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Reverses On Revival Path

BusinessWorld, 30 October 2010

Vishal Krishna

Debt-laden Subhiksha’s hopes of resurrection seems to have reached a dead end. The retailer received a serious blow this week with the Madurai bench of the Madras High Court rejecting its merger proposition with Blue Green Constructions and Investment (BGCIL), a Madras Stock Exchange-listed company. A merger would have helped the combined entity list on the Bombay Stock Exchange and the National Stock Exchange and raise fresh capital. Subhiksha owes at least Rs 800 crore to its creditors, which include Kotak Mahindra Bank, ICICI Venture and ICICI Bank. The court squashed Subhiksha’s appeal stating that any more money being raised would jeopardise the interest of the investors.

The last time BW spoke to R. Subramanian, CEO of Subhiksha, about a year ago, he said, “There is no better time for value retailing. We kick ourselves for having to sit out injured at this time. We have only retired hurt and will be back to bat soon.” One year since, the retailer is still retired hurt with many claiming that the company’s innings are over. Subramanian also said the merger meant quick access to the consumer durable retailing business where BGCIL had done a lot of spadework, and that BGCIL would give Subhiksha access to more equity.

The retailer has not been a bad venture for all its investors, though. For instance, ICICI Venture, which invested four times in Subhiksha in eight years, has taken out Rs 270 crore on total investment of Rs 90 crore, claims Subramanian.

Subhiksha is not the only one stumbling. Vishal Retail — currently sitting on a debt of over Rs 700 crore — is negotiating with US-based TPG Capital and Chennai’s Shriram Group to sell its assets. The company reported a net loss of Rs 19 crore in the quarter ended 30 June and a loss of Rs 414 crore in 2009-10. Apparel seller Koutons Retail is also facing cash problems. Its suppliers filed winding-up petitions in the Delhi High Court this week, after they failed to recover their dues. The company’s current debt stands at Rs 660 crore. Koutons’ net profit fell 49.9 per cent to Rs 5.51 crore in the quarter ended June 2010. The retailer’s stock has also tumbled over 60 per cent in the past one month on worries that the promoters have pledged more shares. The retailer has close to 1,400 stores across India.

Managing rents, servicing a large number of stores and inventory build-ups have virtually stalled retail’s growth in India. But, analysts say, many are beginning to think practically. “Retailers have realised that they have to build the current set of stores and lead them to profitability and expand when the first task is achieved,” says Abhishek Malhotra, partner at consulting firm Booz & Company.

But core challenges will be there. “Undercapitalisation is the bane of any business, but particularly for retail,” says Devangshu Dutta, CEO of Third Eyesight. He says retail is lighter on fixed assets than businesses such as manufacturing and infrastructure. This makes raising secured debt difficult.

Others think organised retail is a playable game for cash-rich conglomerates only. “The retail business still needs deep pockets and it is the larger firms — with other large business interests — that are surviving,” says Pinakiranjan Mishra, national leader of consumer practice at Ernst & Young. This trend is clearly noticed with Reliance Retail, Aditya Birla Retail and Pantaloon Retail consolidating their respective businesses for better capital efficiency.

As far as Subhiksha is concerned, it is fast becoming a good case study for what not to do in retail business. Or, in other words, biting off more than one can chew.

(This story was published in Businessworld Issue Dated 08-11-2010)

Big Mac’s new menu

Business Standard
Mumbai, October 25, 2010
Raghavendra Kamath

McDonald’s has ambitious plans to become a breakfast destination as well.

After wooing customers with happy meals and extra-value meals, Big Mac has added breakfast to its menu, which it believes will keep the chain "ahead of competition".

After trial runs in a few Mumbai and Delhi restaurants, McDonald’s has taken over two years to formally launch the breakfast category, which both the chain and analysts call a challenging segment to be in, given the Indian habit of having breakfast at home.

"Most Indians prefer to have their breakfast at home and it is a challenging job to change that habit. But we clearly see an opportunity in this segment. We feel breakfast will see the kind of success we have seen in burgers," says Amit Jatia, managing director, McDonald’s India, west and south.

And that opportunity is big. Globally, breakfast contributes 25 per cent to McDonald’s revenues, and in south east Asia, it accounts for 12-15 per cent.

