When Vikram Bhatt, founder Enrich chain of salons launched a 270 sq ft salon in Mulund to help a friend financially, he never imagined that it would go on to become the largest chain of unisex salons in Mumbai. That was in 1997. Today Enrich has an enviable spread of 50 salons and growing at 125 per cent! I caught up with the 38 year old founder Bhatt to understand the dynamics of the beauty business and what it takes to scale up.
Here’s the story of Enrich in the words of the Founder Vikram Bhatt.
I always maintain that I am an accidental entrepreneur. Enrich started as a friendly venture between me Rohit Dedia and Parul Mehta. Our friend Parul who had knowledge about this field, had lost her father and this venture was purely to help her financially.
The First Step
We opened our first salon in October 1997 in Mulund at an initial invest of Rs 600000. The rent was Rs 8000 a month. It was the first unisex salon in the suburbs – a really big thing at that time. I had just done my post graduation from Somaiya Institute and working with Bombay Dyeing Group as Finance manager. So I was sailing in two boats. The Mulund salon was 270 sq ft on the high street. It had 5 hair chairs, two beauty cabins, reception and waiting areas. The staff comprised of two hair stylist and beauty therapist each. Parul Mehta one of the founding members of Enrich managed and provided services at the salon.
With our very first salon we realised two very important things – professional set up and processes. We were the first to introduce a rate card in the industry. Till then a client would always be guessing what she will be charged at the end of the service or therapy. So even if we gave a good service the surprise element was always there. We wanted to be very transparent in our dealing. It helped that we were not from the industry and so we could think differently.
Next was the loyalty programme. We realised early on that to be able to survive in this business we needed repeat customers. So we introduced a loyalty card priced at Rs 500 which gave the client a flat 20 per cent discount on all services for a year and at the end of the year she got services worth Rs 500 free. So essentially the card came free to her and it ensured that she was loyal to the salon. Our focus was to make 75-100 members a month. We used strip advertisement on cable television to promote Enrich.
Currently our Loyalty Program has close to 1,00,000 members and generates about 80 per cent of the current revenues of the company and the membership fee forms 4 per cent of the total revenues of the company.
Thirdly we introduced the concept of Salon Manager. A salon is not just about good cuts and services but also about interaction and experience. A salon manager became a bridge between the client and the therapist or hair dresser. Our staff looked professional in their uniforms. These initial endeavours gave us a firm foundation and an edge over the competition.
Within the first two years we realised that the business was doing well. The cash flow was healthy. We could break even in three months time.
The second phase
In 1999 we opened our second salon in Chembur which was also a success. And in a week’s time we opened our third salon (which effectively was our second salon, since we closed the one at Mulund) at Irla, Vile Parle. This outlet gave us some very good learnings. Chembur being a virgin market was easy to operate with our levels of good service. It was easy to acquire clients. But Irla was a different ball game with 2-3 established players already operating there. It was a matured market. Initially for the first 6-7 month we didn’t do well at all. We were almost on the verge of giving up when we decided to give it another shot. We got a floor manager on board and concentrated on training. I realized you can’t open a salon and wait for the clients to come in. You have to go to them. So we tied with a few well established Retail outlets like Alfa where we gave away complimentary services vouchers designed like an invite. We made it a point to mention ‘no conditions applied.’ This really worked for us and the business picked up. At around the same time we tied up with L’Oreal Group. L’Oreal always offered incentives on achieving a certain sales target. These incentives were in the form of gold coins, chairs, and refrigerator and so on. We traded these tangible offerings for training. So L’Oreal started training our staff. After establishing the fourth salon we centralized processes like sourcing, HR, etc.
But it wasn’t until 2005 that we actually looked at the business seriously. We were investors, involved in the backend but not on a day to day level. I still had my job as the Asia Pacific Finance Lead at Accenture. There are other two directors who were managing the show quite well. I joined Enrich full time only last year.
We are a value for money, mass premium brand. The lowest offering is Rs 50 for threading. The average ticket size is Rs 700-800. The business is equally distributed between essential services, regular services and premium services. The only difference is the volume. We do large volume in the basic services but the ticket size here is low. The regular services which include colour, manicure, pedicure, facial, etc are decent in number and earn decent revenues. But the premium services like hair color, keratin, straitening, smoothing, advanced facials, etc is low in volume but high in ticket size. We ensure that each segment contributes one third to the business. The average foot fall is 40-50 people on weekends and around 100 on weekends.
The average store size is 1000 sq ft which has around 8-9 hair stations, 4-5 beauty rooms, manicure-pedicure areas, reception, waiting area and two wash chairs. The staff strength is usually 20 which include 3 salon management professionals, 6 hair stylists, 5 beauty therapists, 1 manicure – pedicure professional and 4-5 support staff. The investment include Rs 3000 per sq ft on infrastructure, excluding the rental deposit which is usually comes to around six months of rentals. So if the rentals are Rs 1.5 lakhs, it comes to 10 lakhs as deposit. A similar amount is invested in equipment which includes styling chairs, skin analysers, television, etc. A typical outlet would cost anywhere between Rs 50-70 lakhs. We reserve a timeline of 9-12 months or a store to break even. At times we break even in the third month itself. Around 50 per cent of the business comes from hair, 30 per cent from skin, 15 per cent from product sales and the rest 5 from loyalty programmes and others.
