How do you beat established players in the cosmetics space at their own game? Samir Modi had the perfect answer—source your products from the same place as the international brands, mix and match with colors, sync it with the Indian women’s needs and deliver high quality products. The result is Colorbar, a cosmetics brand which is fast becoming popular with women.
As a young man, the stint in Phillip Morris in the U.S. where he learnt to be an ideal employee did Modi a world of good, exposing him to the world of business. However, when he came back to India, he had to re-adapt his thinking to a system which was alien to him. “Everything in India functioned at its own pace and had its own frustrations,” recalls Modi. After various stints in his family business, Modi shifted his focus to Modicare in 1997, which was in the business of floor cleaners, toilet cleaners and the entire gamut of disinfectant concentrates.
In 2004, the entrepreneurial blood which ran through his family got the better of Modi and he decided to start a business of his own. His mantra was to start a business that did not exist in India and even if it did, he wanted to do things differently. “During those days the true door-to door multilevel company that provided income to the common man did not exist. With that in mind I first launched the direct selling arm of Modicare,” says Modi.
Next, Modi focused his attention on starting a company that provides products catering to women backed by great performance and formulation and a large palette of colors to suit women across India. “I decided to get into the cosmetics business and source products from the best players in the world,” says Modi. His quest saw him approach the best players of Italy, France, Germany and Greece and Modi firmed up on the idea that he would source the formulation they supplied to the prestigious players in the cosmetics segment of the world.
“I used their best formulations and tuned these to suit the skintone and preferences of Indian women. Our cost today is probably the highest in the cosmetics market. We buy 25 percent of the products completely finished. About 30-40 percent of our entire expenses take place in sourcing the products against the industry norm of 10-15 percent,” says Modi.
This, however, has it own set of problems. While big players play on bulk buying, Colorbar too was forced to buy the same quantity irrespective of the demand for its products. “But we are able to compete with the likes of L’Oreal, Chambor and Revlon in terms of quality. I test launched the first product in Chandigarh with 36 types of nail varnish and lipsticks.
Today, we have over 480 products under Colorbar,” says Modi. He adds that he has no plans of making the formulations himself because he does not see it as his core competency. The company may not be formulation-competitive, but it is cost-competitive. Margins are low for Colorbar and Modi says he is playing the long-term game.
The main challenge that the company has faced so far is the small size of the Indian market for cosmetics. With companies such as Lakme and Revlon dominating the Indian industry, Colorbar will take some time to catch the eyes of Indian cosmetics lovers.
The current size of the cosmetics market is about Rs.1,000 crore-Rs. 1,200 crore and is split between the unorganized (imitations) and organized players. The largest player in the cosmetics market in India is Lakme, with a market share of about 50-60 percent, followed by Revlon with about 20 percent.
The industry is projected to grow at a CAGR of seven percent till 2012, says the Indian Cosmetics Sector Analysis, a recent research report by Delhi-based research firm RNCOS.
Modi’s eyes are now set on ousting Revlon and capturing 20 percent market share by 2012. “Colorbar now has 6-7 percent of the market share and this fiscal it would have revenues of about Rs.50 crore. The focus areas are the tier I and tier II towns, getting more people to use the products and never compromise on quality,” says Modi.
He is also working on another venture—utility stores called 24X7. The idea of opening these stores sprung from the memories of his college days in the U.S. and shopping at 7Eleven stores. “The outlets adjacent to fuel stations were opened at several spots in Delhi. The only thing thwarting the growth of these outlets is the increased availability of imported goods at city stores.
Over years of trial and error I have learnt that for such stores to succeed you need larger stores of over 1,000 square feet to take care of higher rentals. Today at the outlet level we are making money and hope this will only increase in the future,” says Modi.
©Entrepreneur August 2010