January 2013Reevolv Advisory Services Private Limited Indian Salon Hair and Skin Products Industry Report This document has been prepared by Shilpa Bhattar and Kaustubh Kulkarni. For any queries or detailed information contact us on +91 22 - 60022001 or email at
[email protected] Indian Salon Hair and Skin Products Industry Report 2 Table of Contents Particulars Page Nos. 1. Executive Summary 4 2. Salon Products Industry Overview 2.1. Market Opportunity 5 2.2. City Wise Market Analysis 8 2.3. Growth Drivers 10 3. Business Dynamics 3.1. Evolution of the Industry 13 3.2. Salon Products Category Differentiation 16 3.3. End Consumer Psyche 17 3.4. Business Model 18 3.5. Buying Criteria of Salons 24 3.6. Porters Five Forces Model 26 3.7. Key Success Factors 29 3.8. Key Challenges of the Industry 31 4. Brands Spread 4.1. Organized Salons (Salon Chain wise) 32 4.2. Unorganized Salons (City wise) 33 5. Primary Surveys / Interviews 5.1. Salon Professionals 42 5.2. Distributors 46 5.3. End customers 48 6. Professional Products Pricing 6.1. Hair Products 54 6.2. Skin Products 54 Indian Salon Hair and Skin Products Industry Report 3 7. Private Equity Deals with Valuation 7.1. Forest Essentials 56 7.2. Richfeel 57 8. Player Profile 8.1. L’Oréal 59 8.2. Richfeel 64 8.3. Schwarzkopf 67 8.4. Streax 69 8.5. Wella 75 8.6. Astaberry 79 8.7. Blossom Kochhar Aroma Magic 83 8.8. Biotique 87 8.9. Cheryl’s 89 8.10. Christine Valmy 93 8.11. Dermalogica 95 8.12. Ekta Cosmetics Limited 99 8.13. Ess Kay Beauty Resources 103 8.14. Forest Essentials 106 8.15. Headstart International 110 8.16. JCKRC 114 8.17. Jovees 116 8.18. Lotus Herbals 120 8.19. O3+ 124 8.20. Shahnaz Husain 128 8.21. VLCC 130 9. Annexure: Ratios 134 Indian Salon Hair and Skin Products Industry Report 4 1. Executive Summary The growth of salon products industry is a direct fall out of the surge witnessed in demand for salon industry in India. The salon products industry has seen a similar trend as observed in the salon industry due to the direct correlation of the services offered by salons and the products which form the part of these services. The industry has seen a sea change from limited product offerings to a wider product portfolio especially targeted towards professional salon segment. Hair care and skin care are the main constituents of this industry. The two categories show a distinct trend with hair care being dominated by a few international brands like XXX, whereas the skin care category is highly fragmented with multiple options of domestic and international brands. The size of the salon products (hair and skin) market in India was Rs. XXX billion in 2010, of which hair constituted XXX% i.e. Rs. XXX billion and skin constituted Rs. XXX billion The share of the urban market was around XXX% i.e. Rs. XXX billion. The key success factors of this industry are The findings of the survey conducted across cities and customer groups are as under: As per our estimates, the urban salon products market will more than double and reach Rs. XXX billion i.e. a CAGR of XXX% (2010-2015E). The total salon hair products market in India is expected to reach Rs. XXX billion and salon skin products is expected to reach Rs. XXX billion growing at a CAGR of XX% (2010- 2015E). However the industry has to overcome challenges like................................................. etc. which are acting as an impediment to growth. Indian Salon Hair and Skin Products Industry Report 5 2. Salon Products Industry Overview 2.1. Market Opportunity The growth in salon industry is one of the major growth drivers for growth in salon products market mainly hair and skin products. Consumers generally go to salons for hair services. In a typical salon, around XX% of the revenues are from hair services (hair cut, colour, styling etc.) and balance XX% from skin services (facial, cleanups, manicure/ pedicure etc.) Total Market The size of the salon products (hair and skin) market in India was Rs. XXX billion in 2010, of which hair constituted XXX% i.e. Rs. XXX billion and skin constituted Rs. XXX billion The share of the urban market was around XXX % i.e. Rs. XXX billion. As per our estimates, the urban salon products market will more than double and reach Rs. XXXbillion i.e. a CAGR of XXX% (2010-2015E). The total salon hair products market in India is expected to reach Rs. XXX billion and salon skin products is expected to reach Rs. XXX billion growing at a CAGR of XXX% (2010-2015E). Salon Hair and Skin Products Industry Size (2005–2015E) Rs. In billion 2005 2010 2015E CAGR% (2005–10) CAGR% (2010–15) Total