Mumbai: A decade after it launched Kaya, a beauty and wellness chain, Marico Ltd plans to launch a smaller beauty services chain under the brand Kaya Skin Bar to help it become profitable even as analysts remain sceptical about consumer packaged goods companies tasting success in retail.
Kaya Skin Bar will be first launched in Bangalore in January and the company expects to have five stores by the end of its first year of operations, according to Ajay Pahwa, chief executive officer of Kaya Ltd. “Over 5-7 years, we hope to ramp it up to 150-200 stores,” he added.
Kaya Skin Bar will offer the entire product range of Kaya and Derma Rx, the Singapore-based skincare firm that Kaya acquired in 2010, and a limited range of services such as facials. It will be half the size of a Kaya store of 500 sq. ft and will see 75% of its revenue coming from products, compared with Kaya, which is predominantly a services-led business with only 25% of its revenue coming from products.
“Premium skincare is growing at 25% which is faster than the overall services business and we see ourselves playing an important role in this space,” said Pahwa. He added the new business will require less investment and be more profitable because of its products focus.
In the quarter ended September, Kaya reported revenue of Rs.91.5 crore, a 38% growth over the corresponding quarter a year ago and profit before tax of Rs.5.7 crore (Kaya does not report net profit, being a unit of Marico). In the same quarter a year ago, the chain recorded a loss of Rs.4.8 crore.
This was its eighth successive quarter of top line growth. Its same-store sales—a measure of revenue at stores open longer than a year—were in high single digits despite a drop in discretionary spends in a slowing economy.
“Profit is a function of how many stores we open, and we are betting on growth,” said Pahwa.
He forecast revenues to double in the next five years but did not commit to a timeframe for the chain turning profitable.
In fiscal 2011, Kaya froze its expansion plans, shut half-a-dozen stores and underwent a makeover. It widened its portfolio of services to include regular skincare at lower price points. Earlier, the chain was perceived as largely a skin cure company where customers came for doctor- or dermatologist-led consultancy services.
“Revenue from products and the new range of beauty services is 42-44% of our overall revenues,” said Pahwa, adding the figure was 27% two years ago.
Analysts, however, remain sceptical.
“FMCG (fast moving consumer goods) companies cannot succeed in services. The servicing model requires a different orientation and companies have lost, are losing and will continue to lose until they exit these businesses,” said a 30 August report by IDFC Securities Ltd. It named Hindustan Unilever Ltd, Dabur India Ltd, Marico, and ITC Ltd as examples.
The report noted that even after 10 years in the business and Rs.400 crore of investments, Kaya is still bleeding and needs to “stop expansion” and focus on packaged products by getting into new categories such as beauty care.
IDFC analyst Nikhil Vora said he stood by his report in light of the recent development regarding Kaya Skin Bar.
Beauty and wellness services is a Rs.20,100-crore market, growing at 20% per annum and the organized sector, which accounts for 25% of this market, is growing faster, according to consulting firm Booz and Co.
There are companies such as VLCC Healthcare Ltd and Shahnaz Husain Group of Companies that are profitable, said Raghav Gupta, principal analyst with Booz and Co., adding that “Kaya is very niche and targeted at the upper-end consumer, hence the opportunity is not that big”.
Meanwhile, Kaya, according to Pahwa, is banking on its makeover which included rebranding and redesigning of its stores and on communicating the lower price points and other changes to consumers. Kaya also runs an annual promotional and discount offer in August which “now accounts for over 20% of our annual sales,” he added.