Pratap, The Hindu Businessline
June 13, 2014
a market where homegrown and multinational companies alike make
a beeline for the hinterland, heres one that has boarded
a bus to urban India after becoming a household name in villages.
Jyothy Laboratories has meticulously targeted rural consumers
to grow its brand into the countrys fifth-largest in the
fast-moving consumer goods category.
Every month, truckloads of Ujala fabric whitener and detergent,
Maxo mosquito repellent coil and Exo utensil cleaner arrive at
the doorstep of retailers in lakhs of villages, saving them precious
time and transportation costs. The goods are also sold on credit,
which is a major draw for rural retailers such as Gyaneshwar Kadam
of Ajang village in Maharashtras Dhule district. We
are always short on working capital. Credit is a big help. Even
our buyers prefer to pay after they get their wages. So I dont
stock products of distributors who dont give me credit,
This, then, is the story of thousands of retailers who now swear
by Jyothy Labs products. In rural India, we have the first-mover
advantage. Since we went to villages first, gave them respect
and credit, we get trust in return. Big companies dont give
credit, but I ensure my distributors do it. The moment you give
credit, people become your patrons, says Ullas Kamath, joint
managing director of Jyothy Labs, best known for its Ujala fabric
City shops beckon
The companys products are available through 2.9 million
outlets, and it supplies directly to one million of them. Now,
as it readies to spread into every urban nook and corner, it has
re-jigged some strategies. To begin with, it has added more products
to its line-up.
When you are in business, you want to spread your risks
as well as product portfolio. And thats what we have done,
The company acquired 50.9 per cent in loss-making Henkel India,
a subsidiary of Germanys Henkel AG, for ?60.73 crore in
March 2011. With that it attempted to improve its rural-urban
sales mix. Before the acquisition, 65 per cent of its Ujala sales
came from rural India. Now it is 50:50 from urban and rural.
That is how Henkel has helped. They have distributors in urban
areas and that network has improved our reach, Kamath says.
Earlier, retailers and stockists in urban areas were reluctant
to take on Jyothy Labs products. Along with Henko
(Henkels detergent brand), we are able to push other categories
too like personal care and liquid mosquito repellent. And people
are accepting it.
Villagers buy more
In rural India, the consumption per family might be small
but the number of families is so large that it outgrows urban
India, says Kamath. His assumption is not without basis.
Rural spending at ?3.75 lakh crore far outstripped urban consumption
at ?2.994 lakh crore during 2009-12. Rural consumption per person
exceeded the urban equivalent by 2 per cent, according to CRISIL
and data from the National Sample Survey Organisation.
But for a national presence, Jyothy has to look beyond rural
India. In moving to urban India, there will be more opportunities
than challenges. Migratory population in cities is humongous.
And their needs are more like those of rural consumers
whether it is the kind of products or even the price they are
willing to pay. If a company can ensure a good supply chain across
large cities, it can grab a substantial chunk of the market,
says Devangshu Dutta, chief executive at consulting firm Third
Jyothy has accordingly made changes in its management structure.
Its top team now has 17 people, including the CEO, S Raghunandan.
Each brand head operates in a silo. We have brought in a
new management team to grow the categories. We give them enough
money to spend on a brand and understand the reasons behind their
performance or non-performance.
The gamble seems to be paying off. Raghunandan, an FMCG veteran,
has helped the company restructure and cut the distributor margin
from eight per cent to six per cent.
Advertising and sales spend has increased by 65 per cent to ?135
crore in FY14. Brand expenditure continues to pay returns
over a long period of time, says Kamath. He points out that
even when MNCs advertise, they not only grow their own brands
but also create new categories. Everybodys brand grows
as people know a product exists and then they compare similar
Jyothy Labs is looking to launch newer products and re-launch
some others. We should be in at least two more categories
in a few years. The aim is to be among the top three players in
each category, Kamath says.
That does not appear to be daunting. Henkel can still buy a 26
per cent stake in Jyothy Labs by 2016. That would give Jyothy
the financial muscle to take on the biggies. Moreover, an equity
partnership with Henkel should allow it to hop onto the German
companys wide international network and ride into emerging
But until then, Kamath and his team are busy marking the miles
and the milestones on the road to urban India.
(Published in The
Hindu BusinessLine .)