Hi MIJ thx for a very interesting idea! Just wanted to get your thoughts on a few qs I had:
1. So 12% of the ~150k salons use a digital solution like Cynd, and 30% of the top 40 salon chains use Cynd - what do you think is a realistic penetration target for the company? e.g. I would assume the small mom & pop salons in rural areas will not need Cynd's product.. Is a 50% penetration target feasible? The most obvious customers for a product like Cynd would be the large chains but even there they only have ~30% share, does that imply their solution isn't that compelling even for customers who should have a need for it?
2. Is there a risk that the reservation channel landscape consolidates? The core product only has value if the landscape is fragmented right? Would salons still pay for the product if there were only 2 or 3 booking channels left? And is there a risk that one of the big reservation guys (let's say Hot Pepper or Rakuten) comes out with a product that will compete with / replace Cynd?
3. What's been driving ARPU growth over the last few years for Beauty Merit? just new product features / modules?
4. How do you think about ARPU upside for Kanazashi? Do you think they can get that up to the level of the core product?
1. Yes so 12% of the 150k salons use cynd, but you have to remember the total number of salons in Japan are ~550k. 150k salons defined as those with digital presence and this figure is growing at about 10-15% p.a. How much can this penetration increase? Temairazu for example has seen digital booking penetration in hotels and inns reach 50%. So i think theres also room to digital penetration to increase and for CYND to take market share.
Salons are are highly fragmented regardless of if you're in the city or not (that said a higher concentration of these shops are found in cities) and you will need customer acquisition tools for this. If you go into any busy area you will find multiple hair salons on one street. Theres a natural bias for stylists to train at a store and eventually go off to start their own. As a small operation, especially with a labor shortage in Japan, you want to avoid as much admin ( which is still mostly paper in Japan!) so there is a huge latent need to DX this to become more efficient, even as a small operator.
2. I think the risk of this is small. The reason is because as a consumer I can see just how complicated the offerings can by by salons here. When I had to look for a new one there were literally 40 different plans I can book. Things like "Cut + color", "Cut + Perm" etc all with different durations. The additional complexity also comes from the fact theres an option to choose your stylist AND that the reservations provides unique coupons. Now This is all to say that even IF it consolidates to 2 or 3, I think it'll be VERY difficult to manage reservations from all these plaforms. Finally theres not much point for the reservation guys to build a platform today because the value-add is limited since they'll only manage reservations made through their own platform - and Salons don't want that.
In the meanwhile CYND is also evolving into an ERP for salons and not just a reservation managment system so as they add more funcitons they're becoming more entrenched in the daily operations. Which is beneficial for salons because it allows them to operate efficienctly and also a way sticker customer.
3. yes ARPU has grown the last few years due to different options and features. In the future They also want to scale their e-com feature which allows salons to sell professional beauty products and CYND can earn a % on it.
4. I think for the time being Kanzashi's ARPU is unlikely to match Beauty Merit - this is because Management wants to prioritise keep current prices in order to gain market share. These are pretty sticky customers so it ultimately makes more sense to do so. With the e-com peace and added new features ARPU will grow eventually but not counting on it any time soon. On the other hand profitability should/is improving for Kanzashi as it scales.
Thanks for a very interesting writeup. CYND looks very cheap if they can execute. Reminds me a bit of THRY in the US, although THRY is targeting a broader range of small businesses with their CRM offering (everything from plumbers to hairdressers), not just one vertical.
Thanks for the feedback and I'm glad you enjoyed it! Very interesting comparison to THRY - I actually think this could be a hidden optionality for CYND too- expanding to other types of tangent services (like Pet Salons for e.g.) though for now the market is already quite large as is an the management likely wants to focus on becoming a champion by focusing on this vertical. I also think the ecom angle for CYND could turn out to be very, very interesting!
No worries! Interestingly THRY is going in the other direction - they started out with one size fits all and are talking about potentially coming out with new products to target specific verticals. I agree it looks like there is plenty of growth potential in CYND's target vertical but it's nice to think about that optionality. Will be keeping an eye on this one!