So, the chain is gearing up for the launch of its breakfast menu "patch by patch" in all metros and then Tier-II cities. For starters, the 14-year old McDonald’s India runs 192 restaurants in the country. In the next three years, the chain plans to sell its breakfast menu in nearly 70 per cent of its restaurants.

It has introduced a dozen items such as chicken Mexican wrap, egg muffin, paneer salsa wrap and salad sandwich, priced between Rs 20 and Rs 72.

Retail consultants say McDonald’s bet may pay off given the changing food habits. "The shift from Indian breakfast to western has been happening for a while as people are getting used to western snacks and the number of those who are eating out is increasing," says Devangshu Dutta, chief executive, Third Eyesight, a business consultancy. The acceptability of western breakfast is enough to give McDonald’s a critical mass in this segment, says Dutta.

Adds Debashish Mukherjee, principal at retail consultancy AT Kearney: "Though the breakfast concept is ahead of its times, I think it is a step in the right direction."

But isn’t two years a long time for experimenting in a market which is very dynamic? Jatia does not think so. "We wanted to make sure the pricing, menu and offering is right and match the taste of our customers," Jatia says.

Further, the chain has been making its restaurants "breakfast-ready" over the last six months, investing around Rs 10-15 lakh on new equipment per restaurant and changing the layouts of the kitchens, and Rs 1 crore on the supply chain.

Other than supply chain, Jatia says the chain is investing Rs 40 crore in the next one or two years to be able to offer breakfast across all its restaurants.

Though consultants endorse the success of McDonald’s as a value for money restaurant with right pricing, location, branding and delivery strategies, they also point out the growth of other quick service restaurants (QSR) such as KFC, Pizza Hut, Dominos which can pose a tough competition.

"Though McDonalds had a head start, how the competition plays out will be a critical factor," says Mukherjee. The QSR market has a lot of unbranded players.

Jatia says the chain has many aces up its sleeve. For example, pricing, which is the chain’s biggest USP. Even when food inflation was at its highest, prices were almost flat at McDonald’s. "We had increased prices in three-four items, but quickly brought them down,” he says.

He recalls how the chain brought down the prices of extra meals – McVeggie and McChicken – to Rs 85 and Rs 96 from Rs 110 and Rs 120 respectively in September last year.

Apart from breakfast, Jatia says Big Mac has big plans on expanding the chain and introducing new items in the menu over the next three years. The chain plans to open 250 new restaurants in the next three to four years with an investment of Rs 750 crore on the front end, excluding the real estate charges, and Rs 250 crore on the back end.

Around 20 per cent of the new restaurants will be drive-through. The current num ber is 40.

But unlike other chains, McDonald’s is focusing on a cluster strategy. For instance, in 2006, Bangalore had two stores; today it has 29. "I don’t want to enter a new region until we have serviced the current territories fully. It helps us in getting better economies, better branding, consumer connect and so on," he adds.

Analysts believe the new stores will help the chain in achieving its stated target of doubling turnover every three years. The chain is also working on bringing McCafe, its chain of coffee shops, to India in the next couple of years.

On the menu front, plans are to add new categories such as desserts, beverages and products at premium price points. McDonald’s is also launching its MFY (made for you) system across all stores. In MFY, whenever a customer orders at the counter, it goes live to the kitchen, and it has to be delivered within a minute.

Jatia says the chain is running a profitable business and delivering a high double digit same store growth consistently for the last six years. It broke even two years ago at the store level.

(This article originally appeared in Business Standard on October 25, 2010)

Cover Story

Indian market is flooded with brands while consumers are finding it difficult to stay afloat. Competition, demands and innovation are the key aspects to sustain in the battle. But what are the aspects to be avoided? Shweta Iyer talks about the pros and cons of launching a new brand and tries to find a success mantra to survive in the industry through thick and thin

In India it’s a “Brand” New Story Everyday !

In the last few months India has witnessed a galore of newly launched brands and brand extensions leading to a surge in the marketplace. A recent report states 1,500 brand launches happened in the past 18 months, thus leading to three launches per day. Out of this only five percent make the cut. With the aim to make it big, they prefer to jump rather than take baby steps, resulting in failure of their brand identity. Every sector including FMCG, telecom, retail, lifestyle, electronics and automotive has one new launch to its credit, every single month.

