Regional Brand

Tressure hunt

Salon chain Naturals has lined up an ambitious expansion spree. Will its gameplan pay off?

There was a time when CK Kumaravel would perennially end up peeved after a visit to the local hair salon. “Those dingy little barber shops really irritated me with their service, and visiting a salon at a five-star hotel was clearly not an option,” says the 49-year-old who set up Naturals, a unisex salon in 2000. “Whatever irritates you is an opportunity. For me it led to the idea of opening an affordable and quality salon,” adds the managing director of Groom India Salon & Spa that owns Naturals. Catalysing the venture was Kumaravel’s spouse, who chose not to go down the beaten path. “Though I graduated in commerce I was clear that I would never take up an accounting job. Given the limited opportunities, being on my own was the only option,” says Veena Kumaravel, CEO and co-founder.

The chain’s first unisex salon was opened in Nungambakkam, in Chennai with an investment of Rs.30 lakh. The first three years were challenging. “We were going through a rough phase, but we knew that this was our business and there was no looking back,” she recalls. Around the same time Kumaravel was struggling with his business of beauty products. While the initial offering for Raaga Herbal Powder did well, the strategy to extend the brand further and expand into non-south markets proved to be a non-starter. “I was incurring huge losses as I was more focused on marketing and sales without having an eye on the bottomline,” says Kumaravel. He sold the business to his brother, CK Ranganathan of CavinKare and joined his wife in the salon venture.

Natural extension
By 2006 the duo’s start-up had turned into a profit-making venture. It was then that Kumaravel toyed with the idea of introducing global brands to India. He travelled to London to meet Anita Roddick, founder of The Body Shop. Though the British entrepreneur politely refused his offer, her business model left a deep impression on Kumaravel. “I was fascinated by her business style and realised that Naturals had a lot of similarities with The Body Shop’s business model,” he says. That’s when he decided to experiment with the franchise model. After opening the sixth outlet, Naturals changed tack and opted for an equal-stake-partnership model to speed up expansion. 

While investors would meet 50% of the cost, Naturals incurred the rest along with spending on promotions and manpower. “We thought that was the best way to achieve scale. Though there were not many takers back then, we started co-investing with friends and relatives. Through their salons, we got further enquiries,” explains Veena. In some cases, Naturals even had to invest up to 75% of the cost. This led to a quick jump in the number of salons across Tamil Nadu. Over a period of time, Naturals, which had invested close to Rs.10 crore through the co-investment model, did away with the arrangement as the brand gained traction. “Today, almost all our co-invested franchisees have bought us out,” Kumaravel proudly reveals. Today, the salon chain boasts of 656 franchisees across southern India. “It was a smart move by Naturals to take up the franchise route at an early stage,” avers Gaurav Marya, chairman, Franchise India. 

Gender bender
After the inauguration of their 50th salon, it was time for the beauty and wellness chain to pause and reflect on the next step. The enterprising couple realised that franchises run by women seemed to be more profitable than the ones operated by men. And this set off the trend of fostering women entrepreneurs which saw the ratio of women to men franchisees reach an impressive 70:30.

“All the staff members are trained at our in-house academy,” says Veena. The firm coaches its franchisees on managing teams and the business. Many customers have now become franchise partners. “Once we had a happy customer in Coimbatore who approached us to open a salon in Karur. I wasn’t sure if the place had the potential, but her persistence led to the opening of a salon in the town,” says Kumaravel. After a year, the owner began clocking a monthly profit of Rs.50,000. 

This open approach towards franchisees made Naturals a hit among aspiring women. Lopamudra Pradhan says, “During my MTech at SRM University in Chennai, I used to often visit a Naturals salon and was very impressed with their service.” Hailing from Odisha, Pradhan decided to expand the unisex salon brand in her state. “At first, they thought I was too young to handle the business and were a little hesitant. But when I persisted, they helped me set up the first salon in Bhubaneswar in 2011.” Since then, the brand’s youngest woman franchisee owner has taken over the reins of 10 salons in her home state, seven of which belong to her. “Now I have around 120 employees working with me. This is a dream come true,” beams the entrepreneur.

It is not just happy customers who have turned into franchisees, but also employees, who were inspired to take on a bigger role. Around 30 employees at the beauty chain are now salon owners. Priya Menon, 49, a front office manager at Naturals’ first outlet is now a proud owner. “During the early days, I used to be involved in the setting up of a franchisee operation and also managed it for the first three months.I took up the franchisee of our first store and re-launched it as Naturals Bridal Studio, which later became the first Naturals W outlet in the city,” says the entrepreneur who opened a second franchisee in Chennai. 

“Instances like these made us grow our business with a focus on creating jobs and inspiring people,” says Kumaravel. After reaching the landmark figure of 500 salons, Naturals adopted the policy of franchising out only to women entrepreneurs. Of the 636 salons across southern India, about 75% of them have women at the helm. Marya sees merit in the initiative. “Women are better suited for the service industry as they develop a good rapport with customers, are more focused on handling staff and bring in a lot of dedication. They just need to be trained on the marketing and business aspects.”

And that’s the reason why the vision statement of the company has no revenue turnover or profit target, but instead has an ambitious target of empowering 1,000 women entrepreneurs, adding 3,000 salons and creating 50,000 jobs by 2020.

