The Rs 200-crore, Chennai-based FMCG, Cavinkare Private Ltd is revamping its entire distribution channel to bring a larger percentage of its operations under the direct retail network.
B Nandakumar, president, Cavinkare said: "The company plans to bring 70 per cent of its entire distribution channel under direct retail network by 2004. Direct retail network will ensure that our products get proper display in the outlets, apart from removing distribution inefficiencies".
At present, wholesale and direct retail networks contribute equally to the company's turnover of Rs 203 crore. The decision is seen as significant as Cavinkare's several products were pitted against MNC competitors such as Hindustan Lever Ltd (HLL) and Procter & Gamble. Haircare products Chik and Nyle are pitted against Hindustan Lever's Sunsilk and Clinic, as well as P&G's Pantene and Head & Shoulders. Fairever, a fairness product, has been gaining on HLL's Fair & Lovely.
The strategy comprising two stages -- metro and non-metro -- involves supporting and subsidising retail support staff at metro outlets. In non-metro areas, the company is evolving two-tier structure -- super stockists (with population of over 50000 people) and sub-stockists (with population of 25,000 and below). Cavinkare, at present, has 400 super stockists and 4500 sub-stockists.
Agreeing that the strategy might increase selling costs, Nandakumar said: "With increase in volume, the per unit cost of products will come down. Also, we will able to reduce the time to market and distribution inefficiencies".
Parmit Chadda, chief executive of Chennai-based consultants Paradigm Management Knowhow, said: "The expansion of direct retail network would help the company expand its product portfolio as wholesalers would like to stock only high-volume products". He added companies such as HLL and P&G distribute their smaller brands entirely through the direct retail network.
He said HLL had doubled its direct retail network in the last 3-4 years, while P&G had reduced their direct retail network.
Cavinkare, which has grown at a compounded annual growth rate (CAGR) of 45 per cent in the last decade, is embarking on a dual strategy to sustain growth. First, it plans to focus on new products and new brands. Secondly, to develop a breakthrough product through indigenous research and development (R&D).
Cavinkare, which has no patent for its existing range of products, is planning to develop 'cutting edge' technologies through their recently inaugurated R&D centre at a cost of Rs 12 crore. On whether the company would consider acquiring brands, Nandakumar said: "We are open to the idea of acquiring any brand. However, we are now focusing on developing our own products and brands".
