Retail Chains Open Up India's Dental Market

By Knowledge@Wharton | January 31, 2014

The average dentist in India operates out of a stand-alone clinic. The sector is a largely unorganized part of the country’s health care market. The businesses are literally mom-and-pop shops; dentists tend to marry other dentists and operate as a team. The charges are low: A tooth extraction often costs less than $5. Oral health care is generally not covered by medical insurance, so there has been little incentive to corporatize.

But over the past few years — spurred largely by technology and the growth of medical tourism — several chains of dental clinics have opened for business. “The concept of the individual dental clinic in the neighborhood is losing its charm,” says V.S. Venkatesh, CEO of Alliance Dental Care, a joint venture between Apollo Hospitals and Trivitron Healthcare, a global company headquartered in the southern Indian city of Chennai.

Nearly 95% of the Indian market is still served by stand-alone clinics. But Anurag Dubey, associate director of the health care practice at business consulting firm Frost & Sullivan, notes that the Indian dental care services market — dentists and dental ancillary services — was approximately a $740 million market in 2010 and is expected to reach $1.3 billion by 2015 at a compound annual growth rate of 12%.

The new chains are trying to make the experience more comfortable. “The idea was to design a dynamic space that does not resemble a typical dental clinic,” says Amarinder Pal Singh, CEO of Star Dental India. Star, which operates its clinics under the Clove brand name, is a venture of Star Dental of the U.S. that aims to launch 300 super-specialty dental clinics in India by 2017. Alliance (which has branded its clinics Apollo White Dental) also acknowledges that ambience has been one of its top priorities. And, according to Vikram Vora, CEO of the MyDentist chain, that company’s policy is that no patient will wait for the dentist’s attention for more than 15 minutes.

For the Medical Tourist

Alliance has taken this care-for-the-customer process even further to cater to medical tourists, or people who travel outside their home country for medical procedures, usually due to the lower cost in other nations. Venkatesh is proud of his dental spas — which he calls “an innovation in the industry and our monopoly,” adding that “we have an exclusive royal suite for the weary traveler, who is treated to a special lounge which has a shower and Jacuzzi. There is a personalized room with excellent network connectivity and Wi-Fi. There is also a culinary voyage for (those traveling with] the patient, with complimentary massage and manicure or pedicure. For the fussy child, there is a gaming room complete with Xbox and other diversions.”

These frills are the icing on the cake. The big draw is the quality of the treatment and, of course, the cost. “Our prices are very affordable in comparison with those in the home country of the dental tourist,” notes Venkatesh. According to Clove Dental: “In the U.S. and Europe, dentists can charge $300 to $400 for a filling. It costs only $30 to $40 in India. Likewise, a root canal is $3,000 in the West but only $150 to $200 in India. Dentures can cost $1,000 overseas, but only $300 in India.”

Ravi Aron, a Johns Hopkins University professor and a senior fellow at Wharton’s Mack Institute for Innovation Management, says strategy is key to wooing more international patients. “Specialist dental clinics can link to other procedural specialists to offer augmented care,” he notes. “For instance, dental clinics can cross-sell dental care to patients who travel from Europe and the U.S. to India to get (other] procedures performed. This has both marketing and clinical benefits. The clinical benefits include access to the patients’ comprehensive medical case histories, while marketing and cross-selling these services will greatly lower the patient’s total cost of care (because he or she only] has to travel once to get multiple kinds of care.”

But dental tourism only accounts for 10% of the total oral health care market in India. Though Frost & Sullivan projects this to grow by 30% by 2015 — a faster uptick than the domestic market — it is really the latter where the action will be, observers say. And more specialized dental chains are likely to be the order of the day. “Single specialty hospitals give higher returns on investments as compared to multi-specialty hospitals, and the initial capital cost is also lower,” Dubey notes.

Aron has a different point of view. “Specialist procedure delivery clinics — (such as] birthing clinics, orthopedic clinics and dental clinics — often overestimate the extent of scale economies when putting up clinics,” he says. “They have volume restrictions, and there are constraints on resources (like] dentists, orthodontists and periodontists. These doctors will not travel across the town in Tier I cities to load balance the volume of patients and procedures in two branches of the same clinic.”

Venkatesh of Alliance agrees that individual specialists do engage in freelancing, or clinic-hopping, which results in patients not getting treatment in time or increased waiting time and cancelled appointments leading to image problems for the clinic. But this is just the issue that the chains address, he adds. “In the case of dental chains, there are resident doctors at the center and full-time consultants with different specialties to treat patients then and there,” he says.

