Last October, when Anita Sharma, a 40-year-old executive in Delhi, went for teeth polishing at a newly-opened dental clinic, she was impressed. When her friend, Anusha, needed a root canal treatment last week, Anita recommended Clove Dental.
Anita and Anusha are only two of the 50,000 patients the Delhi-based dental care chain has treated in its 51 clinics, across the National Capital Region and Punjab. By March, nine more will be added to the chain.
"We want to be the preferred dental care provider in every neighbourhood," said Amar Singh, chief executive officer (CEO), Star Dental, the owners of Clove Dental.
"The experince we want to provide is of a lounge, not the dentist's chamber. Here, you are greeted by a doctor, not a receptionist," said Basil Moukarim, a US-based dentist and founder of Clove.
An investor, Moukarim is also a board member of Global Dental Services (GDS), Star Dental's parent firm.
Singh, who has founded four start-ups and raised about $60 million in the US, has tried to bring on board the best doctors and professionals for Clove Dental.
Former GE India CEO Scott Bayman and Louis Shakinovsky, former chairman of Belron, a vehicle glass repair and replacement company, are also supporting it. They and dentists from US, UK and here sit any of them sit on the board of GDS; they have invested in three rounds of funding, helping the start-up raise $14 million.
Bayman said Amar is an impressive guy with a solid business plan. "There's a need for quality dental care in India."
A former GE colleague, Ruby Anand, another early Clove founder, introduced them. After serving a few months on the board, Bayman decided to invest in Clove.
Individual dentists dominate India's dental care space - worth $1.3 billion and estimated to touch $2 billion by 2017.
The World Health Organisation estimates 2,500 new dental clinics are needed every year in the country. There is a surfeit of talent - India produces 20,000 dental graduates each year. But infrastructure is poor. Setting up a new clinic can cost Rs 40 lakh, a sum well beyond the means of most individual dentists.
"The market is there, the doctors are there. What is lacking is good infrastructure," said Singh, adding 90 per cent of Indians have gum disease, 60 per cent have dental carries and 80 per cent children suffer from tooth decay. Implants and orthodontics are high-value segments that are growing.
"By 2025, India will have a middle class of 600 million - double the size in the US. People will want to look good as their quality of life increases," said Basil.
Clove has competition, though. My Dentist (the largest player in the space with 102 clinics, operates in west India), Axiis Dental in NCR and Bengaluru, Apollo White Dental in the south, Denty's has 10 clinics in Tamil Nadu and Andhra Pradesh. "It's a large market," said Sameer Wagle, managing director, Asian Healthcare Fund. "Unlike hospitals, speciality health care can scale-up and break even faster.
Clove plans to operate through clusters of clinics in tier-I, tier-II and tier-III cities. Reason: Dentistry is a neighbourhood business and a clinic has to be close to a customer. Clustering also helps in rotating specialist doctors. Clove's selling points: convenience (except weekly offs, clinics are open 9 am to 9 pm, even on weekends), quality, value, and ethics. There's a lot of emphasis on the quality of doctors and training - it employs doctors on salary, and not on the fees-for-service model.
Its team of 150 dentists is led by Hari Parkash, former chief of the Centre for Dental Education and Research, All India Institute of Medical Sciences. Clove claims to be the only Indian dental organisation in India to be accredited by the Royal Society of Medicine of the United Kingdom.
Dental care is not a high margin but a volume business. A clinic can break even with 8-10 patients a day, and make money with 15 patients a day. Clove's two-chair clinics can handle 24 patients a day, and some older clinics are doing 15 patients a day but a majority (30 of 51) are less than six months old.
The biggest challenge for Clove is increasing awareness and driving footfall.
Indians hardly go to a dentist unless in acute pain. Though there are few established players and there's an opportunity to organise the business for a branded player, the shift of consumers has been slow. "Dental care is not on the top of the mind of people," said Singh.
So, whenever a clinic opens, Clove tries to drive traffic with promotions. "A key challenge is to get people to visit it once. Until you visit, you will not know what's the difference (from other clinics)," said Singh, adding Clove enjoys a 90 per cent conversion rate, while 41 per cent of its clients are repeat customers.
Clove's next target is to have 100 clinics by March 2016, enter new areas, and 350 clinics by 2018-19, when it hopes to gross $100 million in revenues and $30 million in earnings before interest, taxes, depreciation, and amortisation. This is when Singh hopes Clove will be able to fund expansion on its own without recourse to outside capital.
Till then, it's not even thinking of profits.
Despite the strong growth potential of the dental care space, there are certain business model-related challenges which need to be addressed. Dental services tend to have smaller ticket sizes. As a result, average revenue of even mature centres are lower as compared to other single-speciality segments like eye care, nephrology and IVF. This has a corresponding impact on each's return. The second key challenge is scalability. There is a constant need to add a very large number of centres (at least greater than 300 centres assuming each centre on average earns Rs 1 crore in revenue) in order to attain critical mass. Associated challenges are recruiting, training and retaining dentists as one scales up.Clove has successfully demonstrated the ability to scale-up in a small geography
Its cluster model enables it to obtain a network effect for its brand and achieve economies of scale. Clove also focuses on middle- and high-income families.
Clove has also been very clever in bootstrapping the company without private equity capital, since without attaining critical mass, providing an exit to an early investor can needlessly distract the management. They can take adequate time to build a sound business and reach that all important critical mass.
Shiraz Bugwadia is a partner at investment bank o3 Capital who tracks the health care sector