Icky meets Sexy

Meet the duo building Sri Lanka’s next global brand

By Echelon.

Published on March 17, 2014 with No Comments

spa

A basic instinct drives the need to look beautiful. Long lush hair and flawless glowing skin is a universal sign of youth, good health and fertility. The human instinct for procreation keeps the beauty industry – which accentuates the signals of health and fertility – powerful. An industry driven by sexual instinct will thrive especially in an era when the other basic instinct, survival, isn’t as challenging as it used to be. The desire to look good is as old as civilization and powerfully present in Sri Lanka even one and a half millennia ago, when its rulers had, by mastering irrigated agriculture, successfully beaten back hunger.
With survival no longer the greatest challenge, beauty – an attribute exchangeable for social position, wealth and even love – comes to the fore. None so colorfully embodies this lifestyle in the past than the playboy Anuradhapura kingdom ruler Kashyapa and his harem of topless damsels. Their golden brown complexions, mascara to make eyes look bigger and younger, threaded brows and red lip paint mimicking sexual arousal, exemplifies beauty’s fungibility to social status and a romping lifestyle.
Today’s idolized standard of beauty isn’t much different to the one portrayed at Sigiriya, but its mass exposure in media, the internet and glossy magazines is far more influential than it was on the cliff face of a wasp infested rock.
To successfully capture the mystic, the goodness and sexuality of what is beauty in ancient Sri Lanka in a modern range of inspired cosmetics and other products is what will make it possible for Spa Ceylon to probably grow to be Sri Lanka’s most successful and perhaps largest international brand. Spa Ceylon make a range of products; from those used in the bathroom, like soap, shampoo and shower gel; to after bath products like moisturizers; to feel good ones – which are potential sexual arousers – like massage oils and a selection of room enhancing scented oils and products. Its founders – who also run five branded spas in Colombo and one in Istanbul Turkey – describe the brand as a hybrid of the beauty industry, wellness and Ayurveda. This year and next, Spa Ceylon plans around 25 new stores in India, Dubai and Singapore. So far it has 16 stores including eight Spas occupying 15,000 square feet.
spa1“We are dreaming big,” underlines Shiwantha Dias who cofounded the brand with his half brother, “we want to build an iconic Sri Lankan brand at the high end.” In the near five years since its 2009 launch the brand has grown in leaps surprising even its founders. They forecast that Spa Ceylon brand revenue will top Rs1 billion in the next financial year on the back of the brand’s top line growing 500% in the last one and a half years.
The brand’s success lies in its mystique of being able to “transport a customer to a far away island called Ceylon,” explains Shiwantha who is a director plus the product development head at Spa Ceylon. Its 130 formulations of personal care products and 60 non personal care products is vast enough for Spa Ceylon to require own brand stores for retail.
At a forecast billion rupees in revenue for the next financial year, Spa Ceylon is only a fraction of the size of Dilmah tea, which is widely regarded as Sri Lanka’s top international brand. Since many units are privately held it’s difficult to estimate the full value addition but Ceylon Tea Services PLC, the listed Dilmah brand owner had revenue topping Rs7 billion in the financial year ending March 2013.
The two brands, Spa Ceylon and Dilmah tea, share three unique attributes. Firstly they both share a uniquely Sri Lankan ethos, Dilmah because of its focus on Ceylon tea and Spa Ceylon because of the underlying Ayurveda base of its products. Although few consumers elsewhere know much about Sri Lanka in general, they associate it with Ceylon tea and Ayurveda as a form of traditional medicine native to the Indian subcontinent, an obvious advantage for these two brands.
Secondly both brands operate in globally scalable consumer segments. Dilmah already enjoys worldwide success and Spa Ceylon, with its many personal care products, can potentially find similar acceptance among a discerning clientele willing to purchase luxury and exotic personal care products. Up to 85% of Spa Ceylon’s sales in Sri Lanka are to foreign nationals which reinforces the belief the product will be successful overseas.
Unable to always outspend their big established rivals Dilmah and Spa Ceylon will try instead to out-innovate them; this is the third shared attribute. Both brands make more of their wellness credentials. Increasingly people are also seeking natural cures and gravitating to products with a wellness offering. Tea is subtly marketed as a health drink versus a popular alternative like coffee. Spa Ceylon on the other hand is blurring the line between personal care products and non-prescription drugs. The focus on Ayurveda has led to some genuinely new ideas, such as products that are tailored to individuals’ specific elemental Ayurvedic identities. Ayurveda theory has it that an ideal balance between the three elemental substances the ‘dosha’s’ – an individual’s mind and body type – equals good health. Of the three – Vatha, Pitha and Kapha – each individual has a predominate dosha and Spa Ceylon products also offer dosha specific variants.

