Companies
Honasa to bring down inventory holding period for Mamaearth distributors
Summary
Co-founder and CEO Varun Alagh said Honasa has also signed a partnership with logistics company Delhivery to streamline its supply chain.
Honasa Consumer Ltd, which sells Mamaearth-branded personal care products, is working to lower the holding period of inventory with distributors to 40 days, co-founder and chief executive officer Varun Alagh told Mint, potentially alleviating their burden of keeping 90 days of stocks.
Acknowledging that Honasa's overall inventory with distributors is higher than that of other FMCG companies, Alagh said as the company changes its distribution model from super-stockists to direct distributors, which was announced during Q4 FY24 earnings in May, the supply chain will be streamlined, helping bring down the holding period.
Honasa has also signed a partnership with third-party logistics company Delhivery to use its mother warehouse, the CEO said.
“We can't take the risk that we reduce inventory because our ability to service distributors goes away. That is what we're working on. We have a partnership with Delhivery where we are doing some supply chain enhancement. Post that, over the next few quarters is where the next phase of inventory reduction will take place," Alagh told Mint.
Last month, the distributors had raised concerns over excessive inventory that the personal care company had dispatched to the market. They also complained about delays in replacing damaged, unsold, and expired stock.
The All-India Consumer Products Distributors Federation claimed that distributors were stuck with 90 days' worth of stocks or goods. Fast-moving consumer goods (FMCG) companies typically supply stocks for 20-30 days.
Honasa reported a net profit of ₹40.2 crore in the first quarter of FY25 on Friday, driven by an aggressive expansion of its retail distribution network and gains in the facewash category.
Ayurveda decline
Honasa decided to phase out its Ayurveda-focused brand, Ayuga, in June after it failed to achieve a product-market fit and gain traction with customers.
“Our read on the brand when we launched Ayuga was that the high trust in Ayurveda will be the underlying lever for brand acceptance. However, customer and search trends over the last six months showed that inclination towards certain Ayurveda concepts like kumkumadi (a herbal oil) are continuously declining," Alagh told Mint.
While natural ingredients such as turmeric, multani mitti (used in face packs) and rice water are popular, older formulas including kumkumadi no longer appeal to users in terms of skincare efficacy, according to the executive.
Honasa launched Ayuga in February 2021 in collaboration with wellness ambassador Shilpa Shetty Kundra. The company tried to rebrand it in December last year to revitalise the products by enhancing its focus on ingredients and consumer feedback. Despite these efforts, the brand failed to gain momentum.
However, this did not have a material impact on the profit and loss account, Alagh said, without mentioning exact numbers.
This is the second discontinuation in Honasa's portfolio, following the pre-IPO phase exit of Momspresso, its costliest acquisition, as part of a strategy to stem losses and strengthen its bottom line ahead of its listing.
“In the future, whatever does not make sense and does not create long-term value, we will take objective and strategic calls like this," Alagh added.
During the investors’ call, the CEO noted that Honasa does not see any write-off risks and will focus on managing leftover inventory.
