayar, in the report.

Customers are increasingly focussed on beauty, driven by higher discretionary spending, easier access to beauty expertise, and more dual-income households. The report states that rising aspirations and higher incomes among Indian consumers will propel the market for premium beauty, expected to reach $3 to $3.2 billion by 2028.

Nayar adds, “Consumers are more demanding for unique products that suit their personal needs and concerns, and look for superior ingredients.” Another big shift is that the ingredients are becoming pivotal in consumers’ decision-making, as they increasingly seek targeted solutions for specific issues like dry skin, rashes and other concerns. Trends like 'skinification' are driving innovation across beauty categories. Additionally, global premium beauty brands are also looking to expand beauty baskets via innovation in ‘stepification’ or routine building.

Also read: How Falguni Nayar built success with Nykaa

Nayar says Nykaa has been at the forefront by democratising access to close to 6,700 beauty brands across all its platforms—Nykaa Beauty, Nykaa Fashion, Nykaa Man and Nykaa Superstore. “Nykaa has served 35 million consumers, and we are generating close to 4 billion impressions a month,” she said during her keynote address at the event. “Nykaa remains committed to leading this transformation by democratising access to the world's best beauty brands, fostering innovation, and expanding our reach across both digital and physical channels,” says Anchit Nayar, executive director and CEO of Nykaa Beauty.

Gen-Z and impact of AI

“The beauty audience has also undergone a remarkable transformation,” explains Nayar. The study has identified Gen-Z and young millennials along with customers in non-metro cities as the audiences spearheading beauty consumption and growth. Education and content ecosystems have played an instrumental role in shaping up demand for this cohort. Along with the education of customers, omnichannel access will also be pivotal in driving growth.

“The democratisation of beauty expertise through social media, now influencing over 500 million users, is ushering in a new era of informed and empowered consumers. Brands that embrace this evolution, leveraging omnichannel strategies and innovative offerings, will not only thrive but will also shape the future of beauty in India,” says Anil Kumar, founder and CEO of Redseer Strategy Consultants. Ecommerce is poised to be the biggest driver of this growth and the fastest-growing segment, anticipated to achieve a CAGR of around 25 percent.

Also read: How Gen-Z women are redefining Indian beauty

Artificial intelligence (AI)-driven personalisation and search capabilities are driving immense value for the beauty consumers. For instance, virtual try-on with generative AI is bringing the in-store experience to ecommerce. In 2021, Nykaa partnered with L'Oréal to launch AI-powered ModiFace to launch AR-powered try on. On the other hand, Haut AI’s SkinGPT has resulted in 62 percent growth in customer conversion through skin analysis, modelling and curated recommendations.

Boom in Homegrown Brands

A vast group of homegrown beauty brands has emerged across price points and categories, also fuelled by VC funding, yet only a few brands have managed to truly stand out and scale. While these successful brands are pioneering change with innovative products and formats, others are exploring partnerships and fresh investments for growth. Homegrown beauty brands in India have secured close to $2.6 billion in funding over the last 10 years.

Also read: How Indian personal care brands are going niche

While Korea, Italy and China remain global BPC manufacturing hubs, contract manufacturing is booming in India. There are close to 650 to 700 contract manufacturers currently in India, mostly based in the North and West, growing rapidly. One such example is Aurumine Naturals. Such India-based, third-party manufacturers have evolved through co-innovation, quality control enhancement and adoption of advanced processes. Given the kind of global competition Indian brands are facing, contract manufacturers are being pushed to elevate to global standards, focus on innovation and adopt manufacturing processes from advanced ecosystems. Even global manufacturers such as Italy-based Intercos entered India by acquiring a manufacturing facility in Dehradun in 2021, and in 2024, it opened an office with an experience centre and R&D lab in India.