spa3Beauty firms around the world are trying to extend their brands in to the wellness and pseudo-science of new-age cures. By building one encompassing beauty, wellness and Ayurveda from its outset, Spa Ceylon has already covered the bases. However making Ayurveda attractive was no mean task because of its generally unappealing nature. “It’s smelly, icky and practiced in unappealing places,” explains Spa Ceylon cofounder, Shalin Balasuriya about Ayurveda’s undesirable positioning.
The subcontinent’s Ayurveda tradition is neither pseudo-science nor outright quackery as some beauty brands, including international ones, sometimes market. Beauty products are a combination of waxes, water, chalks, emulsifiers mixed with herbs, vegetable fats and oils. Various ingredients are best absorbed in to the mix at differing temperatures, so the manufacturing process is one of heating and cooling the compounds.
Spa Ceylon adds Ayurveda products in to this mix and has two strategies to overcome odour and ickiness. Firstly they replace odour causing ingredients in their proprietary formulae. “One of the things that make oils stink is coconut milk, so we eliminated it and substituted virgin coconut oil for the same nutrients,” explains Shiwantha showing a comfortable grasp of underlying principles.
The second way to improve product odour, they found, was to dip in to tradition itself. Sugandha Veda is an ancient art of using aromatic ingredients, mainly essential oils, to produce agreeable scents.
Growth in the beauty segment is being driven by rich ageing baby-boomers in the west and a growing middle class in developing countries, especially ones in Asia. Shalin, who is the marketing specialist at Spa Ceylon, recounted the overwhelmingly positive response from European tourists which led to prioritizing their international launch from that region. Two years on Spa Ceylon Ayurveda is still filling paperwork for European approvals. For emerging market brands the extended product approvals process in Europe sucks up time and resources; effectively a non tariff barrier. “We’ve come to realize now there is a lot of potential in our region itself and maybe we should have focused there instead of Europe first,” admits Shalin Balasuriya.
Their late realization is being met by a doubled up effort. This year the brand will debut in India, Japan, Singapore and the Maldives with its own stores. They have also tied up for a Russian launch soon and are exploring opportunities in the Middle East. Shalin is quick to point out that the 500% revenue growth in the last one and a half years was achieved before the Indian brand launch.