Complete package
Today, Naturals has successfully created a moat in southern India; predominantly in Tamil Nadu, followed by Andhra Pradesh, Kerala and Karnataka. The wellness chain runs three different categories of salons – Naturals Lounge; Naturals W, the women’s only salon; and Page 3, the luxury brand. To meet the demand for beauticians, it also runs four training academies in Chennai, Coimbatore, Bengaluru and Hyderabad.

A typical salon is around 1200 sq ft area, and on the investment-front, per store costs Rs.50 lakh and it takes six months to breakeven and over 30 months to recover the initial investment. The average ticket price, Rs.600 for men and Rs.850-900 for women, is the same across metro and non-metro outlets. “The investment varies 10-15% depending on the location. The breakeven could take up to a year,” says Kumarvel, who claims that no stores have been shut yet. Currently, 80% outlets are profitable; 10% are breaking even, while the rest are still to break-even. “Outlets incurring losses are those which have been opened recently,” adds Kumaravel.

The company is now taking a clustered approach whereby it launches 10 salons at one go and has already identified 14 business zones across the country for the same. “We are hoping to add 1,000 more salons in the next two years,” says Kumaravel. On whether such an ambitious target can be achieved in such a short span, he says, “It’s the hockey-stick effect. Once you cross the threshold level for any product, the market explodes. I see scope for 500 more salons in the existing market and 500 more in new markets. At one time, we thought Chennai had space for only five-six salons. Today, it has over 120.”

Kumaravel’s brother CK Ranganathan, too, is a competitor in the salons business and runs Green Trends Unisex Hair & Style Salon, which has 388 outlets. R Gopalakrishnan, business head, salon division, Cavinkare, feels there is enough opportunity for expansion in Tamil Nadu and across the country, but is skeptical of the overall market exploding. “The acceptance in tier II and tier III cities for branded salons have gone up and people are willing to spend more on styling and personal looks. Though I am not sure about the big numbers, there is definitely enough opportunity for the salon business to grow.”

Runima Biswas, president of Paulsons Beauty and Fashion, which owns the franchisee of Toni&Guy salons in southern India, too, concurs on the growth opportunity but is more pragmatic. “People are getting used to branded salons, but growth won’t be exponential,” avers Biswas.

However, Kumaravel wants to pursue his dream. Naturals is currently averaging revenue of Rs.32 crore a month and hopes to end FY18 with Rs.350 crore. To cope up with this fast-paced expansion, the company has now tied up with CADD Centre to streamline and manage all franchisee operations on a day-to-day basis. “CADD is an educational franchise partner that has more than 800 franchisees that are profitable. As Naturals expanded, we needed to put in systems and processes for franchisees and ensure that both the parties are happy. So I roped in CADD,” explains Kumaravel. The tie-up has ensured that none of Naturals units have had to shut down. “In case a franchisee is unable to run a loss-making salon we then take it over,” explains Kumaravel.

The company is also exploring venturing into the branded product segments. It has already tapped into the cosmetics space by launching its own 1,000-shade range nail paint, available exclusively at its salons. Marya of Franchise India cautions that while there is potential for the brand, it will have to get its positioning right. “Cosmetics alone, excluding hair colour segment, is a Rs.800-crore market. With its 600 salons, Naturals can become a successful regional player in the South. But unless the pricing and product is right, it’s difficult to succeed in this segment.”

Kumaravel, however, is convinced that Naturals has got its act together. “On the one hand, we have multinational brands that are unaffordable and, on the other, Indian customers are looking for better options. From spending Rs.100 on a nail polish, they are now ready to shell out Rs.200-250 but a premium option is only available at Rs.500. That’s a big gap and also our sweet spot. Hence, we have priced our nail colour at Rs.100, which is between a Chinese brand sold at Rs.50 and a professional brand’s price tag upwards of Rs.300.”

Besides cosmetics, the company is also getting into skin care, hair care and eye care products and plans to invest up to Rs.10 crore for manufacturing the same. While the lipstick range and haircare products will be launched in April this year, the skincare products are likely to hit the market by June. Thus far the company has already invested Rs.2 crore in the new initiative and production is currently being outsourced to a French company, which has a facility in Mumbai. “We are looking at additional revenue of Rs.10 crore a month from the new product segments,” says Kumaravel, who is scouting for investors to back the expansion. 

“The plan is to leverage the brand in large unorganised businesses with a focus on women,” adds Kumaravel, who estimates Naturals’ brand value to be around Rs.700 crore. The company is looking to license its brand in wider categories such as food, fitness centres such as gyms, organic products, florists and even tailoring shops, where there are big gaps in quality service at reasonable rates. “I don’t have any revenue target in mind as I am only exploring newer options. Naturals enjoys a slightly premium image as a brand and I just want to build on that,” says Kumaravel.

However, Arvind Singhal, chairman of consulting firm, Technopak Advisors, believes it’s too early to comment on whether the idea will work. “This concept has not taken off in India as yet. Extending brands into un-related categories may not be a good idea given that brand licensing within existing categories is a tough exercise.” But Kumaravel is confident of the logic behind brand licensing and emphasizes his entrepreneurial trigger, “The idea is always to look out for irritants.”