Bogged down by low store utilisation, Kaya is looking to make up in other ways
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.
Last month, Kaya opened its 100th outlet. That might not seem a very big number over seven years. And the business still doesn’t make money. It clocked a loss of Rs 50 lakh on a turnover of Rs 164 crore last year. Still, Managing Director Rakesh Pandey claims he heads the world’s largest cosmetic dermatology chain which he wants to double in five years. And he expects 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.
Do it yourself
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. “We are not just another beauty parlour, we provide customers a dermatologist’s expertise in a comforting ambience,” says Pandey. Positioned somewhere between a beauty parlour and a dermatologist, the service called for technology, superior hygiene and consistency. Which is why Kaya was unwilling to let others handle the job.
In their book, Innovative India, consultants Parmit Chadha and Radhika Chadha observe that the main reason why Kaya has worked in a way that other service players like Lakme or Ayush haven’t is that Kaya was viewed afresh as a service experience, and not, as in the case of Hindustan Unilvere’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 a given,” note the authors. Kaya thus stocks all brands and not just its own. Also, as Pandey, who at one time headed the human resource function at Marico, points out, it’s a people-intensive business so Kaya was convinced it needed its own training facilities.
However, the disadvantage of having your own clinics is that the rollout 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.
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In many ways, the timing of Kaya’s entry into the skincare 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,” says The Boston Consulting Group Partner Abheek Singhi.
Singhi points out that 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. Kaya head of marketing Suvodeep Das reckons 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 parlours 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, says Das, 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.
A fair premium
On an average, an Indian customer spends anything between Rs 800 and Rs 1,000 in a Kaya clinic. Affordability therefore, says the company, clearly isn’t an issue. Positioned as a premium experience, prices are adjusted for inflation. Says Das, “We can’t drop prices because our costs are high and we need to maintain standards. But then, we’re not really in a very price-sensitive market.” Even so, the downturn in the economy over the past year or so seems to have taken a toll on the business — revenue in the second half of 2008-09 was up just 10 per cent, though it bounced back 26 per cent in the first three months of the current financial year.
That may not be exciting on a small base. The company makes special offers from time to time in order to drive revenue. For instance, in July, customers were offered a discount if they opted for a second package. It’s also now possible to gift someone a Kaya package for occasions such as Valentine’s Day, Mother’s Day or even Raksha Bandhan. Moreover, to drive the sale of products which now account for around 15 per cent of revenues, an online home delivery model has been created in 200 towns. However, for Kaya to be able to sustain revenue growth at 35-40 per cent, it has to scale up as well as improve capacity utilisation.
The company’s strategy, according to Pandey, is to increase penetration within cities rather than spread to more towns. Today, Kaya has a presence in 24 cities in the country either through standalone outlets or a shop-in-shop in department stores such as Lifestyle or Shopper’s Stop. That’s not to say Kaya won’t venture into some Tier II cities; for example, after Lucknow, it could explore places like Kanpur. But the real need is for more clinics within a city because people are averse to travelling long distances. That has to be balanced with a branch size that’s viable.
Currently, the business is skewed towards Mumbai and Delhi which bring in half the revenue. On an average, capacity utilisation is just around 50 per cent. In other words, many clinics aren’t as profitable as they ought to be. Same-clinic revenue has been virtually flat in recent months. In a bid to push up utilisation, one idea that is being toyed with is Happy Hours — lower prices at timings that may not be convenient.
Currently, just around 40 of the 87 clinics in India make money. The management believes its new information technology solutions package (created by Tata Consultancy Services) which will focus on customer relations management will do the trick. “We need a better way to target our clientele and we’re toying with the idea of introductory pricing. A differentiated loyalty programme and schemes to reward customers are also on the cards,” says Das.
Kaya has also tied up with Jet Airways and HSBC to offer their customers special benefits. And since the average ticket size of such customers is fairly hefty at Rs 6,000, Kaya has tied up with ICICI Bank and HDFC bank to offer customers zero-interest loans. A key focus area will be to reduce lapses; in other words, prevent customers from dropping out midway through the treatment.
Not in your face
To attract new customers, Kaya has roped in Riddhima Kapoor as brand ambassador. Although not a star, she is considered approachable with some star quality because of her parentage — she is the daughter of yesteryears’ film stars Rishi Kapoor and Nitu Singh. And, of course, she has good skin.
Das says customer events organised with Riddhima since she came on board in April this year — brunches at tony restaurants — have been well attended. “The choice of Riddhima as a brand ambassador is a good one,” says KPMG Executive Director Arvind Mahajan. “Kaya is not a brand that can be endorsed by a big star; the endorsement needs to be credible. Riddhima’s like the girl next door but with some aspirational quality and adds credibility to the brand.” Initially, Kaya had engaged model Aditi Govitrikar, who also happens to be a doctor, as a brand ambassador. But the association did not last long.
A couple of months back, Kaya unveiled a new television campaign. “Our brand was perceived as being too distant, one that was talking down to people and with a low warmth quotient,” concedes Das. So the tone was softened to allow the brand to relate to more people, within the same target group of 25 to 45 years. That was also the time when Kaya launched a huge digital initiative: Routine display advertisements apart, key words like acne could be linked from Google and there’s a clinic group on Facebook. Ad spends are 10 to 12 per cent of sales with television accounting for the bulk of the expenditure. Print advertising, says Das, has become more focused. For instance, when Femina did a swimsuit special recently, Kaya advertised its hair-free service. Such focused work, it hopes, will do the trick.