Cheaper valuations make FMCG players pick up stake in salon brands and companies

Purvita Chatterjee Mumbai | Updated on February 11, 2018 Published on February 11, 2018

Brillare may be an unknown hair and skincare brand in the professional salon segment, yet recently it had FMCG major Emami invest in it as it did not have enough expertise and experience in the salon segment.

In the past there have been other FMCG companies like Godrej Consumer(Bblunt), Marico (Bellezimo) and even MNCs like L’Oreal (Cheryl’s) which have invested in lesser known professional salon segment brands.

Since salons do not have the regular FMCG model of distribution, acquiring these brands gives them not only a foothold into the segment but also a chance to build significant salon brands in the skin and hair segment.

These are firms with relatively low valuations which FMCG majors can buy at a throwaway price to make an entry into the segment.

Cheap buys

“Valuations of these unknown brands and companies are nothing compared to big FMCG companies. This makes them low-cost buys for FMCG companies which are seeking an entry into the salon segment in categories like hair and skin, where there are no significant brands except L’Oreal in hair across salons today,’’ observes Shilpa Bhattar, Director, Reevolv Advisory (a research firm).

For instance, in 2015, Marico picked up a 45 per cent stake in Mumbai based Bellezimo Professionale Product for an estimated ₹10 crore as it expected the buy would help focus on the salon distribution channel. It claimed that since the salon channel works differently, it intended leveraging its network for its own hair and skin care products with a direct marketing reach.

In 2013, Godrej Consumer too had invested in Mumbai based upmarket salon Bblunt and now even has on FMCG range to supplement it. According to industry research firm Reevolv, Bblunt had a turnover of ₹13 crore in 2013 when it was acquired by Godrej at a five times multiple at about ₹70 crore.

The latest buy was by Emami, when it decided to invest an undisclosed amount through compulsory convertible preference shares, which on conversion will result in 26 per cent equity stake in Brillare Science.

Considering L’Oreal currently dominates the hair segment in salons, most of the acquired brands by the domestic FMCG companies would pit themselves against the MNC in the salon segment.

“The salon segment is still fragmented and it is difficult for established FMCG brands to make a mark in this segment. While L’Oreal is the only significant salon brand in the hair care segment, the skin segment remains relatively untapped giving a chance for FMCG majors to build salon brands in this segment,’’ added Bhattar.

Product to service

Besides it is also about extending from a product to the service category with the FMCG brands.

While biggies like HUL have always had their Lakme beauty salons to complement its Lakme cosmetic portfolio, for the others it could also lead to a future in the services segment.

As Jagdeep Kapoor, Managing Director, Samsika Marketing Consultants says, “The trend of having a product along with services is getting stronger for FMCG companies. HUL having bought Lakme from the Tatas to start salons did set the trend and now others are following it.’’

Published on February 11, 2018
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