‘Focus on product differentiation; consumer loyalty will follow’
Beauty and skincare brand Pilgrim, which started its life online, is putting its might behind offline expansion at the moment. In the last year and a half, the contribution of offline to its overall sales has grown from nil to nearly 25%, says co-founder Anurag Kedia. In this interview, he talks to Toshiro Agarwal about the challenges small players face when they start making their way through offline channels. Edited excerpts:
Quick commerce has become a priority sales channel for D2C brands. How is Pilgrim adapting its supply chain and inventory to meet the demands of platforms like Blinkit and Zepto?
The challenge with quick commerce is that they work out of dark stores. Overall, the space they have in a dark store is very limited. Therefore, the space they have for the category is also limited. Marketplaces are used to holding inventory for 30 to 45 days. Q-commerce is not able to do that. They need a much faster turnaround time, which means that they need much faster service time, and they don’t carry the long tail. What I mean by that is that if the brand has 250 stock keeping units (SKUs), q-commerce platforms will carry between 30 and 50 SKUs, and they will service a smaller quantity at the point of sale.
We have set up four regional warehouses, which are working very closely with the q-comm-erce partners, and we are setting up more. We will probably have 10 to 15 warehouses in another two months time, which will work exclusively only for q-commerce. The application programming interfaces are getting integrated — so their ERP and our ERP will talk to each other. In other words, the manual intervention is being erased.
How does a D2C brand build an offline presence so that the two do not end up cannibalising each other?
Almost all our marketing centres on digital channels, and almost every consumer in the country today is present on a digital social media platform. However, not all of them are buying online. We are able to generate demand online, but the service is both online and offline. Our marketing will continue to be largely digitally focused, largely online, but consumers will buy from their preferred channel. It can be online, offline or a combination of both. That means we need to be present across channels to be able to service this demand.
What challenges did you face in scaling your general trade, modern trade, and exclusive brand outlet presence?
Our growth has been driven both by horizontal and vertical marketplaces. By horizontal marketplaces, I mean partners like Amazon, Flipkart, Myntra and vertical marketplaces like the likes of Nykaa and Purplle. Now q-commerce has started contributing to our online sales growth. In fact, I would say, it’s becoming very meaningful, very fast. For offline, we are still in the building-up phase. There is a very large opportunity waiting to be captured, for which we need to first get our sales and distribution set-up in place.
The challenges of each of these channels are very different. For example, in modern trade, the biggest challenge is getting an entry itself, because all of these are large channels and usually the terms of trade or the margin structure is not favourable. Channel partners ask for very high margins which could be viable for larger players but not necessarily for a young brand. So we need to inspire confidence in them so they agree on a commission structure that works for them as well as for us. It has to be a mutually beneficial partnership.
We are present in important partners like Health and Glow, Tata Neu, Lifestyle, which are all very large retailers, but getting in has been time-consuming.
Your brand is looking to expand its SKU count by year-end. How will you ensure your product is picked up by the consumer in this highly competitive category?
We are a completely tech-driven company end to end. From generating consumer insights for new product development to R&D to procurement to supply chain to demand generation, everything runs on different AI tools and AI bots, which have been developed in-house.
By December 2025 we’ll be adding another 100 SKUs to our existing ones. We have a strong consumer insight team, so all our products are consumer-first. There is a lot of research that goes behind understanding what the consumers in India — as well as internationally — are looking for, and there is a lot of data mining. All of that goes into an AI engine, which is proprietary to Pilgrim, and that AI engine then churns out product insights in terms of what should be our next launches, at what price point, what ingredients to use or the formulation to go with. That’s how we are able to remain ahead of the competition, at least in terms of the innovation pipeline.
Pilgrim’s packaging and storytelling approach has been attention grabbing. Has that translated into customer loyalty?
First you differentiate your offering against competition and then you can claim loyalty, especially so for a new brand like us which is only four to five years old, whereas legacy beauty brands have been around for many decades. The first job for any new brand is get noticed in the market and then get bought by the consumers. Then, if they like the product, loyalty will happen automatically. The first thing we did was use this very unique house colour — bright teal — which really helped the brand stand apart from the competition. We have not seen any other brand use this kind of bright colours. Our packaging design is also very international and that has helped us get noticed. Of course, loyalty is not driven by the design, but by the product. With a combination of design and product efficiency, we were able to generate first-time new-to-brand customers, and then drive loyalty.
Do the entry of global skin care brands like Innisfree and The Ordinary bother you?
Every international brand coming to India will offer something unique to the customer. It is very good for the consumer and it also raises the bar for other brands on many fronts, like product formulation, R&D, brand aesthetics. The market is very large so we are not worried about competition. Any brand that does a good job will get its market share.
Tell us something about your plans to expand into international markets.
At the moment we are working with multiple regulatory agencies to streamline the formulation to comply with local laws. At the same time we are trying to understand what sells there, what the consumer needs, which locations are right and where we should be playing. To start with, we will not be taking the entire portfolio to those markets.
Cash burn has been a major concern in this segment. How has Pilgrim kept a lid on cost?
In the past few years we have hyper-scaled up, which means there has been a lot of investments in brand and marketing ahead of time. Going forward, we will be optimising our marketing spends to drive efficiency. Also, because our offline channel is very new, many teams had to be hired to be able to scale our offline sales. Now on, the manpower cost around the offline team will be better optimised.