Kaya’s ‘skin deep’ strategy

In 2001, Marico Chairman & Managing Director Harsh Mariwala was approached by a New York based company to sell laser hair removal machines in India. It was perhaps looking at distribution synergies with Marico’s personal care business. Mariwala, on his part, turned down the proposal. Instead, the very next year, he ventured into skin care services and thus was born the Kaya (Hindi for figure) range of clinics.
Bogged down by low store utilisation, Kaya is looking to make up in other ways.
Recently Kaya opened its 100th outlet. That might not seem a very big number over seven years. And the business still doesn’t make money. The world’s largest cosmetic dermatology chain has targeted to double the revenues in five years. And they expect to break even in this financial year. Not all is mired in a loss. Last year, domestic operations made a profit of Rs 2.5 crore — it was the international business (West Asia) which lost Rs 3 crore. So far, not a single clinic has downed shutters.
From the beginning, Kaya was averse to the franchisee route because it wanted to control quality and ensure the delivery was consistent across the chain — the principal rule of service. They consider themselves that they are not just another beauty parlor and provide customers a dermatologist’s expertise in a comforting ambience. Positioned some where between a beauty parlor and a dermatologist, the service called for technology, superior hygiene and consistency.
Kaya has worked in a way that other service players like Lakme or Ayush have not viewed afresh as a service experience, and not, as in the case of Hindustan Unilver’s Lakme, a vehicle for selling the company’s skin care products. Lakme’s strategy led to the reliance on franchisee outlets. Franchisees offer rapid growth and practically guarantee service inconsistencies. In refusing to dilute the standards, Kaya’s strategy viewed clinic ownership as given. Kaya thus stocks all brands and not just its own. It’s a people-intensive business so Kaya was convinced it needed its own training facilities.
However, the disadvantage of having own clinics is that the roll out can be slow. Kaya, in the first four years, had only 45 clinics. Only once it gained confidence that it had the right model in place that the pace was stepped up. Setting up clinics can be an expensive proposition a clinic of around 1,000 sq ft costs almost Rs 1.2 crore.
In many ways, the timing of Kaya’s entry into the skin care service space in 2003 was almost perfect as it coincided with the start of an economic boom and more particularly in the services sector. Disposable incomes rose dramatically in the five years between 2003 and 2008. But that was also the time when real estate prices hit unheard of levels. Fortunately for Kaya, real estate prices started cooling off towards the middle of 2008. Thus, in the three months to June 2009, as many as a dozen clinics were opened.
The timing couldn’t have been better and it was a smart move not to scale up too rapidly and to spend time to figure out the business model. In contrast, players who grew too fast lost a lot of money.
Spends on skin beauty treatment in China are higher by nine to ten times that in India because the share of working women in the total population is higher. There is thus a huge upside to the business. As more women join the workplace in the country, personal grooming is no longer an option or an indulgence, it is almost a necessity in an increasingly competitive job market. Looking good in fact ranks high on the priority list of men as well. Over a fourth of Kaya’s 600,000 customers have signed on in the last one year. And the share of men has grown from 18 per cent in 2004 to 25 per cent now. The skin care services space should be worth Rs 1,800-2,000 crore and is growing at 18-20 per cent a year. Competition is provided by local beauty parlors and smaller chains like VLCC.
Typically, Kaya’s clientele come from socio-economic category A. On a rough reckoning, the number of people between the ages of 18 and 50 in Sec A households who have a monthly income of more than Rs 25,000 and own a four-wheeler is around 4 million. If that’s the potential customer base, then a small fraction of the market has been penetrated so far. There’s also a huge opportunity in West Asia where Kaya has 13 clinics which fetch it about a fifth of its annual revenue. Clearly, the revenue per clinic is far higher there than in India. In countries such as Saudi Arabia, spends on beauty are known to be high.