Hi MIJ thx for a very interesting idea! Just wanted to get your thoughts on a few qs I had:
1. So 12% of the ~150k salons use a digital solution like Cynd, and 30% of the top 40 salon chains use Cynd - what do you think is a realistic penetration target for the company? e.g. I would assume the small mom & pop salons in rural areas will not need Cynd's product.. Is a 50% penetration target feasible? The most obvious customers for a product like Cynd would be the large chains but even there they only have ~30% share, does that imply their solution isn't that compelling even for customers who should have a need for it?
2. Is there a risk that the reservation channel landscape consolidates? The core product only has value if the landscape is fragmented right? Would salons still pay for the product if there were only 2 or 3 booking channels left? And is there a risk that one of the big reservation guys (let's say Hot Pepper or Rakuten) comes out with a product that will compete with / replace Cynd?
3. What's been driving ARPU growth over the last few years for Beauty Merit? just new product features / modules?
4. How do you think about ARPU upside for Kanazashi? Do you think they can get that up to the level of the core product?
Hi Thanks for the questions!
1. Yes so 12% of the 150k salons use cynd, but you have to remember the total number of salons in Japan are ~550k. 150k salons defined as those with digital presence and this figure is growing at about 10-15% p.a. How much can this penetration increase? Temairazu for example has seen digital booking penetration in hotels and inns reach 50%. So i think theres also room to digital penetration to increase and for CYND to take market share.
Salons are are highly fragmented regardless of if you're in the city or not (that said a higher concentration of these shops are found in cities) and you will need customer acquisition tools for this. If you go into any busy area you will find multiple hair salons on one street. Theres a natural bias for stylists to train at a store and eventually go off to start their own. As a small operation, especially with a labor shortage in Japan, you want to avoid as much admin ( which is still mostly paper in Japan!) so there is a huge latent need to DX this to become more efficient, even as a small operator.
2. I think the risk of this is small. The reason is because as a consumer I can see just how complicated the offerings can by by salons here. When I had to look for a new one there were literally 40 different plans I can book. Things like "Cut + color", "Cut + Perm" etc all with different durations. The additional complexity also comes from the fact theres an option to choose your stylist AND that the reservations provides unique coupons. Now This is all to say that even IF it consolidates to 2 or 3, I think it'll be VERY difficult to manage reservations from all these plaforms. Finally theres not much point for the reservation guys to build a platform today because the value-add is limited since they'll only manage reservations made through their own platform - and Salons don't want that.
In the meanwhile CYND is also evolving into an ERP for salons and not just a reservation managment system so as they add more funcitons they're becoming more entrenched in the daily operations. Which is beneficial for salons because it allows them to operate efficienctly and also a way sticker customer.
3. yes ARPU has grown the last few years due to different options and features. In the future They also want to scale their e-com feature which allows salons to sell professional beauty products and CYND can earn a % on it.
4. I think for the time being Kanzashi's ARPU is unlikely to match Beauty Merit - this is because Management wants to prioritise keep current prices in order to gain market share. These are pretty sticky customers so it ultimately makes more sense to do so. With the e-com peace and added new features ARPU will grow eventually but not counting on it any time soon. On the other hand profitability should/is improving for Kanzashi as it scales.
hope that helps!
Thanks for a very interesting writeup. CYND looks very cheap if they can execute. Reminds me a bit of THRY in the US, although THRY is targeting a broader range of small businesses with their CRM offering (everything from plumbers to hairdressers), not just one vertical.
Thanks for the feedback and I'm glad you enjoyed it! Very interesting comparison to THRY - I actually think this could be a hidden optionality for CYND too- expanding to other types of tangent services (like Pet Salons for e.g.) though for now the market is already quite large as is an the management likely wants to focus on becoming a champion by focusing on this vertical. I also think the ecom angle for CYND could turn out to be very, very interesting!
No worries! Interestingly THRY is going in the other direction - they started out with one size fits all and are talking about potentially coming out with new products to target specific verticals. I agree it looks like there is plenty of growth potential in CYND's target vertical but it's nice to think about that optionality. Will be keeping an eye on this one!