Home Beauty & Wellness Wellness in Tier II and III: Opportunities and Challenges

Wellness in Tier II and III: Opportunities and Challenges


Spas and wellness centres in the metros are outdoing each other in offering upscale and reasonably priced services to the discerning consumer. As saturation levels set in, say industry experts, the future of the wellness industry lies in tapping the potential of hinterland India. Salon India talks to spa owners in these regions who share their growth strategies with us

According to a report submitted by PwC, the wellness industry in India has evolved rapidly from its nascent unstructured beginning in the early 90s to become a comprehensive ecosystem today. It will be touching Rs875 billion in 2014-15 and by the look of things, the way consumers are gratifying their curative and enhancements needs, the industry will continue to evolve, driving the transition from remedial care to a more holistic view on preventive care.

However, along with positive growth, a tendency toward saturation is also being witnessed in the metros. There are far too many spas and wellness centres, which make surviving for some an absolute threat. It is a good thing for the consumer as he or she now has a plethora of spas to choose from – luxury, prestige and masstige and for different requirements, such as hair, body, nail, hands and feet, however, it does not auger well for the spa players. Resultantly, some open, a few simultaneously close down. The reasons for this can be attributed to several factors such as sky-high real estate rates, fierce competition, little or no governmental intervention, demanding consumers and ultimately, depletion of the spas resources just to keep up.

The Federation of Indian Chambers of Commerce and Industry (FICCI) had recently organised India International Wellness Expo (IIWE) 2014. Several big wigs from the beauty and spa industry had made their presence felt. Raj Kundra, an entrepreneur with interests in wellness, was of the view that the growth has moved beyond the major metropolitans to tier II and tier III cities where affordability levels have increased and the demand for salons and spas,yoga centres, cosmetic products and beauty services is on the rise.

He further said that despite the slowdown in economic growth in 2013, the wellness industry has shown little sign of downturn as consumer spend on wellness products and services continues to be resilient. He also stated that the impressive growth is one of the reasons that the wellness industry is generating substantial interest among private equity players, with many players undertaking third and fourth stages of funding to fuel expansion plans.

What do the players say
Says CK Kumarvel, Co-Founder, Naturals Salons, “Recent trends show that India is adapting to spending more on personal grooming. Nowadays, being well groomed has become a necessity and with the rise in pollution, stress and lifestyle disorders, for the urban population, a spa treatment for the skin and hair has become a hygiene and health issue. While in the metro cities, this concept is already established, the tier II and tier III are no longer behind. In fact, we see more demand from them. Some of the factors that have contributed to this growth are entry of big malls, national and international brands, increase in purchasing power and more. Currently, India has about 10,00,000 of salons and with the entry of international brands and salon chains, people today are more inclined towards fashion and beauty.”

Shahnaz Husain, the beauty and wellness veteran, feels that the wellness sector, in terms of spa treatments has been expanding to tier II cities, like Pune, Nasik, Baroda, Dehradun, and more, while in tier III, it is seen as having great potential. Citing from the Global Retail Development Index, she says that India is positioned as the foremost destination for retail investment and business development. The spa industry has observed a strong growth in the last six to seven years and has successfully penetrated the tier II cities. The sudden surge of interest in the spa industry has created intense competition. There is more disposable income and change in the mindset of people in the tier II cities. This has encouraged investment in this sector. As per Dr Manish Patwardhan, the sky rocketing real estate prices in tier I cities has also prompted people to invest in tier II and III regions.
On an estimate that appeared in research conducted by Business Standard, she elaborates, “The wellness industry in India is poised to touch Rs1,00,000 crore by 2015, with a CAGR of 15 to17 per cent. Of the entire wellness industry, beauty care would continue to dominate with almost 50 per cent (about Rs49,000 crore), followed by alternate therapy (about Rs21,000 crore) and health and wellness food and beverages at about Rs27,000 crore.”

Dr Blossom Kochhar, Founder, AromaMagic and the Blossom Kochhar Group of Companies opines, “The beauty and wellness industry in India is growing and thriving on the burgeoning section of the affluent and middle class population, which has started considering beauty and wellness as a necessity and not as luxury, as perceived earlier. Increased emphasis on holistic wellbeing with a need to look good and young, is another motivator for the industry. The biggest trend being observed in the wellness category is the shift to tier II and III markets. Rising income, increasing awareness among consumers and lower rental and manpower costs are some of the drivers for expansion into tier II and III areas.

Says Dr Geetika Mittal Gupta, Founder, ISAAC in Delhi, “The majority of the demand comes from the metros, but tier II and III cities are catching up fast in terms of pace of growth of business volume. The need to look good and youthful is universal and is slowly catching up in all the regions and age groups. The demographic profile of our typical customer is in the age group of 24 to 35 and they belong to SEC A category.”