In a business like ours, competition doesn’t affect as much as high costs. Two of the major costs that we have to closely monitor is rentals and people costs. The costs to generate a revenue of Rs 100 have gone up 30-50 per cent. Ultimately it puts tremendous pressure on the profit margins. If you are able to control your costs, profits will come easy. The industry is growing at 35-45 per cent p.a. So there is enough for everyone.
Though we have tapped the market today, looking back I feel we had to be a bit more aggressive in our expansion plans. The more time you take to scale up, higher is the cost. The kind of margins that existed then is lost today. So when I look back I feel I should have come out of the ‘friendly venture’ mode early on and picked up momentum.
In our business it’s easier to get clients than to get a good technical person. People will definitely visit the salons for their regular maintenance services like cuts, shave, colour, facial, etc. But to scale up you need to push for a premium services and that’s where a good technician comes in to the picture.
Changing Customer Profile
Enrich has always had a ratio of 70 per cent women and 30 per cent men. In the early years men would generally come for cut, colour and shave. Women visited for cut colour, facial, clean up, manicure, pedicure and bleach. Hair treatment back in 1997 was not popular. The age group was 25-40. Most of them were working women.
There has been a gradual change in the customer profile. It’s getting younger. Most of our customers are working professional and hence 58 per cent of business happens on Friday, Saturday, and Sunday. But the past 4-5 years has seen a younger profile visiting our outlets. These are the 25 year olds, new professionals who spend around Rs 2000-3000 on grooming. Surprisingly college goers who earn through home tuitions or work at BPOs have started spending small amounts at salons like us. Almost 80 per cent of foot falls comes through our members.
The attrition rate at Enrich is 30-40 per cent. I am not happy about it but I feel it’s a healthy ratio to work on. At Enrich we actively work on the career path of our staff. So a hairdresser who joins us as a student goes on to become an apprentice, then stylist, master stylist, senior stylist, creative stylist, academy consultant, academy manager and then Creative Head. We ensure that deserving people get the jump at the right time. It’s the same for beauty therapists and salon management professionals. It’s based on proficiency, experience, communication, sales and behaviour. We invest a lot of training and counseling. It’s a constant endeavour to engage the 1200 strong staff strength.
Enrich is considered one of the best paymasters in the market. It has adopted a balanced compensation structure with incentives ranging from 3-14% and a sizeable fixed component. The company is planning to introduce ESOPs for key management
We realised early on in the business that training was imperative in this field. We felt handicapped even if two of our stylist took a day off on the same day. We were heavily depended on our technicians. Training the existing staff and increasing their proficiency level was the need of the hour. We have a dedicated 7000 sq ft training facility in Bandra, Mumbai for technical and soft skills learning.
Currently there are 50 Enrich salons in all, which is split into 35 in Mumbai, seven in Ahmedabad, six in Pune and one in Bangalore. Going ahead we would continue to operate in the West region. Next we are looking at Surat and Baroda to open salons. Hyderabad and Chennai in the south hold good potential for Enrich and we are actively looking to open there.
When we opened our salon in Pune it was an experiment. But within a year we realized it was doing pretty well. So we opened another 5 salons within 6 months. That learning helped us when we went to Ahmedabad and we launched 5 salons on the same day. Some of the common expanses like back office, marketing, HR, training etc becomes more economically viable when you have a cluster of outlets.
Currently all the stores are owned and managed by us. We may want to shift to a revenue share model some time in the future. The problem with the franchise model is that a bad franchise store may affect your brand in the long run.
We generally prefer hi-street in accessible locations. Most often we stick to the ground floor, even though the rentals are a bomb. But we feel it pays off in the long run. We also consider other complimentary brands in the vicinity.
We entered the malls slightly later in the business. Today we are present in almost all malls. The idea is to follow a successful mall. The ratio is 5:1 (5 on hi-street and 1 in mall). Though the revenues are higher in malls (especially from retail), we also end up paying high rentals and CAM. That comes up to almost 1.5 times of the regular rentals you pay on hi-street. So the bottomline is neck to neck.
It’s not easy to build a service business, especially a retail service business. So we need to get the client in for the first time to come and experience the services. It’s a must. That first visit is very crucial. That could be achieved with putting up hoardings, free vouchers, tying up with local brands to ensure that we get the right segment into our stores.
We customize our offering according to the catchment. Like for instance when we opened at JVLR, Mumbai we realised that parking was a major issue there. So we offered to pick up and drop our customers. All they had to do was call us! It’s working well.
I never felt the lack of knowledge even though I am from a totally different background. You have to ensure that people learn and scale up. That’s where leading product suppliers and academies come into the picture. Continuous learning is the only option. We have technical collaborations with internationally acclaimed brands like L’Oreal , Remy Laurie & Christan Valmy who also train our staff.
The Beauty Market
The size of the Indian hair & beauty salon market is approximately INR 2,000 crores. The organized salon business has been growing rapidly and is expected to double to INR 4,000 crores in 5 years. This is a result of a need for grooming and higher disposable incomes. New services like coloring, hair spa, straightening, facials and other skin treatments are adding to the growth of the business. The market is currently dominated by women customers. The industry is largely comprised of unorganized small players and hence provides an enormous potential to build a brand.
The business is far more structured today than it was a decade ago. Terms like values, processes, experiences, people, learnings, etc have brought in a new lease of life. It has helped the business to scale up. The costs have gone up to such an extent that it is no more an individual game. You can’t create a big brand. Over a period of time it will be restricted to a few names with large presence. Last year we grew 125 per cent.
This story was first published in Retail magazine (brought out by the Images Group).