Slow and steady wins the race

Big retailers to small time investors and international brands foresee India as the biggest retail hub. Many brands feel that Indian audience welcome every new product in sundry. With exhaustive thesis, c o n s u m e r s t u d y a n d o t h e r researches, new brands have their retail theory in place but yet fail to make the mark. “One of the enduring marketing myths is that a new brand that will eventually become a big brand has to take off in a hurry. And that a marketer should devote enormous resources to assure a rocket-ship launch. Taking it slow by understanding the pulse of the audience should be the prime objective,” says Johnny John, coo- World Player from SKNL. Each category is different from the other. For instance: FMCG is faster than apparel while hi-tech machines win over automobiles. Dedicating time and being patient as the brand grows is crucial for any retailer. And for c r e a t i n g a b r a n d i d e n t i t y,promotions, campaigns, offers and discounts, and other advertising gimmicks are equally important.

Take Microsoft, for example. It might be hard to believe, but the brand took quite a long time to get off the runway. Microsoft took ten years to exceed $100 million in annual sales. Wal-Mart took 14 years to break $100 million in annual sales. Today the brand has become the world’s largest retailer. The turning point for a new brand comes when slow initial sales suddenly accelerate towards the mass market. The largest, most powerful brands, the brands that have stood the test of time, are the brands that have taken off slowly. The brands that take off rapidly like a rocket ship usually turn out to be fads. Big Bazaar opened its first store in 2001. Being the first departmental store that offered everything under one roof, Big Bazaar is the most successful retail venture in India. According to a report, “starting 2008 with six million square feet of retail space and stores in 51 cities pan India, they ended the year with over 11 million square feet of retail space and over 1,000 operational stores across 63 cities and towns and 65 rural locations in India. They opened 25 Big Bazaar stores in 2008 and carried the total store count to 104. The company saw a 52 per cent increase in its total income from ` 33.29 billion in FY 2006-07 to ` 50.53 billion in FY 2007- 08.” Today, Big Bazaar has 133 outlets across the country.

Missed the bus

Where there are success stories, there are also brands that missed the bus. The FMCG brand Marico had to withdraw the debut of its healthy snack – Saffola Zest – due to poor market response received. Marico has been trying to rework the flavor and taste for some time, following consumer feedback and is planning to re-launch the brand in next couple of coming months. The withdrawal from the market implies the company has not been successful in reworking the taste easily. Saffola Zest faced fierce competition from Parle Agro’s Hippo,Pepsi Frito-Lays Aliva and Parle Products Monaco Smart Chips. It is also planning to launch Saffola Oats in the breakfast cereal market in India,which the company is positive about.Reports stated, “The total market worth of the breakfast cereal is Rs 500 crore while the oats market is small with ` 120 cr and is rolling at 25 per cent yearly.” The other major players in this category include PepsiCo’s Quaker Oats and Bagrry’s. Kellogg’s is also a strong and dominant player in corn flakes, with an over 70 per cent share.

Maggi instant noodles, foods major Nestle’s flagship brand which has dominated instant noodles for nearly three decades, is losing market share on a monthly basis to newer entrants such as GlaxoSmithKline’s (GSK) Horlicks Foodles, Hindustan Unilever’s (HUL) Knorr Soupy noodles, Big Bazaar’s Tasty Treat, Top Ramen and several other smaller players, according to data by market research firm Nielsen. The data shows that Maggi’s share of instant noodles, on an all-India basis, across urban markets, has slipped consistently in the period between December’09 to July’10. While Maggi instant noodles (minus vermicelli) had a 90.7 per cent share in December’09, the share dropped to 86.5 per cent in July’10 on an all-India basis. A regional split of the data shows that Maggi’s instant noodles’ value market share has fallen across the east, south, north and west zones for the same period. Analysts say with new competition, Maggi’s market share is certain to get impacted.

New Brand Launches

Brand launches and extensions have been an integral part of any company’s expansion plans. Budgets are allotted taking care of brand p ro m o t i o n s a n d ca m p a i g n s . Innovation has been the watch word for any new brand for recognition and retail presence. Let’s have a look at few of the newly launched brands or products and their survival strategies.

