The Hindu Business Line : Beauty salon business gets good facelift, says study

As at the end of FY 2003, there were an estimated 61,000 salons in towns and cities with a population in excess of 10 lakh which racked up an aggregate turnover between Rs 1,493 crore and Rs 1,805 crore, according to Value Notes Database Pvt Ltd.

While most of these salons are in the major metros - Mumbai, Delhi and Kolkata (all with a population in excess of 1 crore ) - the others are balanced almost equally between the mini-metros with a population of 30 lakh-1crore and smaller towns with a population between 10-30 lakh.

Interestingly, half these salons fall in the `home' category (one to two employees offering limited services) with large saloons (more than six employees providing a wider range of services) constituting only four per cent of the total number of such establishments in the country.

However, the home segment, despite being the largest in numbers, accounts for 15-24 per cent of the total revenue while the large salons account for 27 per cent of the revenue.

According to Value Notes, haircuts emerged as the most revenue generating service across all the categories of salons, accounting for roughly 25-30 per cent of the revenues.

"Hair styling (hair colouring, perming, streaking etc) contribute to about 18 per cent of the revenues for the larger salons, but are very insignificant revenue earners for the other categories. This is especially true of high-end specialty parlours.

In the medium size parlours, hairstyles lose out as the revenue generators since the skill sets are generally perceived to be lower in this category. However, facials, being comparatively price inelastic, make up for 31 per cent of the revenue generation in this category. This trend also follows to the smaller and home parlours, as this is a function of price rather than volumes. Therefore, it is easy to say that haircut is the most popular as well as the most revenue earning service in this business.

Interestingly, for the medium and small beauty salons, facials form about 30-35 per cent of the earnings. Quite obviously, the price differences are highly significant between the town classes, with prices in the metros being considerably higher than the smaller towns, the difference being up to Rs 500 for haircuts.

Price differences are the highest in haircuts and facials, followed by hairstyles. Among the other services, the price differences do not appear to be so dramatic."

"The main drivers for price variations are quality of the services offered and the retention of good employees. These are also important factors which drive customer loyalty. Also the locality in which the parlour is located drives the price. In case of large parlours, a certain niche or specialty determines the price points for the services offered."

Dealing with product sales, Value Notes says that they constitute a very low part of the revenues. In fact, it is only the large parlours that engaged in product sales. But this too contributed to only about seven per cent of the revenues.

"Only L'Oreal appears to have managed to successfully push its product line, especially the hair treatment products through the beauty salons. The reasons for this encompass exclusive sales of L'Oreal products in the salons, regular training for the salon staff and sale of certain L'Oreal products not available at any other outlets."

According to Value Notes, the overall estimated growth rate for this industry (in FY 2003-04) in terms of number of parlours would be between 20-25 per cent, but revenue growth would be only about 4-5 per cent. The firm estimates that the growth rate would be higher among the metros and the smaller towns.

Moreover, growth rates would be better among the large parlours rather than the medium and small parlours. "This is because the smaller players are being threatened by the burgeoning home segment."

Value Notes has identified as the industry "growth drivers" an overall increased awareness of beauty, improvement of technical skills, a growing demand for something new, veering of beauty salons towards "treatment" and "therapy" and aggressive efforts by companies like L'Oreal for their products."

The inhibitors to growth are mainly the stiff competition due to the establishment of small and home size parlours. This is also due to the emergence of a lot of training institutes offering inexpensive short duration courses. The other problems faced by the parlour owners include the service tax, felt by mostly the large beauty salon owners. Undercutting by smaller parlour owners was also another problem faced by this industry.

Enumerating the industry highlights, Value Notes reports:

The size of the beauty salon industry is estimated at between Rs 1,493 crore and Rs 1,805 crore. This is attributed to the advent of foreign TV channels, changing lifestyles, higher purchasing power and greater awareness and need for `beauty'.

However, the growth rates in number and revenue are contrasting. While the increase in numbers is dramatic, the revenue growth is pegged at only 4-5 per cent.

The barriers to entry in this business are low and therefore it makes the business very competitive. This is more significant in the smaller and home-based parlour segment.

The higher end market is growing at a considerably slower rate, but is grossing the highest revenues. This is evident from the fact that a number of major national and international names in the beauty and personal care segment are making forays into this industry.

Typically, the speciality skills and branding, therefore appear to make the customer loyal, especially in terms of the high-end large parlours.

Specialised services and niche products are the buzzwords. This is quite evident for greater demand for aromatherapy, herbal treatments etc. Creating a niche seems to the demand of the hour rather than a `jack of all' business.

`Health' and `beauty' are being converged. This also proves to be good news for the industry as a wider range of services could be included in their offerings to customers.

Also, a lot of parlours (especially in the large metro segment) appear to be attracting men as clientele. There seems to be a movement from traditional barber shops to specialty salons for men offering a whole range of services.

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