C. K. Ranganathan, Chairman and Managing Director of the company, discusses the problems and prospects of the industry, in general, and CavinKare, in particular.
With shampoo in sachet, this one not only hit national headlines but also gave the deep-pocketed multi-national big boys in the FMCG space a good run for money. The Chennai-headquartered CavinKare is now gearing up to move into higher growth orbit after focussing on aligning new businesses which it had got into in the past few years .
In this interview C. K. Ranganathan, Chairman and Managing Director of the company, discusses with The Hindu the problems and prospects of the industry, in general, and CavinKare, in particular.
Have the economic slowdown dragged down the growth of FMCG sector?
Yes, they have taken a toll on the FMCG sector. In the past, the growth used to be at a comfortable double-digit level. It has now fallen to lower double-digit or single-digit level, barring a few categories. For us too, growth has slowed down. However, it is not the case of de-growth or struggle for growth as one see in many other industry segments. The FMCG will be an ever green industry. Of course, rising inflation is a continuous worry.
How do you say this will be an ever-green industry?
It will be an ever-green industry at least for 2-3 decades. Penetration of many categories is still very low. In many categories, our consumption levels are abysmal when compared with the West. These products are becoming essential commodities.
After using tooth powder for long, one upgrades to toothpaste. You would not want to go back to tooth powder no matter whatever struggles you come across. Also, toothpastes are no longer expensive.
As the per capita income levels go up and poverty level comes down, consumption level will keep increasing. Such consumption is indeed driving the growth for FMCG products. And, it ensures that they available at very low prices, including in rural areas.
Companies have also innovated to earn margins at low prices. We were the first to come out with a 50 paise shampoo packet in 1998. Over the last 16 years, we have been sustaining this price. Of course, margins have come down. We still stay put at 50 paise, and make money. This will, however, move to the next level when affordability level increases.
There is a feeling that aggression is missing with the company of late. Is Cavinkare going through challenging times?
In the last 3-4 years, we had a series of diversifications and acquisitions. Suddenly, there were too many things in our plates. We are digesting them. We haven’t seen de-growth in this period. Our focus was aligning new skills to strategic plan. We could have done slightly lesser in terms of diversifications and acquisitions. It has only reduced our speed but not made us stagnant. We have merged all our sales functions. That took some pain and time. We are in the last leg of that exercise, and hope to complete this by March. Once it is complete, it will give us tremendous amount muscle to achieve faster growth.
Have you ever thought of stake sale or collaboration?
We have been approached for stake sale or collaboration. There is a saying ``don’t chase your pension, but chase your passion.’’
So I am chasing my passion. And, I am not for sale. We are already in the process of creating a culture and passion. We are working out a model under which the managers would be sharing the profits as we go forward. When you chase a passion, the pension won’t tempt you!
How is Cavinkare evolving as a strong desi FMCG firm?
From a sachet company, we have now the ability to cater to `Little India (elite segment)’ as well. It is not just mass market. We are touching the elite class too. This requires a different competence altogether. We are fast learners, as a company. We observe many companies and global experiences. We have invested in quality people and R& D. In 2004, we invested in 40,000 sq ft R & D facility. There are about 65 scientists working on product development and basic research. We continuously patent our products. Every year, over dozen patents are being filed. Even as we have evolved to cater to the buyers of high-priced products, we keep our foot firmly on the mass market.
What are the key differentiators between a home-grown and a multi-national firm?
Global FMCG firms market their global products in India. We develop products for Indian consumers.
MNCs can play out only on advertisements. We play out in the product as well. We understand the Indian requirement.
So, we are welcomed in the in elite segment also. When good products are given, customers are happy to patronize. One of the success stories is our milk shake. It has caught the fancy of a lot of customers.
What are your limiting factors as a desi FMCG firm?
Finance is available. We are not fund-starved. What is required to take on MNCs is the ‘Can Do’ spirit. I have heard many Indian firms saying that they can’t take on global competition as they had deep pockets etc. If you have this mindset, you are already defeated.
What will be the impact of FDI in retail on FMCG?
Unfortunately, the FDI has not fully opened up. There are lots of restrictions for MNCs to acquire local brands. No merger has happened so far. Some Indian brands want to sell, but MNCs are unable to buy. I feel it is not well conceived and executed. More and more consumers enjoy going to modern stores for the touch-and-feel shopping experience. And, it is an entertainment for many consumers.
Consumers go to typical kirana stores with pre-conceived idea of what to buy and with a budget. In the case of modern stores, consumers will end up buying many other things which they wouldn’t have planned. About 30 per cent their purchases would be waste. That is how consumerism is. It is required? Will it be healthier to have more and more modern stores to create experience for buyers? Will local stores lose out to MNCs? No, they won’t. It will only spur more buying. Going by statistics, an increasing number of local shops are also getting upgraded.
For launch of every organized store, there will be at least 3 or 4 individual entrepreneurs putting up stand-alone department stores.
Will Cavinkare travel beyond the borders, and become an Indian MNC?
We already have a factory in Sri Lanka, and a fully-owned subsidiary in Bangladesh. We have also opened offices in Dubai. We will go to more countries, as we have quite a lot of innovative products in our plate. It is important that we sell something different. We won’t enter any market with ordinary products – they will either be highly differentiated in their categories or significantly superior over competition. This is the call we have taken. After a couple of years, you will see a slew of starkly differentiated or significantly superior products waiting in the queue for getting launched. I would like to see Cavinkare as a global FMCG conglomerate, cutting across foods and personal care products
What are your near-term plans?
In a couple of years, we intend to double our current revenues of Rs. 1,200 crore. We are ready to fly as we are in the final leg of completing restructuring. Our current profitability is also decent. We hope to maintain a balance between foods and personal businesses going forward.
We want to grow these two divisions steadily in the long-run. The third one is our saloon business, where we are seeing decent growth. We see a clear opportunity in salon business, and feel we are on a strong wicket. Today, we have about 172 saloons. We are planning to take it to 240 by the end of this fiscal. May be in the next two years, we should be crossing 1,000 saloons.