S. Kumars Nationwide Limited (SKNL) – India’s leading Textile and Apparel Company with expertise in multi- fiber manufacturing launched its new apparel brand World Player in Andhra Pradesh. True to SKNL’s mission of catering to the entire spectrum of the socio-economic segments of the Indian market, World Player offers fashion solutions for today’s young achievers at the bottom of the economic pyramid. World Player by S.Kumars’ is the first brand devised and created for the lower-mid segment of the market who strives for excellence and quality of life. Talking about the brand strategy and promotions, World Player has followed aayaram gayaram culture while launching the brand. Launched in April 2010, the brand is already present in 650 MBOs across 300 different towns. The brand likes to take it slow and avoid doing too much too soon. For campaigning, World

Player sent a mobile van in various areas in South with small display of products, and to give touch and feel experience to the consumers, with contest inside. It got tremendous response as it allowed the customers to connect with the brand. According to Johnny, “Strong brand proposition is required, advertising and other things just amplifies it.

Innovation is something which Kurl- on has always looked upon, keeping this in mind they are coming up with new innovative folded spring mattress both in bonnel and pocket spring which will be introduced for the first time in the country and will be called “Athiti”. This can be folded and packed properly while being used as an extra mattress for the guest (atithi). Kurl-on, also introduces three new types of pillows being released in the market during this month including Stomach sleeper Pillow, Side sleeper Pillow and Pillow for pregnant women. The brand has recently entered furniture retailing. The range includes furniture for living, dining and bed rooms. A dealer network of 5500 across India, Kurl-on now has its wings spanning across 47 offices and 50 godowns strategically located all over the country.

D’décor, a premium home furnishings brand was started in 1998-99 and is recently re-launched in a complete new avatar. The brand flaunts Bollywood superstar Shahrukh Khan and his wife Gauri Khan as its brand ambassadors. “Having made our mark on international grounds in manufacturing, we launched an innovative business model in distribution in India which created paradigm shift in the distribution model in the home furnishings industry in our country. We wish to make even this step an equal success a s o u r m a n u f a c t u r i n g a n d distribution. We shall think of further vertical integration by means of shop- in-shops, franchisee or own stores,” shares Nikita Desai, lead-business excellence, D’décor.

W i t h a s t r o n g p r e s e n c e internationally, Valia Retail-the leaders in manufacturing and export of exquisite and high end textiles and accessories has forayed into the retail of high end home furnishing and lifestyle products, with the unveiling of its flagship store- Veaura- a home décor destination in Mumbai. The store presents a contemporary western and modern approach to home furnishings is spearheaded by Varun Valia. The brand also plans to open its store in Delhi and other metros in the coming months.

Provogue India plans to foray into the fashion watch segment by next month and is eyeing around ` 20-25 crore revenue from this business over the next 18 months, said a top company official. “We are entering the watch segment next month and plan to launch 20 models initially. The watch category in India is growing fast. We will initially start with the top five metros and then move into other cities. We have a manufacturing contract with Fossil and the products would be manufactured at its Himachal unit,” said Akhil Chaturvedi, director, Provogue India. Currently, there are 120 Provogue stores and the company plans to add about 75 more in the current fiscal.

Tata International, the overseas trading company of the Tata Group has decided to enter footwear retailing. Tata International, a manufacturer and trader of leather products, makes shoes for several known global brands including Escada and Hush Puppies. Tata International will sell the formal and fashion leather shoes under its own brand, the sources said. Big retailers such as Reliance Retail, through Reliance Footprint, and Future Group, which has tied up with UK- shoe retailer Clarks, too have ambitious plans for its footwear segment.

Catwalk plans to extend the EBO from purely company owned to the franchisee system to reach out farther and across the length and breadth of the country. To achieve this goal of exponential growth

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Importance of brand building and expectations from the new brand
Context, Consistency and Constancy are three critical components of brand building. First of all, a brand must be relevant to the customer’s context – it may be very well to use phrases such as “selling ice to Eskimos” as examples of salesmanship, but for a brand to take hold and grow, its relevance is the most important factor. For instance, cold breakfasts, energy drinks, and snack bars were irrelevant to most Indian consumers’ context only a few years ago, even though they were very popular elsewhere in the world. As the relevance and acceptability has increased (especially to globally connected young consumers) the context has become more favourable to brands selling these products. Secondly, a brand must stay consistent to its values, the message and the benefits it offers. If there is lack of consistency across the media, or across sub-markets, or over a period of time, the brand is typically weaker, and it takes much longer and much more funding to build. Thirdly, it is important to keep the brand visible at regular intervals, rather than investing in very high visibility at one point of time, and then virtually disappearing until the next burst.

A brand’s performance needs to be judged on internal benchmarks as well, not just external (industry) comparisons. Success for one brand may be market penetration, for another it may be the aspiration value and the premium it can charge over competing brands. Good brands are seldom built in a short period of time. So it is really a personal call of the brand owner/manager to say what defines “success”, what time frame to allow a brand to succeed, and whether and when to pull the plug on a brand. Finally, success (or failure) is very dynamic: established brands can die, and sometimes dying brands can be revived or transformed. One example of this dynamism is Burberry, that went from fuddy-duddy to highly fashionable, to then being associated with juvenile delinquents, and then to being upmarket again.

By Devangshu Dutta, chief executive-Third Eyesight

advertising and local promotional activities will play a key role. Catwalk plans to have store launch activities, outdoor activities, brand building activities and is also looking to utilize the viral marketing tool (social networking websites, etc) for effective brand communication strategies. “Along with quantity we believe quality should not take a hit and hence we would continue investing time and money into our IT systems, so as to ensure smooth and efficient growth,” shares Rahul Doshi, business planner-Corporate Strategy, Catwalk Worldwide Private Limited. Talking about the competition and sustaining in the market, Doshi adds, “The major competition for Catwalk comes from the unorganized market. Influx of international players is also being keenly watched here at Catwalk. The brand knew that sooner rather than later, the organized sector would generate interest from the international market and hence has a l ready employed customer engagement activities. Understanding the market dynamics When launching a new product, it is not enough to understand how the product is performing. It is equally important to know who is buying, where the volume is being sourced, and whether the product is attracting new or existing category buyers. India being the emerging hub for new brands and extension lines is comparatively better than markets in the West. The growing market for organized products is on a high. And, as the modern trade evolves, the need for organized products segment is likely to grow.

According to a report prepared by milk powder (WMP), ice cream mix retail and management consultancy powder (ICMP), butter and ghee, Technopak, organised retail in India is both in bulk as well as in consumer likely to touch 25 per cent in the next packs. Future Group has launched 10 years from the current 5 per cent. “Ektaa” brand that offers a range of In the FMCG sector, Kwality Dairy food products from diverse India Ltd (KDIL), manufacturer of a communities of India. With the wide range of dairy products has launch of Ektaa, customers can opt launched Dairy Best Ghee. KDIL’s for authentic native Indian foods product range also includes all SKU’s procured from the best growing of pure ghee, skimmed milk powder areas.The first product to be (SMP), dairy whitener (DW), whole launched in this series is popular variants of rice from different states of the country. At the beginning – the new branded rice would be available in five variants – Red Matta, Sona Masoori, Govind Bhog, Ambe Mohar and Basmati. The five variants of Ektaa rice will be available in packs of 1 kg and 5 kg, across all the Big Bazaar/Food Bazaar stores in the country. The brand plans to launch a series of product launches like wheat, regional spices, pickles, papads in phases, giving customers a large basket of community foods to choose from across the formats.

Being ready with the new product is not the only criteria as mentioned before. Promotions and constant innovative retail strategies allow the consumers to touch and feel the product. For instance: Big Bazaar’s ‘Shubh Mahurat’ programme was started with an aim to launch new device named BlackPad. The new importantly, they must deliver on tablet PC will feature a seven-inch those promises/value propositions. touch screen and one or two built-in Leading brands have a highly cameras, apart from Bluetooth and compelling brand promise and broadband connections. However, it ensure that the promise is delivered will only be able to connect to cellular at each point of customer contact.

products for its consumers every month. After ‘Tasty Treat Cereals’ and ‘Milestone Strolley Bags’, the retail giant recently launched Minute Maid Nimbu Fresh. Such unique offerings allow the customers to indulge and have a refreshing experience. Also, add the promotional initiatives like “Juna do naya lo”, “sabse sasta din” and “maha bachat sale” that allured customers to splurge. Developing new products requires effective ways to minimize risk and maximise gain. New ideas need to be thoroughly tested and evaluated to reduce risks and helps fine-tune the marketing mix before launch. The key issues range from idea generation to proper marketing. In the electronic segment, BlackBerry manufacturer RIM unveils a tablet

networks through a BlackBerry smartphone, said the report. Apart from Blackberry, Motorola also plans to launch a tablet PC, as is the case of Samsung, which is entering the tablet PC market with Galaxy Tab. Dell has already debuted its Streak tablet computer, while Asustek, Acer, Lenovo and Cisco are also planning to enter the race.

