Indian Salon Hair and Skin Products Industry Report

January 2013

Reevolv 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]


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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


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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


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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.


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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


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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


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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


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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


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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


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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


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3.7. Key Success Factors

3.8. Key Challenges of the Industry

.


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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


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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


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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


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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?


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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


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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)






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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


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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#



EV (Rs. millions)



PAT (Rs. millions)

P/Sales

EV/Sales

EV/EBITDA

PE


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Brand Equity Treaties Limited

FY2011 (Trailing*)

FY2012 (1 yr forward#)



EV (Rs. millions)



PAT (Rs. millions)

P/Sales

EV/Sales

EV/EBITDA

PE


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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


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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


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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


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+91 22 - 60022001 or email at [email protected]

Address: No. B/002,Vision Court Staney Fernandes Wadi CHS Ltd., Plot no. 746, MTNL Exchange Lane,

Dadar (West), Mumbai 400 028

You can also email the research analyst at

Shilpa Bhattar

[email protected]

Kaustubh Kulkarni

[email protected]

mailto:[email protected]

mailto:[email protected]

Lifestyle

Indian Salon Hair and Skin Products Industry Report