It was a real surprise for Dabur’s chairman Anand Burman to find some 500 beauty parlours in Gorakhpur, a nondescript town in Uttar Pradesh, few years ago, and also for VLCC’s MD Sandeep Ahuja to see women spending up to Rs 8,000 on anti-ageing treatment at one of their salons in Bhatinda, Punjab. But they would have been startled to find out that as many as 1,500 hairdressers based in and around Ludhiana paid up to Rs 2,000 to participate in L’Oreal’s ‘look and learn’ seminars to learn hair dressing skills.
The trend indicates a growing demand of beauty and cosmetics products in small towns. Growing at a CAGR of 18 percent, Indian cosmetic industry is estimated to be around Rs 537 billion and forecast to reach Rs 1,032 billion by 2018, according to RNCOS, a market research firm. And rural, which currently contributes 30 percent, would surely add a major chunk.
“The beauty and wellness industry is growing in tier II cities; while in tier III, it is seen as having great potential,” says beauty expert Shahnaz Husian. Over the past few years the industry has successfully penetrated smaller towns across India. Cities such as Baroda, Indore and Jaipur have witnessed the emergence of beauty and wellness.
Factors like growing per capita income; effort on the part of manufacturers for product differentiation; rising consciousness about looks among both men and women, especially among the younger generation, have given a boost to the industry, and hence the sector has attracted investments from international players. Stressing that the beauty business is on a fairly dramatic rise, Ahuja says, “Though metros continue to grow, it’s the tier II and III towns that are throwing up real surprises.” One of the most well-known stylists of India Jawed Habib opines, once people’s basic needs are satisfied, they begin to move upward in the hierarchy, where their next immediate wish is to look good.
Moving to the Hinterland
The boom in small towns is making major companies like Dabur, L’Oreal and VLCC to expand in these cities where operating costs are lower than in metros, and customers tend to be more loyal. Habib says, "People in small towns are much more loyal to a brand or hair stylist." These locations offer a definite advantage to the companies through lower labour and real-estate costs. Besides, it is far quicker and easier to achieve break-even of new stores at such locations, believes the expert.
For L’Oreal India, many smaller towns are growing at twice the pace of metros. A combination of money, education and awareness is driving this revolution of sorts, says a company official. Husain adds, "Women from small towns come routinely to study at our beauty academy with the aim of setting up their own franchise salons." The company has centres in small towns such as Kohlapur, Panchkula, Raipur and Saharanpur; and gets about 20 percent of group sales from these markets. Similarly, most of VLCC’s franchised centres are in small towns like Bhatinda, Tirupur and Ahmednagar, which are performing beyond expectations.
The rural consumer is no longer content using mustard oil and plain soap, today he or she exhibits marked propensity towards spending on premium high-quality products. The latest trends that are picking up in these markets include:
•tConsumers in smaller towns are more inclined towards regularly used cosmetic products like talcum powder, hair oils and moisturizers, etc. For example, Godrej’s Nupur Hair dye and Marico’s Nihar coconut hair oil are gradually changing the face of hair care market in smaller towns.
•tPenetration of branded cosmetics is continuously increasing in these areas with growing income level and increasing consumer awareness.
•tHair colour market in smaller towns is completely driven by small sachets of hair dye as consumers use it only occasionally.
•tSkincare cosmetic companies are targeting the smaller towns and rural markets by launching products in lower price range.
This clearly shows that the future growth prospects in the rural areas are anticipated to emanate from lesser price and daily usable products with easily available supply chain networks.
Though consumers in small towns are willing to spend more; their aspirations, behaviour and tastes are quite different from the metros, and companies have to customize their business model keeping this in mind – what may succeed in metros may not necessarily succeed in smaller cities. “Many companies are launching cosmetic products in smaller sachets while others are introducing product variants at lower prices in lieu of the affordability factor of the smaller town consumers,” says Shushmul Maheshwari, CEO, RNCOS.
For example, HUL launched the new soap-cum-shampoo ‘Breeze 2-in-1’ which gained popularity in smaller towns. Similarly, Revlon is rolling out new brand of colour cosmetics priced about 60 percent cheaper than the existing Revlon range in order to expand the reach to smaller towns. One of the small town beauty initiatives of Dabur India was ‘Sundar Susheel Yogya Banke Dikhao Rani Pratiyogita’ – for which the company visited villages such as Kathiraon, Basni, Sindhora, Sajoi, Nehariganj and Ramna in Uttar Pradesh. Beside, for promotional purposes these companies use mass media in rural areas. For instance, HUL uses radio channels for creating awareness about its skincare products in smaller towns.
In addition to this, marketers are strategically developing their distribution network for rural sector. For example, many companies use vans to deliver its products to local vendors and retailers in rural areas, thus vastly improving its reach. This does not end there, though. The massive potential in rural areas would provoke more number of players to establish their networks in these locations. Clearly, rural markets have become a potential market for many companies.