Aninda Banerjee, Owner, Club Salon in Kolkata shares, “The tier II and III regions are growing fast. I understand, more and more salon owners are eying opportunities in these markets. It would build healthy competition. Consumers are getting exposed to standard salon experiences and a unisex culture. It is an opportunity for luxury and premium brands to enter these markets. The international professional brands can also bring their services to these cities once the established high-end salon owners have increased their footprint.”

Scope of work
Says CKK, “The scope in the small cities is much broader in terms of expansion. Since the mini metros are still at a developing stage, there are more prospects for a brand to grow as consumers are more open to accepting and trying out new things. Moreover, with the kind of support that we provide in terms of recruitment, training, marketing, infrastructure and financial consultations, which are rudimentary to the business, it’s a huge opportunity for all individual salon owners in the small cities to get affiliated with a brand which is not only 370+ salon strong, but is also full of passion and commitment.

Currently, from the total 370 Naturals salons, 100 are located in the tier II and III cities. We have ensured that we make our services available in every city starting from Guwahati, Jammu and Cochin.”

Says Husain, “Since we extend our salons and other ventures through the franchise system, our brand has already moved to the tier II cities due to the demand for franchisees. The footfall has also increased, leading to a demand for the franchise business. Our salons are also important retail outlets. India is one of the largest consumer markets in the world. The beauty and wellness industries are growing at a phenomenal pace. Therefore, India is a potential market for investment. Thanks to television and commercial advertising and the awareness of brands, the market for retail and services have extended to smaller towns. In some areas, like beauty products, people from smaller towns are more aware of the brand. Tier II cities have a good market for products and services. Also various retail formats are emerging, like malls, multiplexes and supermarkets. It is considered that the future of the retailing industry lies in the smaller towns.”

Says Dr Kochhar, “For a number of organised beauty and wellness players, over 50 per cent of their new store additions, during FY 2013, have been beyond tier II and III cities. AromaMagic is launching environmentally conscious Green Salons all over the country, with the first one being launched in Jaipur shortly.”

Says Dr Gupta, “Expansion to these regions is being planned as a lot of market research and client psychology needs to be understood and services will be customised accordingly. We have already started doing some marketing campaigns where we are getting a good response.Medical expertise with the best technology will be available close by and they don’t have to travel far.”

Banerjee says, “Club Salon is poised for exponential growth. We have already prepared the franchise model in the mass premium category. It was very important for us to understand the weaknesses and threats in the existing franchise models. However, having understood that well, we have drafted our policies, which would surely be a strong pitch for the franchise business. Club Salon may also open its flagship luxury salon range in tier II and II cities at the most opportune moment.”

Challenges of the region
Says CKK, “The biggest challenge is getting the right catchment. After which comes the problem of visibility as most of the areas are cluttered.”

Husain reveals, “The challenges would be to build up awareness of the brand and to then build up a clientele through special offers and innovative services.”

Says Dr Kochhar, “In the beauty and wellness industry, the challenges are of trained and skilled manpower, high attrition especially among the lower levels, poor perception amongst the youth regarding career prospects, supply of training courses by sector-focused training providers, an inadequacy to meet the burgeoning industry demand and inadequate soft skill training.”
Says Dr Gupta, “While at the service delivery level, customer expectations remain the same – they demand the best-in-class delivery be it anywhere in the world – the key difference, to my mind, is that in India, the customer expects a much wider array of service offerings – from the traditional to the modern, all under one roof.”

Training of therapists
The wellness industry in India is projected to have a potential to generate over three million jobs by 2015. Kundra is of the view that the need for skill development, training centres, accredited and certified courses, has become vital for the wellness industry to meet the growth projections successfully. Says CKK, “At Naturals, we constantly put in effort to be at par with the international trends reinterpreting them to suit Indian sensibilities. The trends are changing at a rapid pace, hence, to meet the demand, we are training our professional hairdressers, beauty care experts and make-up artists on the latest fashion know-how’s. We constantly push them to incorporate fresh creative ideas to give the best to every customer. We have also opened a training academy in collaboration with Laurus Edutech. The company is in talks to offer training to women and people from the underprivileged sections, which is in association with Godrej’s CSR. To further our intent, we have a training academy in Coimbatore.”

Says Husain, “The training of therapists and skilled personnel is a major challenge in the beauty and wellness services. With the growth of the beauty business in the smaller cities, the demand for skilled personnel is growing. We have been offering training courses at our beauty training academy. Our academies are also extending on our franchise system. Therefore, the opportunity for training is extending to smaller cities, as well.”

Dr Blossom Kochhar who successfully runs Blossom Kochhar College of Creative Arts and Design (BKCCAD) and Blossom Kochhar Aesthetics and Spa Academy (BKASA), apart from running her own salons and spas. Dr Kochhar’s academy provides trained manpower and conducts training workshops for the employees to ensure brand resonance and smooth functioning.”
Dr Gupta shares, “In the industry, there is paucity of skilled and trained personnel. Wellness services will require 6,00,000 additional skilled personnel over the next five years. However, their availability remains a concern.” Banerjee is of the view that opening an academy would serve as a backward integration model and would help staffing issues.

Trend observed
Says CKK, “Today, both men and women want to look presentable and opting for beauty services is no more a luxury. Thanks to a busy lifestyle, customers are looking for services to de-stress and rejuvenate themselves and hence, massages and spa treatments, apart from the usual services like hair styling, colouring, pedicure or manicure, are in demand. Other special services like anti-ageing and skin lightening treatments are also a rage.”

Husain feels that apart from the usual beauty services, the trend is shifting towards spa treatments for stress reduction and general wellbeing. Salons are offering spa treatments and people are going in for body polishes, hair and foot spa.”

Says Dr Kochhar, “Beauty and wellness services are expanding across gender with men becoming conscious of their looks and wellbeing. Unisex beauty and wellness centres are increasingly finding acceptance amongst the young and upwardly mobile customers. Most of the leading brands in the organised segment are unisex in their offerings. Today’s discerning consumer is demanding newer and innovative services. Most consumers have a paucity of time, and hence, services that are of shorter duration are being requested for. In a view to tap this segment, Blossom Kochhar’s AromaMagic will be launching its Express Facial Kits for the professional segment shortly.”

There is an emerging trend of combining spa and salon services or rather the growing demand for ‘spalon’. Blossom Kochhar’s AromaMagic, in understanding this trend has opened the Blossom Kochhar Earth to Bottle Shop and Spalon at Hauz Khas Village, New Delhi.

ISAAC’s strength lies in delivering effective solutions and innovating and introducing new formats of integrated businesses. Says Dr Gupta, “This helps us stay ahead of competition. ISAAC’s communication strategy showcases consistent success stories, knowledge base and customer satisfaction, leading to high brand equity in the segment and thereby making it the preferred choice among weight management and wellness centres.”

Banerjee shares, “Club Salon flagship store scores well in hygiene, skin and hair and scalp care services. Guests demand more of hair, scalp and skin services. The younger generation is experimenting with their looks, while the senior age group members are regular with hygiene services.”

Willingness to pay
CKK observes, “Looking good is the need of the hour for various reasons. Services like hair spas, manicure, pedicure and facials are no longer considered luxury and people are willing to pay for it.”
Husain feels that due to higher disposable incomes, people are willing to pay for exclusive treatments and services. Shares Dr Kochhar, “Customers are willing to pay a premium for the beauty and wellness ‘experience’. Spending on beauty and wellness is no more considered a luxury spend. Customers are more aware of holistic approaches to wellbeing and are setting aside quality time towards these activities and have an increased preference for organic options.”

Dr Gupta says, “The willingness to pay depends on the kind of the treatments and the expectations.”
Says Banerjee, “at Club Salon, guests enjoy the luxury, ambience and they are not so worried about the cost. We have seen guests opting for luxury services over the basic range. It’s a compete win-win.”

The future
Shares CKK, “Thanks to this growth taking place in tier II and III regions, we are rapidly expanding more to cities like Jalandhar, Lucknow, Bilaspur, Bhilai, to name a few.”

Husain shares, “Our future plans include concentrated international branding, strengthening and widening our global chain of franchise salons, beauty training institutes, shops and spas. We will be extending our Ayurvedic spas, and also converting salons into day spas, where treatments will be geared towards revitalisation, rejuvenation and stress-reduction, upholding the principles of holistic care. As product innovation has helped our organisation to remain a dynamic one. In fact, beauty care in India is fashioned after the Shahnaz Husain products and innovations. So we will continue to launch new and revolutionary products. We also plan to open treatment and de-stress centres along with spas in hospitals where people going through treatment can relax and rejuvenate themselves.”
Shares Dr Kochhar, “Blossom Kochhar’s AromaMagic aims to open at least five more unisex Green Salons in tier II cities in similar formats in the FY 2014-2015.”

Signing off, Dr Gupta shares, “Isaac is moving ahead consistently and bringing the best technologies in india. We plan to get more deep into the field of skin, hair and body where more treatments would be provided for hair growth, bio medifacials and painless medical inch loss etc.”