Hair Skin Urban Hair Skin Rural Hair Skin Indian Salon Hair and Skin Products Industry Report 6 Salon Hair and Skin Products - Urban Market — Tier 1, 2 and 3 cities The salon hair and skin products market in urban cities (tier 1, 2 and 3 cities) was around Rs. XXbillion in 2011 with tier 1 cities constituting more than XX% of the total market in Tier 1, 2 and 3 cities. Salon and Salon Hair and Skin Products Industry Size — Tier 1, 2 and 3 cities Tier 1 — Delhi-NCR, Mumbai, Kolkata, Bangalore, Chennai, Hyderabad, Pune, Ahmadabad (cities with population of more than 5 million). Tier 2 — Agra, Allahabad, Amritsar, Asansol, Aurangabad, Bhopal, Coimbatore, Chandigarh, Dhanbad, Durg-Bhilainagar, Vishakhapatnam, Gwalior, Indore, Jabalpur, Jaipur, Jamshedpur, Jodhpur, Kannur, Kochi, Kanpur, Kollam, Kota, Kozhikode, Ludhiana, Madurai, Malappuram, Lucknow, Meerut, Nashik, Patna, Nagpur, Raipur, Rajkot, Ranchi, Srinagar, Surat, Thiruvananthapuram, Thrissur, Tiruchirappali, Vadodara, Varanasi and Vijaywada. (cities with population of 1 to 5 million). Tier 3 — Ajmer, Aligarh, Amravati, Bareilly, Belgaum, Bhavnagar, Bhiwandi, Bhubaneswar, Bikaner, Bokaro, Cuttack, Dehradun, Durgapur, Erode, Firozabad, Gorakhpur, Gulbarga, Guntur, Guwahati, Hubli-Dharwad, Jalandhar, Jammu, Jamnagar, Jhansi, Kolhapur, Malegaon, Mangalore, Moradabad, Mysore, Nanded, Waghala, Nellore, Puducherry, Rourkela, Saharanpur, Salem, Sangli, Siliguri, Solapur, Tiruppur, Ujjain, Warangal (cities with population of 0.5 to 1 million). Cities No. of Cities Salon market Rs. million Salon hair products market Rs. million Salon skin products market Rs. million Total Salon (Hair and Skin products) market Rs. million Tier 1 cities Tier 2 cities Tier 3 cities Total Tier 1 Salon Hair and Skin Products Industry Size (2011) Pie Chart Indian Salon Hair and Skin Products Industry Report 7 Salon Hair and Skin Products - Urban Market — State wise Salon Urban Market — Key states and per capita expenditure (2010) Key States Urban Population [in millions] Urban Salon Hair Products Market Size [Rs. million] Urban Salon Skin Products Market Size [Rs. million] Total Urban Salon (Hair + Skin) Products Market Size [Rs. million] Maharashtra Tamil Nadu Uttar Pradesh Andhra Pradesh West Bengal Karnataka Gujarat Madhya Pradesh Haryana Rajasthan Kerala Bihar Others Total State-wise Salon Skin Products (Urban) Market (2010) — Market Size Rs. XXX Billion Pie Chart Indian Salon Hair and Skin Products Industry Report 8 2.2. City Wise Market Analysis Cities Population (2011) (mn) (1) Population (2020) (mn) (2) Population Growth Rate % (2011- 2020) GDP (2005) USD Bn (3) GDP (2020) USD Bn (3) GDP Growth Rate % Average HH Income - 2007-08 (INR) (4) Est. Size of the Salon Hair Products Market (Rs. Mn)* Est. Size of the Salon Skin Products Market (Rs. Mn)* Key salon organised players No. of Cent- res Tier 1 Delhi Mumbai Kolkata Bangalore Chennai Hyderabad Pune Ahmadabad Cities Population (2011) (mn) (1) Population (2020) (mn) (2) Population Growth Rate % (2011- 2020) GDP (2005) USD Bn (3) GDP (2020) USD Bn (3) GDP Growth Rate % Average HH Income - 2007-08 (INR) (4) Est. Size of the Salon Hair Products Market (Rs. Mn) Est. Size of the Salon Skin Products Market (Rs. Mn) Key salon organised players No. of Cent- res Tier 2 Surat Nagpur Chandigarh Nasik Kanpur Lucknow Coimbatore Vishakap- atnam Indore Aurangabad Jaipur Baroda 2.3. Growth Drives Indian Salon Hair and Skin Products Industry Report 9 3. Business Dynamics 3.1. Evolution of the Industry 3.2. Salon Products Category Differentiation Hair Products Skin Products 3.3. End Consumer Psyche 3.4. Business Model Salon Product Industry – Business Model Part I: The Product Company Part II: Key Function of Product Company Part III: Salon Segments Salon Segment Buying Criteria Pricing Power w.r.t. end customer Differentiation 3.5. Buying Criteria of Salons Graphical Representation Indian Salon Hair and Skin Products Industry Report 10 3.6. Porters Five Forces Model No Five Forces Remarks Counter Strategies 1. Power of Supplier a. Abundance of raw material Availability in Indian and international market Highly cost competitive 2. Availability of Substitutes Consumer products Significant savings in terms of time and money 3a. Entry Barriers Strong Product Portfolio Market reach Training Infrastructure 3b. Entry Barriers Plethora of brands Fragmented market No market leader 4. Power of Customers Focus on product quality Availability of options Brands with Salon specific products (Professional Segment) 5a. Competitive Rivalry Few established players Strong brand awareness in professional hair segment 5b. Competitive Rivalry Lack of established brands No barrier to switch across brands for salons Influx of international brands Diagram Indian Salon Hair and Skin Products Industry Report 11 3.7. Key Success Factors 3.8. Key Challenges of the Industry . Indian Salon Hair and Skin Products Industry Report 12 4. Brands Spread 4.1. Organized Salons (Salon Chain wise) Salons Skin Brands Hair Brands 4.2. Unorganized Salons (City wise) Preamble All India Professional Skin & Hair Products Part 1: Brand Presence in Tier 1 Cities - Professional Skin & Hair Brands Ahmadabad Chennai Hyderabad Mumbai Bangalore Delhi Kolkata Pune Part 2: Tier Wise Brand Presence - Professional Skin & Hair Brands 1) Tier 1 2) Tier 2 3) Tier 3 Part 3: North East South West - Brand Presence - Professional Skin & Hair Brands Bar Chart Indian Salon Hair and Skin Products Industry Report 13 5. Primary Surveys / Interviews 5.1. Salon Professionals Interviewer 1: Director – Leading Salon chain Questions Answers What are the benefits of having single brand for hair segment How do companies market hair brands What are the decision parameters for hair and skin services L’Oréal is the leader across India. Who according to you command second position across India What are the buying criteria for salon products Why do customers buy professional products What is your perception about salon skin care market Interviewer 2: Head – Leading International Salon Skin Care Brand Questions Answers What is the difference between Indian and global market How many SKUs do you have in India What is your product differentiation What are the key challenges in the industry What are the key selection criteria for salon What is percentage share between men and women for salon skin services What is your take on male grooming market What are your views on threats from fake products Interviewer 3: Salon Manager Questions Answers Which products do you use in you salon for hair and skin services? What is the segment wise price differential for across L’Oréal brands What is the share of hair services and skin services? What is the broad price differential between L’Oréal & Kérastase? What is the gender ratio at your salon? What kind of skin services opted by customers Indian Salon Hair and Skin Products Industry Report 14 Which segment (Hair / Skin) depicts higher retail sales? And why? How is the training support from the product companies? Interviewer 4: Technical Head - Skin Questions Answers What are the parameters for selecting a skin brand by salons? Do the salons necessarily use single brand for skin services? From where the salons face competition for hair services? What is the percentage of services between basic services and treatments? How do you categorize your facials Interviewer 5: Technical Head - Hair Questions Answers What is you perception about hair products across leading brands? Who is the market leader in hair products and why? What is the degree of brand loyalty with the customers? What is the margin offered to salons by the product companies Do the salons necessarily use single brand for all their hair services? What are the categories for salon hair products? And broad percentage share? Do the customers walk in for greying cover up or fashion for hair coloring services? Interviewer 6: Executive – Leading Domestic Skin Care Brand Questions Answers What is the difference between consumer and professional products What are the challenges in professional segment What is your take on metro market What is the product cost for salons as a percentage of service pricing Indian Salon Hair and Skin Products Industry Report 15 5.2. Distributors Preamble: Questions Responses What are the type of product segments you offer to the salons? Who are your customers? What kind of Skin / Hair brands you distribute? What is the product profitability in hair and skin segment? What are the margins offered to distributors? What are the margins offered to salons? What is the average inventory carried by the distributors? What is the % share of hair products and skin products in total revenue? What are your observations on professional hair and skin products market of the distributors? What are the criteria for you to choose a company for becoming a distributor? What is the ROI offered by the product companies? Do you have your own sales force? Is there any approval required from the existing companies to take up new products for distribution? What is the general geographic spread? Are you open to try out new products? What are the buying