It’s beauty pageant time!

Purvita Chatterjee | Updated on March 14, 2013

Stylist Jawed Habib at work _ A. MANIKANTA KUMAR   -  The Hindu

Lakme used be the only beauty salon in Colaba’s Wodehouse road a decade ago. Today there are almost seven other salons on that single stretch of road which range from the master franchise-led high-end French salon of Jean-Claude Biguine to lesser known ones such as Butterfly Pond and Rouge run by emerging entrepreneurs. The prohibitive real estate costs in this part of South Mumbai are no deterrents.

From domestic players such as Jawed Habib, Lakme and VLCC to international chains such as Saks and Tony & Guy also setting up shop, beauty is becoming a competitive and challenging business.

Joining the fray are FMCG companies trying to make a mark in beauty services. These range from Marico’s Kaya Skin Clinics to Hindustan Unilever’s Lakme Beauty Salons and the Chennai-based Cavinkare new company, Trends In Vogue, which is targeting 350 salons by 2015.

With low barriers to entry, opening a salon is fairly simple; When the growth phase starts and the salon wants to scale up- therein lies the rub. Capital requirement, supply of trained staff, space to expand, customer satisfaction, retention and consistency in service quality are challenges.

Lakme Lever, one of the biggest and oldest players in the business, knows what it takes to survive. “High-quality staff with good technical skills and strong consultation and presentation skills is the most important need of the beauty salon industry. The second one is services. Expectations have increased, hence salons have to constantly reinvent their services and use the latest technology and products.,” says Pushkaraj Shenai, CEO, Lakme Lever.

A relatively smaller FMCG player such as CavinKare is also confident of succeeding in this business today. “We clearly see that the beauty salon market is maturing in India and the organised sector is booming. Today we have very aggressive plans for our beauty salon business. We have been expanding rapidly across markets. Some will be company-owned, some franchisee-led,” says C. K. Ranganathan, Chairman and Managing Director.

Increasing disposable incomes, urbanisation, expenditure on personal products and services are fuelling the growth of the business.

“Globalisation has helped the beauty business in India come of age today. While many companies are stepping on the pedal, to survive they must have their back end in place and this means having the right manpower and adequate funding to run the business,” says Samantha Kochhar, Managing Director, Blossom Kochhar Group of Companies. Her company has already graduated from training beauty professionals to selling skin care products and is now poised to enter the salon industry with Spalon, the name a combination of spa and salon, which will offer services ranging from facials to de-stressing treatments. The scarcity of trained professionals is considered to be the biggest challenge due to lack of adequate training institutions. While there are training institutes run by the likes of Jawed Habib and Blossom Kochhar, there is no single degree or national accreditation that can be used as a benchmark to select the right people.

Finding funding

This demand-supply gap is leading to growing salary costs for trained professionals and higher attrition rates in this industry. Besides, most of these salons find it extremely difficult to scale up due to lack of bank funding as most of them are not big enough to go in for an IPO.

Recently salon chain Jawed Habib floundered with its IPO and has gone back to raising funds through traditional routes such as debt and equity. This chain already operates 362 salons in 90 cities across 21 States with three types of business models.

“Funding gets easier when the brand is strong and has high visibility. However, we are no longer going for an IPO. Today we are going back to raising funds through debt and equity as we continue to open six salons every month through the franchisee route. The salon brand would also be extended to the head spa segment soon,” says Rohit Arora, Executive Director, Jawed Habib Hair & Beauty. The company has already offloaded 44 per cent stake in the company to a Mauritius-based PE fund (Greenfield Investments).


Others salons with high visibility and considerable scale have also managed to get private equity funding. A spate of recent deals by firms such as JM Financial India (Enrich), Helion Venture (YLG) and Everstone Capital and CLSA (VLCC) have helped these salons scale up rapidly, given the fresh infusion of much-needed funds.

“We took the first tranche of private equity investment in 2010 when we had just 15 salons and the next tranche in 2011. In the past three years, we have grown 100 per cent and have an Ebita margin of 30 per cent, with 50 company-owned salons today. Private equity has helped us scale up rapidly as the salon industry has got some momentum now. We may soon require another round of funding,” says Vikram Bhatt, Director, Enrich Hair and Skin Solutions. The Mumbai-based salon has managed to tap into the southern market as well, with a resultant jump in sales turnover from Rs 24 crore in 2010 to Rs 50 crore in 2012.

Private equity players are taking special interest in this segment primarily due to higher operating margins and the model of the business. Enrich and YLG (You Look Good) have company-owned salons and both have offloaded minority stakes to private equity firms

Kaustubh Kulkarni, Managing Director of consulting firm Reevolv Advisory, says, “There is hardly any capital expenditure involved in the beauty salon business and since most of them operate on leased property, the salons do not have to give any collateral to a bank to avail credit. This makes the private equity players more interested in the beauty salon business.”

Company-owned outlets are preferred to the franchise model, since the latter can be a risky model for private equity players. “With the franchisee seeking to earn a return on his upfront investment, there is a tendency to under-report and cut corners. Such practices offer some upfront savings, but impact the service offering and experience,” warns Kulkarni.

But the big players such as Lakme Lever and Jawed Habib have always used the franchise route to expand their operations. “India is a young country with huge entrepreneurial energy. The franchising model is best suited to this environment. Lakme has a strong base of franchisees. We have 135 franchisee salons and 30 per cent of our franchisees have more than one Lakme salon. We have strong systems – IT, standard operating procedures, strong managerial support and control and extensive audits to ensure compliance,” adds Shenai of Lakme Lever.

Others such as Marico have preferred to have company-owned outlets, making it a risky business especially when there is need to achieve scale quickly. As Harsh Mariwala, Chairman, Marico has admitted in the past, “We did go through the learning curve and the insight we got was that we ramped up too fast. There will continue to be challenges in the business with competition from smaller players with no overhead costs.’’

Consultancy firm Reevolv Advisory has pegged the organised salon market in 2011 at Rs 1,000 crore, and says it is growing at 35-40 per cent every year. It predicts potential of Rs 3,900 crore by 2015.

The urban market has been growing at a faster pace of 20 per cent from 2005 to 2010 compared to the rural market which has been growing at a CAGR of 13 per cent. Currently, Delhi and Mumbai comprise more than 55 per cent of the organised salon industry. Among the Tier 2 cities, Ahmedabad is the largest market followed by Surat, Nagpur and Chandigarh.

Competition from the unorganised sector and even international players will only help in creating better services and also keep prices under control. “As consumers are evolving there will be more players, with increased choice for consumers. We welcome the entry of competitors both global and Indian. Consumers will benefit from the variety of choice and the existing players will raise the game. More competition will help consumers get better beauty experiences and in turn help expand the market overall. It is a win-win proposition for all,’’ observes Shenai of Lakme Lever.

Published on March 14, 2013

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor