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Private equity: Investing in Russian beauty

Guy Norton
September 2007

Anyone seeking evidence of the growing range of investment opportunities for private equity practitioners in Russia need look no further than the news that Mint Capltai has paid $8 million for a blocking minority stake in Mone, one of the country’s leading hairdressing and beauty salon chains.

Mone has so far built a chain of 17 salons in Moscow and St Petersburg, but thanks to Mint’s capital injection it is looking to expand into the regions to create the first true nationwide chain.

«Unlike the US and Europe, which are dominated by chain players, the Russian hairdressing and beauty salon market is still overwhelmed by individual and unofficial home-based outlets,» says Alexander Glushkov, Mone president. According to industry estimates, chains command less than a 1% overall market share in Russia, whereas in the US and Europe that figure is 50% to 60%.

Glushkov adds that as incomes rise in Russia, customers are increasingly demanding a higher level of professionalism and quality of service as well as upscale locations and interiors, and that chains such as Mone, which has its own staff training centre, are best placed to cater for this demand. In the past two years, Mone’s customer base has grown by more than 160%, and the average bill size has more than doubled over the same period. Thanks to a loyalty programme, about 40% of Mone’s clients are regular customers, which have been using the chain’s services for several years.

Last year, revenues were $7 million and they are expected to climb to $11 million this year, with a target figure of $50 million in 2009. Mone operates in the low premium segment, where it has a roughly 20% share of a market in which the average spend per visit is $60 to $80. The target is for Mone to secure a 30% share by 2009.

«We are looking to surf the consumer boom in Russia and build the first national chain that will be able to capitalize on the growing demand for beauty treatments,» says Gleb Davidyuk, partner at Mint Capital in Moscow. He adds that by the end of the year Mone will look to expand its reach to include big metropolitan centres outside its current strongholds of Moscow and St Petersburg, and that Mint’s investment will also enable Mone to boost the marketing of the company’s own-brand range of professional cosmetics. «The profit margins Mone achieves on its own-brand products are very good,» says Davidyuk, adding that the logistics of supplying a nationwide beauty chain with relatively low volumes of a limited range of products are much more straightforward than those for a national supermarket chain with high volumes of thousands of different products.

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