Expert take

All the leading and established brands feel that the customer is a very important entity. It is mandatory to fulfill the needs, wants, desires and aspirations of discerning audience. Brands must make promises to their customers. They must promise relevant, differentiated benefits. They must offer unique value propositions. And, even more

According to Johnny, few of the factors to be kept in mind while launching a brand includes: “ Calibrated approach, target consumer and brand positioning, be extremely reactive by adapting to the market demands. Along with the stated tips ensure that retail infrastructure in place, this will help in launching a new brand with ease.

Brands are personifications of organizations, products, services and experiences and they are the source of relationships. It is important to implement the strategies shared by the successful leaders to make your brand story a success! Go ahead and follow the guidelines and make the cut!

Cover Story

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Woodland’s eco drive

Business Standard, New Delhi, October 18, 2010

Amit Ranjan Rai

Five years ago, Woodland, the maker of outdoor shoes and apparel, with a flourishing business in the country’s metros, decided to test waters in Tier 2 and Tier 3 cities. It opened a store each in the retail high streets of Jaipur and Udaipur, both well-known, well-to-do cities. Woodland had much expectation. But the stores flopped — there just weren’t enough buyers — and had to shut. Woodland then decided to stay away from smaller cities for a couple of years. No more experiments, no more testing waters was the message from the head office in Delhi.

year-and-a-half ago, amidst the buzz about the potential of Tier 2 and Tier 3 cities, Woodland decided to venture into these cities once again. This time it tweaked its strategy a bit. Instead of opening the regular 300 square feet stores, it decided to go full throttle taking up entire buildings or up to 30-40 per cent of all the space in a mall, and converting them into spacious, almost large-format stores. “We decided to make the Woodland store a landmark in such cities. Nothing works like word of mouth in small cities and towns. If people see a big store which stands out, it becomes a talking point and they make sure they visit it,” says Woodland Managing Director Harkirat Singh.

For the time being, the strategy seems to be working. The response from such stores has been encouraging. But Singh admits what’s also working in his favour is a sea change in the retail landscape and consumer attitude in the past two or three years. Smaller cities are buzzing with retail activity. Branded stores are coming up left, right and centre, and the consumer is no longer shy of opening his wallet. “The consumer in these cities is now ready. The youth is becoming brand conscious, and we see them much more open to spending,” says Singh.

No doubt, Woodland has been on an expansion spree in Tier 2 and Tier 3 cities. While currently 60 per cent of its 300-plus stores are located in metros and 40 per cent in smaller cities, Woodland wants this to change to 50-50 in the next one or two years, and then gradually to 40 per cent in metros and 60 per cent in smaller cities. “In the past two or three months alone we’ve opened stores in Varanasi, Allahabad, Vapi, Sangli, Thrissur and so on. Unlike five years ago, many of these stores have been doing well from day one. Our plans for the next two to three years will be concentrated on Tier 2 and Tier 3 cities,” says Singh.

“Certainly there is a big difference in real estate costs when it comes to Tier 2 and Tier 3 cities versus the metros. But what companies like Woodland will have to be careful about is that not every such city is going to work. Not every location drives enough demand for such products for the business to sustain. Yes, latent demand is there in many cities and locations, but Woodland will have to carefully evaluate the sites before selecting them,” says Devangshu Dutta, chief executive, Third Eyesight, a retail consulting firm which has been tracking the sector in Tier 2 and Tier 3 cities.

But that’s a significant shift for a brand which has primarily been catering to the urban middle class in big cities for almost two decades. Woodland is a sub-brand of Aero Group which started as a winter boot manufacturer in Quebec, Canada in the 1950s. Called Aero America then, it manufactured outdoor winter boots for Canada, Russia and Europe. The company entered the Indian market with Woodland in 1992. With a factory in Sonepat, it catered primarily to Delhi and some other large cities in North India.

(Article continues below…)

Indian beauty salon chains go on expansion spree

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)