The desire to be beautiful is as old as civilization. However the relative Asian economic decline over the last millennium suppresses the mass desire for adornment. Not anymore. Asia’s economies are now steaming ahead and its people are rediscovering an idealized standard of beauty because of mass media. Western cosmetics brands have also noticed that Asians given to adorning themselves exist. French cosmetics houses like L’Oreal, Estee Lauder and Clarins Group have entered the region with a plethora of brands. Some of these brands are struggling in Asia because of their weak understanding of Asian heritage.
With the rising share of spend on primping in Asia’s largest economies the market is primed for brands that relate to the region’s heritage, tastes and to suit a manner of skins types. Spa Ceylon has a strong South Asian identity and an exotic island feel, principally perfect for the Asian market expected to generate most future growth. Shiwantha Dias says they are being audacious. “The whole marketing pitch is indulgence and we have created products even Sri Lankans are happy to say, ‘I’m using Spa Ceylon’.” He adds “we want to build a snob brand out of Sri Lanka and be the international leader.”
Snob, or premium status Spa Ceylon shares with Sri Lanka’s other international brand Dilmah. However unlike Dilmah, Spa Ceylon has the potential to expand in some of Asia’s most vibrant economies like India and China. Spa Ceylon is planning a chain of stores in India. However laying claim to the Ayurveda space in India – where the practice has its roots – isn’t going to be as straightforward as anywhere else in Asia. Forest Essence, an Indian brand has a commanding position in that market with an offering and a retail strategy similar to Spa Ceylon’s. Shiwantha is relishing the showdown, “Now we are going in to their home territory and we feel we can match them on price, quality and the whole works and we feel our offering is a little more exotic than theirs.”
The Indian brand launch – delayed because of new cosmetics registration rules – is to be rolled out under equally owned joint venture. The Far East rollout will be managed by another joint venture based out of Singapore.
Spa Ceylon picks and mixes the ingredients in its cosmetics, many from Sri Lanka, and others from across the world. At a 55,000 square foot facility Ayurvedic doctors work alongside cosmetology experts constantly trying out new compounds and product innovations.
For Spa Ceylon the home market is the test bed. The brand has now added up to 60 new products beyond the personal care range including home fragrances like scented oils and candles. In its expansion Spa Ceylon’s widening its targeted customer base and the Janet group, of which Spa Ceylon is part of, is also wooing customers below the income group that is its main target.
LuvEsence a brand targeting a younger user was launched by the group which had its start as marketers of the Janet Ayurveda chain, started by Shiwantha and Shalin’s mom Janet Balasuriya. In the current financial year Spa Ceylon will account for half the group revenue while Janet, a mass market brand, will account for the rest. Shiwantha Dias helped his mom build Janet Ayurveda over two decades, before cofounding Spa Ceylon with Shalin.
The mass end of the personal care market, where the Janet brand plays, is ultra competitive. For success at mass market level, products to address such beauty disasters like pimples and marriage prospect dimming dark skin, are crucial. However consumer goods multinationals also jostle for a share of the anti-pimple and fairness creams segment, where their scale is difficult to beat.
Besides not having scale the communication challenge in the mass segment is also a reason why Shiwantha after 20 years of running his mother’s business decided to pitch their new offering at the very top of the market. It’s easy to see why Shiwantha and Shalin find Spa Ceylon a far more rewarding challenge than marketing skin whitening creams. Wooing customers far above the Janet brand income group for Spa Ceylon wasn’t as daunting because it already had a related venture with supply chains, manufacturing facilities and Ayurveda know how.
Premium products have less drudge work because higher margins can be demanded. However they require greater attention to detail. Its founders have to ensure Spa Ceylon’s brand promise of sophistication. The human touch and pampering is consistently delivered by hundreds of sales consultants and spa therapists. Although the business is private Shiwantha admits gross margins are 75%. In high end beauty it’s not unusual that advertising budgets consume another 20% of revenue. The rest of the costs are the overheads to deliver the brand promise. “When you go in the up market, the level of understanding is better; we can demand a premium for better products. That market is the one that is travelling, seeing things and looking for new experiences. The fit was good,” Shiwantha points out.
spa4Even when the stores are run by a joint venture partner, like in the Indian ones, or a product licensee, the brand is constantly at risk. “It’s a nightmare,” admits Shiwantha of the challenge of finding the right brand partners in unfamiliar markets. “The branded stores have to be in the right places and to get the stores in the right places your partners have to be able to access the right network,” adds Shalin. “Location is a big thing because we open branded stores and in this region you need contacts to get good retail space.”
Since the launch in 2009 the group has invested over Rs500 million in the brand and a new production line will soon be added to meet international demand when more stores overseas open later this year.

Spa Ceylon blends South Asian Ayurveda with western sophistication and has built a fantastic reputation. Because it’s a company selling an image, Spa Ceylon’s founders realize they can’t be careless with the brand’s own. To fund their expansion overseas and to access well located retail space the brand is seeking out a private equity partner. “We don’t want just any financier,” explains Shiwantha. The brand’s success so far should make it possible for the firm, the founders think, to attract an international cosmetics firm as a private equity partner. Global cosmetics giants all have private investment units which take promising brands under their wing to take them international. “Once they invest in a brand almost overnight they have the ability to take your brand in to 20 or 30 countries because they have access to the best retail spaces, even 100,000 square feet in a mall, because they have so many stores.” International cosmetics firms aren’t seeking control stakes in their private equity investees but plenty of technology transfers still take place.
spa5These are Spa Ceylon’s top two growth challenges, finding the right private equity partner and attracting the right joint venture and distribution partners. Potential partners will find the offering unique, a rare thing in the cosmetics market where multinationals like Procter & Gamble and Unilever are among the biggest players. It is now free to focus on growth after having overcome the first challenge; that a product line with Ayurveda science at its center can be appealing.
Spa Ceylon’s clear identity, product lineup and positioning, is similar to the UK’s leading up market cosmetics firm Molton Brown than any brand marketed by Procter & Gamble, which is the world’s largest marketer of personal care products.
Moral censure and questions of vanity haven’t stopped people across the world from wanting to look better. These questions abound in poor countries and in ones like Sri Lanka that embraced the shackles of Victorian morality. But the industry’s global growth and resilience if not anything proves that beauty signals health and fertility: at the core of a basic human instinct. This entrenched desire, to look good is also why the beauty industry is more likely to produce a bigger global brand than the tea industry. Despite all its claimed benefits, drinking tea after all doesn’t improve your chances of procreation.

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