Will franchising become an ideal business plan for beauty service industry?
The era of beauty services industry is moving away from specialisation and going towards generalisation where mid-ranged service providers are becoming a threat for luxury and low-end beauty service providers. The beauty service segment in India is slated to touch the Rs 7,000-crore mark by the end of this year, whereas the organised industry is pegged at Rs 1,800 crore. While the overall industry is growing at 25 per cent, the organised industry is growing at 30 per cent—signally quite clearly as to who will be the industry game changer.
The beauty business is fast growing to cover almost all aspects related to looking and feeling good. Today people are interested in the artistry of personal style whether it is hair or skin or body art. We are not far away when tattooing art or placing jewels on teeth will become a regular activity at a salon. Nowadays the fastest-growing segment of the beauty industry is ‘day spas’. Around 10 per cent of the beauty salons in the organised space are focusing on ‘spalon’ services in the country and have become day spas over the last three to four years. This trend is expected to continue as nearly 40 per cent of beauty salons are looking forward to becoming day spas by 2015.
By 2015, a number of salons will retail products and a small number with extended presence will see private label offerings. This will make neighbourhood salons build brand presence and extend their expertise beyond the realm of hygiene services. The business format that can bind the industry together and move it to a more organised business zone is franchising.
Franchise System in Beauty Services
As brand aspirations of the consumers are growing, franchising is coming forward as an ideal business proposition. Each franchisor has a different set of expectations from the franchisee as the beauty services business has multiple services and even the business has multiple formats with differential criteria. The VLCC Group serves as an umbrella for many brands – VLCC Slimming, Beauty and Fitness, VLCC Personal Care, VLCC Natural Sciences, VLCC Institute of Beauty and Nutrition, VLCC Day Spa and VLCC Beauty Zone—and seeks professionals as franchise partners, whereas Naturals gives importance to women entrepreneurs.
Sandeep Ahuja, MD, VLCC Group, says, “Since we understand our brand, our business and our customers, we are conscious of the need for the right kind of franchisees who can be as passionate about this industry and our brand as we are. Needless to say that the person should have the required capital to invest, what we are looking for additionally is his approach towards our brand and his intent to invest his time and energies in maintaining proper quality standards and delivering good experience to VLCC customers.” For Javed Habib, CMD, Jawed Habib Hair Beauty Ltd (JHHBL), the most important expectation from entrepreneurs is their complete involvement and continuous presence at the salon. Hence, it is very important that a franchisor and franchisee share a common growth vision.
Other than investment and intent, the franchisor and franchisee must agree on the business format and contract credentials that include the franchise fees or royalty (varies from Rs 3 lakh to 10 lakh depending on the brand). It takes six months to one year for a salon to break even and there on another year to run profitably. Taking this into account, the minimum years of agreement vary from three to five years and are easily renewable based on the franchisor-franchisee relationship.
The biggest advantage of getting into a franchise system in beauty services business is that you can efficiently and effectively counter the biggest hurdle of the beauty industry like personnel recruitment and training, initial setup and quality control. The parameters set-up by the franchisor help to maintain the service standards. CK Kumaravel, Co-founder & CEO, Naturals, who co-founded the chain along with his wife Veena says, “After setting up six branches, we realised we could not run any more salons on our own. We wanted to share our success and profit margin with other entrepreneurs and decided to expand by taking the franchising route.” Today, Naturals co-invests along with a franchisee in a 50-50 partnership and gives them all possible help to set-up and run the business. One such franchisee is Shanmuga Kumar who had no idea about the beauty services business, but at present, he is running three successful Naturals salons in Coimbatore, Ooty and Chennai. He says that the brand owners handled him till the time he was well-entrenched in the business. Highlighting the factors that altered the face of beauty business in India, Kumaravel says, “Media awareness, rise in easily disposable income of the youth leading to an increased spend on lifestyle and grooming, and lastly replicable business models, like Naturals, which have established prominence of franchising beauty salons as successful businesses.”
Franchising makes more sense when franchisors want to duplicate and brand their concept, and also save an enormous investment in opening a company-owned centre. “We help the franchisee in many areas like location identification, retail space availability through corporate tie-ups with supermarkets, rent negotiation, pre-launch marketing activities, interior designing support, assistance in loan procurement, manpower requirement, billing software, and tools and equipment/products selection. Moreover, we provide briefing on salon management, business know-how, staff management, product stock management, customer complaint handling and cash management,” shares Habib.
Growth Dynamics
The salon and beauty services industry in India has stayed personal for over three decades now, but to keep growing consumer awareness and affluence, the salons need to prepare themselves for the next level in order to accelerate growth. Franchising brings out bright growth options for the beauty business. As per the Indian Salon Report 2012, the beauty industry currently has the potential for 5,000 more franchised salons in the organised sector.
It is estimated that from 18 per cent franchised salons today, the franchising in salons will grow to 20 per cent in the organised sector by 2015 and will become a staggering Rs 4,500-crore salon franchising industry by 2020. This validates the trend that the beauty and spa industry is developing with the franchise-based business model. The majority of new centres that are opening in India are from chain operators.
