MINT (A partner of the Wall Street Journal)

Mumbai, 15 October 2010

Sapna Agarwal

Indian beauty salon chains are looking to expand operations, offer cheaper services and increase the share of product sales in their earnings.

Chains such as VLCC Healthcare Ltd and Kaya Skin Clinic are opening new outlets to meet growing demand for their services.

Kaya, a chain of premium skin clinics owned by Marico Ltd, runs 81 outlets in India and nearly 20 overseas. At the beginning of 2010, it had announced a freeze on domestic expansion.

International operations contribute 45-50% of its revenue. In the current fiscal year, it has opened three stores in West Asia and one in Bangladesh. It plans to open three-five more stores in West Asia this year, chief executive Ajay Pahwa said.

In India, he said, Kaya has reworked its business model and made its services more affordable to compete with the cheaper neighbourhood salons.

"We have made the brand more relevant to more people because you have, one, services which are positioned to meet your everyday needs, also they are very affordable. Two, you have products--products are so important because at the end of the day, great skin, I believe, is a result of composition or the holistic approach," said Pahwa.

The company has identified four growth areas: everyday skincare, skin beauty, skin concerns such as pigmentation and acne, and anti-aging.

While the focus will be on everyday care, even specialized services will cost less. For instance, Kaya has brought down the average price of the so-called aqua radiance ser- vice, which it has been offering for a year in partnership with UK-based TavTech, to `1,500 from `2,000 per session, Pahwa said.

Kaya acquired Singapore- based DermaRx this year and plans to begin offering its products in India soon.

While DermaRx has a business model similar to Kaya, half its revenue comes from products--compared with 15% for Kaya, said Pahwa. Kaya will try to double this contribution to 30% in the next 12-18 months.

For the three months ended 30 June, Kaya reported revenue of Rs. 50.6 crore--including Rs. 5.1 crore from DermaRx--a growth of 14%. It incurred a decline of Rs. 4.7 crore in profits before tax.

Pahwa added that Kaya is resolute about consolidating volumes and improving sales at its existing stores in India before expanding. "Once you are able to achieve that, then it just gives you the desire to expand also."

But VLCC Healthcare, which has 150 outlets in 90 cities, has opened 11 stores in India and will add 16 more this year, said Sandeep Ahuja, managing director. The firm will also launch eight outlets in West Asia, Sri Lanka and Bangladesh.

Ahuja said VLCC Healthcare may allow franchisees to open new outlets and launch relaxation services, such as a day spa, at more outlets. "People are looking at holistic wellness solutions rather than specific individual solutions," said Ahuja, explaining customers are increasingly opting for "body shaping" rather than just weight loss service.

In July, Channel [V], the music channel, had announced a partnership with premium hair salon Juice to open [V] Juice Lite salons that would offer cheaper services than Juice. "The market for health and beauty services is estimated to be a $2.5 billion and is expected to reach $4.3 billion by 2013 on account of increasing health and beauty consciousness," said Raghav Gupta, president at retail consultancy Technopak Advisors Pvt Ltd.

Currently, organized retail accounts for just 2% of this market. But with chains expanding, this could become 8-9% in four years, he added.

"This is a fragmented, price-sensitive, thin-margins, high-attrition, manpower-dependent business," said Devangshu Dutta, chief executive at Third Eyesight, a New Delhi-based retail and consumer products consultancy, He said smaller chains with three outlets are also aiming to expand to five or 10 outlets in the next year-and-a-half. However, despite their growth plans, none of the larger companies is aggressively seeking market dominance.

(This article originally appeared in Mint on October 15, 2010)