Economies of Scope

Being able to employ in-house specialists depends on the number of patients a clinic processes, and it takes time to acquire a critical mass. But there are other benefits in setting up chains, observers note. “If scale economies are not very strong, economies of scope — where a fixed cost can be defrayed over a variety of different entities and procedures — are significant,” says Aron. “Once a specialist dental clinic has put in place information technology and operational infrastructure, and has configured processes (such as] information flows, links between clinicians and managerial support staff, a lot of these can be replicated in other locations. The IT systems can be used across multiple clinics.

“Health care delivery is characterized by a high degree of transferability of best practices and non-clinical support processes,” continues Aron. “This favors the creation of dental clinic chains.” At MyDentist, the entire patient management system is cloud based and therefore completely platform-and-location independent, mobile and scalable. The patient data is available across all the clinics. If a patient moves to another city and checks into a different MyDentist clinic, the staff locate a case history at the press of a button. “The geography of the city and country is changing,” says Venkatesh. “The traditional boundaries that kept people in one state and city are fast breaking. There is huge migration of people across the country.”

Aron suggests that there is another benefit of technology and networking. “In India, doctor-owned clinics do not have adequate access to the comprehensive clinical profiles of the patients,” he notes. “Dental problems are often side effects of other afflictions. Many dentists in India do not even ask the patient what other afflictions he or she suffers from, or about their drug allergy profile. Dental clinic chains can link to hospitals and acquire patients’ medical profiles. The high fixed cost involved in making these linkages can be defrayed over multiple locations.”

Funding Activities Grow

The surest sign that dental chains are a rapidly growing area comes in the form of interest from the private equity industry. “Funding activities are picking up momentum in this sector,” says Dubey, who cites two examples: Asian Healthcare Fund has invested Rs. 40 crore ($6 million) in MyDentist and India Equity Partners has picked up a majority stake in Axiss Dental. MyDentist was incorporated in 2009 and was incubated by Seedfund, an early stage venture capital fund. Seedfund is also investing an additional Rs.10 crore ($1.5 million) in the chain.

“The dental market is witnessing many organized players entering through various routes,” adds Dubey. “Large health care providers like Apollo and Narayana Health are diversifying and establishing their own clinic chains. Entrepreneurs are setting up clinics…. Also, foreign players are coming in — Swiss Smile, Europe’s leading dental services brand, has a 50/50 joint venture with Global Tech Park, a Bangalore-based investment firm. Dentistree has forged a partnership with Qualitas Medical Group, a major primary health care network headquartered in Malaysia. The Government of Singapore Investment Corporation (GIC) has invested $100 million for a minority stake in Vasan Health Care, a specialty eye and dental care company.”

According to Karthik Bhat, vice president of Zephyr Peacock India, a private equity investor, given that the dental sector in India is currently quite fragmented, “there is scope for large organized players to come in and capture significant market share by offering superior and standardized services at a competitive price point.” He adds that the “high capital efficiency associated with dental chains — along with relatively short break-even periods — makes it an attractive market for many investors. However, there are some concerns around the ability to scale up a dental chain business due to the number of centers required to attain a critical mass in revenues. One would need to successfully scale up to 100 plus centers to attain a decent revenue size.”

How much is the total PE funding in the dental clinic space? There are no accurate numbers for two reasons. First, some of the chains have another specialty (eye care, for instance) and there are no separate numbers for the dental portion. Second, some companies prefer to keep funding details under wraps. But health care overall was one of the most active sectors in 2013. Between January and November, there were 59 PE deals worth $758.6 million, and 54 M&A deals worth about $2.77 billion, according to VCCEdge, which tracks the funding market.

There is also some uncertainty about the market leaders. MyDentist services 10,000 patients a month, which makes it the largest, says Vora. On the other hand, Axiss Dental has taken over Narayana Hrudayalaya Dental and is acknowledged to have the largest number of clinics. Axiss has more than 60 clinics; MyDentist has 45 clinics. Alliance has 30 clinics and aims to increase that to 100 by 2015.

The availability of dentists in India is skewed in favor of the cities: The dentist/population ratio is 1:10,000 in urban areas and 1:250,000 in rural areas. And clinicians and chains alike are more hesitant to set up shop in the rural areas, according to the Dental Council of India. An estimated 50% of the Indian population has never visited a dentist, though 70% suffer from dental diseases.

Aron points out another issue that may impede the chains’ chances of success. “There are supply-side constraints — chiefly the availability of dentists, dental surgeons and clinicians. The Frost & Sullivan report suggests that the supply of dental specialists needs to go up by about 30% to 50% in the next few years. This is a daunting challenge in an economy that is faced with a resources crunch in funding tertiary education. Many of the colleges that come up may well produce poorly trained clinicians.”