BACKGROUND NOTE ON THE BEAUTY SALON INDUSTRY

(JANUARY 2004)

This note contains summary data based on research conducted by ValueNotes Database
Pvt. Ltd. (ValueNotes). Care has been taken to ensure that the information and views
contained in this report are reliable, but no responsibility is accepted for errors of fact or
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A. Market Size
The beauty salon market in India has been growing steadily over the past few years. As
of end FY03, there were an estimated 61,000 beauty salons in towns with over 1 million
population.

For the purpose of analysing the beauty salon industry, Value Notes has used the
following classification of the beauty salon market in India –

Category No. of Typical Characteristics

Employees
Large >6 Large parlours providing a varied range of services and/or
specialization, premium price range
Medium 3–5 Medium parlours, medium price range
Small 1–2 Small parlours, limited service range
Home 1 Individuals operating from home/giving home service

Note: This is not an exact classification. Some exceptions may prevail due to the
heterogeneous nature of this business.

Exhibit 1: Population-wise estimate of parlours by category (FY 2003)

18000
16000
14000
12000
10000 Metro
8000 Mini-metro
6000 Small towns
4000
2000
0
Large Medium Small Home

Source : Valuenotes Research

Copyright, ValueNotes Database Pvt. Ltd, 2004. Page 1 of 6

Some observations:

• Interestingly, half of these parlours are in the ‘home’ category. The large salons (with
more than 6 employees, providing a wider range of services) constitute only 4% of
the total number of beauty salons in the country. The medium size salons (with 3-5
employees, medium price range) are less than 10 percent.

• More than half of the beauty salons are in the major metros - Mumbai, Delhi and
Kolkata (population more than 10 million). The others are balanced almost equally
between the mini-metros (population size 3 to 10 million) and the smaller towns
(population between 1 and 3 million).

• Also, there are a high number of small and home based beauty salons in the metros.

B. Turnover Estimates

We estimate the total turnover of the beauty salon market to be between Rs. 1493
crores and Rs. 1805 crores (FY03) in cities with more than 1 million population.

Exhibit 2: Turnover Estimates (FY 2003)

Source :Valuenotes Research

100%
15% 16%
90% 24%
80%
21%
70% 29%
Home
60%
42% Small
50% 25%
21%
Medium
40%
Large
30%
16%
20% 39% 42%
10% 19%
0%

Metro Mini-metro Small town

Across the town classes, the large beauty salons took up 27% of the revenue inspite of
being substantially lower in numbers as compared to the other categories. Also, of the
total, the metros account for about 60% of the total turnover.

Interestingly, it is the small beauty salons (1-2 employees, offering limited services) that
take up about 42% of the revenues in the metros. Adding the home category (those who
work out of homes/garages etc.), the total revenue generated is over 65% of the total.
In other towns of 1 million + also, they take up a sizeable portion of the revenue.

The home segment, on the other hand, despite being the largest in numbers, takes up
between 15-24% of the total revenue estimated in this market.

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q So what services are the money grossers for this industry?

Across the categories of beauty salons, haircuts are the most revenue generating
service, accounting for between 25-30% of the total revenues. Hair styling (hair
colouring, perming, streaking etc.) contribute to about 18% of the revenues for the
larger salons, but are very insignificant revenue earners for the other categories. This is
especially true of high-end speciality parlours.

In the medium size parlours, hairstyles lose out as the revenue generators since the skill
sets are generally perceived to be lower in this category. However, facials, being
comparatively price inelastic, make up for 31% of the revenue generation in this
category. This trend also follows to the smaller and home parlours as this is a function
of price rather than volumes.

Exhibit 3 : Revenue from various services across categories

Share of revenue by service (FY03)

Segment Large Medium Small &

Home
Haircut 23% 26% 30%
Hairstyle 18% 8% 1%
Wax 17% 19% 16%
Manicure 7% 7% 5%
Pedicure 9% 8% 5%
Facial 20% 31% 35%
Others 7% 1% 7%
100% 100% 100%

Therefore, it is easy to say that haircut is the most popular as well as the most revenue
earning service in this business. Interestingly, for the medium and small beauty salons,
facials form about 30-35% of the earnings.

Price:

Quite obviously, the price differences are highly significant between the town classes,
with prices in the metros being considerably higher than the smaller towns, the
difference being upto Rs. 500 for haircuts. Price differences are the highest in haircuts
and facials, followed by hairstyles. Among the other services, the price differences do not
appear to be so dramatic.

The main drivers for price variations are quality of the services offered and the retention
of good employees. These are also important factors which drive customer loyalty. Also
the locality in which the parlour is located drives the price. In case of large parlours, a
certain niche or speciality determines the price points for the services offered.

Product Sales:

Product sales constitute a very low part of the revenues. In fact, it is only the large
parlours that engaged in product sales. But this too contributed to only about 7% of the
revenues.

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Only L’Oreal appears to have has managed to successfully push its product line,
especially the hair treatment products through the beauty salons. Some of the reasons
for this being – exclusive sales of L’Oreal products in the salons, regular training for the
salon staff and sale of certain L’Oreal products not available at any other outlets.

C. Growth Estimates

According to Value Notes, the overall estimated growth rate for this industry (in FY
2003-04) in terms of number of parlours would be between 20-25%, but revenue growth
would be only about 4-5%. We also estimate that the growth rate would be higher
among the metros and the smaller towns.

Also, growth rates would be better among the large parlours rather than the medium
and small parlours. This is because the smaller players are being threatened by the
burgeoning home segment.

Growth Drivers:

• An overall increased awareness of beauty

• Improvement of technical skills, a growing demand for something new
• Veering of beauty salons towards ‘treatment’ and ‘therapy’
• Aggressive efforts by companies like L’Oreal for their products

Inhibitors to growth are mainly the stiff competition due to the establishment of small
and home size parlours. This is also due to the emergence of a lot of training institutes
offering inexpensive short duration courses.

Also, problems faced by the parlour owners include the service tax, felt by mostly the
large beauty salon owners. Undercutting by smaller parlour owners was also another
problem faced by this industry.

Some highlights:

• The size of the beauty salon industry is estimated at between Rs. 1493 and Rs. 1805
crores. This is attributed to the advent of foreign TV channels, changing lifestyles,
higher purchasing power and greater awareness and need for ‘beauty’.

• However, the growth rates in number and revenue are contrasting. While the
increase in numbers is dramatic, the revenue growth is pegged at only 4-5%.

• The barriers to entry in this business are low and therefore it makes the business
very competitive. This is more significant in the smaller and home based parlour
segment

• The higher end market is growing at a considerably slower rate, but is grossing the
highest revenues. This is evident from the fact that a number of major national and
international names in the beauty and personal care segment are making forays into
this industry.

• Typically, the speciality skills and branding, therefore appear to make the customer
loyal, especially in terms of the high-end large parlours.

Copyright, ValueNotes Database Pvt. Ltd, 2004. Page 4 of 6

• Specialised services and niche products are the buzzwords. This is quite evident for
greater demand for aromatherapy, herbal treatments etc. Creating a niche seems to
the demand of the hour rather than a ‘jack of all’ business.

• ‘Health’ and ‘beauty’ are being converged. This also proves to be good news for the
industry as a wider range of services could be included in their offerings to
customers.

• Also, a lot of parlours (especially in the large metro segment) appear to be attracting
men as clientele. There seems to be a movement from traditional barber shops to
speciality salons for men offering a whole range of services.

Copyright, ValueNotes Database Pvt. Ltd, 2004. Page 5 of 6

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