criteria of Salons? Is it easy to make the salons switch or try out new products? What is the credit period offered by product companies? What is the credit period offered to salons? Is exclusivity necessary for distributors? What is the role of distributor? Indian Salon Hair and Skin Products Industry Report 16 5.3. End customers Preamble: Part 1: General Take aways a) Monthly Expenses (Rs/Month) on Salon Services b) Advanced Hair Services Preferences c) Advanced Skin Services Preferences Part 2: Hair Services a) Type of preferred salons b) Hair Colour c) Brands for Hair Services Part 3: Skin Services a) Salon Preferences for Skin Services b) Brand preferences for skin products c) Willingness to experiment with skin care brands Indian Salon Hair and Skin Products Industry Report 17 6. Professional Products Pricing 6.1. Hair Products The pricing is based on consumer / professional products available in the market across brands. No Brand Shampoo Conditioner Qty Price range Qty Price range 6.2. Skin Products No Brand Cleansers Toners Moisturiser Mask/ Face pack Serum Qty Price Range (Rs) Qty Price Range (Rs) Qty Price Range (Rs) Qty Price Range (Rs) Qty Price Range (Rs) Indian Salon Hair and Skin Products Industry Report 18 7. Private Equity Deals 7.1. Forest Essentials (Mountain Valley Springs India Private Limited) Year Investor Amount invested Instrume nt Equivalent stake Current Stake (%) Deal Multiples Assuming that FY2008 numbers would have been achieved without any fund infusion Estee Lauder International Inc. FY2007 (Trailing*) FY2008 (1 yr forward*) FY2009 (2 yr forward#) Pre-money equity valuation (Rs. millions) Post-money equity valuation (Rs. millions) EV (Rs. millions) Sales (Rs. millions) EBITDA (Rs. millions) PAT (Rs. millions) P/Sales EV/Sales EV/EBITDA PE Indian Salon Hair and Skin Products Industry Report 19 7.2. Rich Feel Health and Beauty Private Limited Year Investor Amount invested Instrument Equivalent stake Current Stake (%) Deal Multiples Bennett Coleman & Co. Limited FY2009# Pre-money equity valuation (Rs. millions) Post-money equity valuation (Rs. millions) EV (Rs. millions) Sales (Rs. millions) EBITDA (Rs. millions) PAT (Rs. millions) P/Sales EV/Sales EV/EBITDA PE Indian Salon Hair and Skin Products Industry Report 20 Brand Equity Treaties Limited FY2011 (Trailing*) FY2012 (1 yr forward#) Pre-money equity valuation (Rs. millions) Post-money equity valuation (Rs. millions) EV (Rs. millions) Sales (Rs. millions) EBITDA (Rs. millions) PAT (Rs. millions) P/Sales EV/Sales EV/EBITDA PE Indian Salon Hair and Skin Products Industry Report 21 8. Player Profiles 8.1. 8.1.1. Overview Company Name Company Profile Promoters Name Brands Year of Inception Product Segments Men’s Range Production Facilities Training Distribution / Geography Key Clientele Future Plans Indian Salon Hair and Skin Products Industry Report 22 8.1.2. Financials Profit & Loss Account for the year ended 31st December (Rs. Mn) FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 Sales Total Revenues Direct Costs Personnel Expenses Administrative Expenses Selling & Distribution Advertisement and sales promotion Total Expenditure EBITDA Depreciation EBIT Financial expenses Profit before Tax Profit after Tax Balance Sheet as at 31st December (Rs. Mn) FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 Share Capital – incl. share application money Reserve & Surplus Shareholders’ funds Secured Loans Unsecured Loan Loan Funds Deferred Tax Liability Total Liabilities Gross Block Net Block Capital Work in Progress Investments Net Working Capital (excl. cash & bank) Cash & Bank Net Working Capital (incl. cash & bank) Total Assets Indian Salon Hair and Skin Products Industry Report 23 Key Ratios FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 Profitability Ratios PBT % PAT % Return Ratios ROCE % ROE % Financial Ratios Capital Employed Total Debt/ Net Worth Secured Debt/ Net Worth Total Debt to EBITDA Turnover Ratios Working Capital Turnover Ratio Net Fixed Assets turnover ratio Inventory Days Debtors Days DuPont Analysis EBIT/ Total Income PAT/EBIT PAT/ Total Income Total Assets/ Net Worth Total Income/ Total Assets Indian Salon Hair and Skin Products Industry Report 24 About Reevolv Reevolv is a boutique consulting and investment banking company offering a "One Stop Shop" in the areas of business strategy, financial advisory and operations consulting to corporates and private equity funds. 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[email protected] Kaustubh Kulkarni
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