Can on-demand beauty services startups thrive? Many failed, but some cracked the code

Using technology to make tasks convenient for customers is what drove the e-commerce boom in India. And home services is one area where customers appeared to require a lot of help.

Around 2014-15, when a number of on-demand services startups were emerging, one particular category that saw most interest was the on-demand home salon services industry.

According to reports, the beauty-care market in India is pegged at nearly Rs 50,000 crore and 85% of the business here comes from women, especially professionals with increasing disposable incomes.

This confidence gave rise to a number of startups like MyGlamm, Bulbul, Belita, StayGlad, VanityCube and many more. And with an average ticket size of about Rs 1,000-1,200, when founded, these companies were seeing good traction.

According to a September 2015 report in YourStory, VanityCube was processing 1,000 orders on a monthly basis, Belita was doing around 1,300 and Vyomo had 17,000 customers.

On an average, every startup was doing about 1,000 orders every month.

Investors also seemed to have an appetite for this industry. Angel investors and venture capitalists pumped in nearly Rs 19-20 crore rupees in 2015 alone.

Image source: Belitaindia.com

But what was once seen as a very promising industry, soon began crumbling. Companies were burning too much cash and registering losses.

Madhukar Sinha of India Quotient says that the biggest issue with this industry was that people thought of it as an internet business, when in reality it is a branded services business. Till you can create a brand, it is an expensive business and growth doesn’t come.

“The problem is that home services players that try beauty as a part of their services or the only service put a large amount on emphasis on customer acquisition. While it is important, what’s more important is that services offered is of high quality. There has to be lot of standardisation, a lot of work on product designing and that is not happening. They are in a hurry to just get customers and many beauticians on board and send them to service the customers,” Madhukar says.

If the customer does not see a differentiating value, she will not come back to the same service. And if a startup is spending a lot of money but isn’t able to retain the customer, there is no growth.

And while some shut shop, a number of them got acquired.

VanityCube was acquired by VLCC, Vyomo was acquired by Naturals, Belita was acquired by Enrich salons and Quikr acquired Zapluk, StayGlad and Salosa.

This pointed to the fact that while many of these companies were struggling to stay afloat, there was demand in this space and there were players who thought they could still make it work.

The big fish

One striking trend that emerges out of these acquisitions is brick-and-mortar salon chains buying out the online players to foray into on-demand home services.

While salon chains like Naturals, Enrich and VLCC have a strong brand, they may not have the experience required to acquire customers online. In order to expand their reach further, these chains acquire existing service providers, which help a great deal in taking their brands into homes of customers.

Speaking of Quikr, the company has been on expansion spree across categories and has acquired over 10 companies in the last two years.

And with three acquisitions of on-demand home salon service players, Quikr says that this has been one area where it has been able to establish a clear business model and has seen a very good user update with predictable demand pattern.

The three companies it acquired has now been integrated under the brand Athomediva.

“Beauty is one of the top 3 categories on QuikrServices in terms of traffic and revenue. This category brings more than 30% traffic on QuikrServices minus the direct traffic to AtHomeDiva (AHD) on a monthly basis. Our beauty services brand AHD has grown over 20 times in the last one year both organically and inorganically, in both transactions and revenue,” says PD Sundar, Head, QuikrServices.

Even for players like HouseJoy and UrbanClap, nearly 30-50% of traffic comes from the beauty segment.

As a business model, experts believe that it is a very profitable business. They did back in 2014-15 and they still do.

With rising disposable incomes and lesser time in hand, women customers, who make up most part of this industry, are looking for high quality services.

“Among home services, on-demand salon is a category with high frequency of usage and strong repeat rates; and we believe that it presents a profitable market opportunity. However, execution is the name of the game in this space with enough scope for things to go wrong and that is where a lot of the players have faltered,” Rishabh Katiyar, Senior Analyst, Corporate Development, InfoEdge said. 

Bucking the trend

There have been players who have managed to buck the trend. MyGlamm and BigStylist are two of them.

Founded in 2015, Mumbai-based BigStylist claims to have served nearly 50,000 orders in the last year. While a number of companies focused more on customer acquisition, the company says that its focus has always been on responsible growth. 

The founding team of BigStylist

With an annual revenue run rate of close to a million dollars, what works for Bigstylist, according to the company, is its decentralised model.

“We are very careful with logistics. Instead of setting up hubs across a city, we created a model using only technology. It works like Ola or Uber. This way, we save on a lot of transportation costs as beauticians don’t have to come to the hub and then go for orders. It also increases the productivity of our beauticians. Our focus is on productivity, using good products, thus delivering good quality service,” says Chinmaya Sharma, co-founder, BigStylist.

Having turned operationally profitable in a year of starting operations, BigStylist hopes to reach net profitable within a year.

So while it may seem like this is an industry that is not lucrative for startups, a deeper look into it tells a different story.

While the on-demand home salon services in inherently profitable, the challenge is on being able to scale profitably.

Like any other business, burning cash has never proved successful. While the pace is slightly slower, once established as a brand, clocking profits is no challenge.

 “The players who win will have executed well on three key factors--consistent customer service, eye on unit economics and hyperlocal focus,” says Rishabh.