 "home appliances")
With the announcement of demerger of its consumer durables business into a separate entity on Thursday, Crompton Greaves (Crompton) has made its shareholders happy. Brand experts say this was a vital and timely step by the company to push its electrical appliances which have intense competition from new players like Havells and older ones like Bajaj Electricals.
"Given that the category is low-involvement unlike big-ticket durables, it all comes down to the brand perception and styling of the products. Hence, all brands in the category are ramping up their ad spends. They also get to leverage their distribution networks (as Havells, Bajaj Electricals and Orient have done)," says Rajeev Karwal, founder-director, Milagrow, and who has had stints at LG Electronics, Philips, Electrolux and headed Reliance Retail's consumer durables arm.
In the last one year, Crompton had taken a number of steps to expand reach. It expanded its distribution network to 134,000 outlets last fiscal and started its own exclusive shops. Of this, 22,000 retailers cater to rural India. At the same time, the Avantha Group company also increased its ad spends to Rs 76 crore in FY-2014 from Rs 69 crore a year ago (see graph), even as its arch rival Havells cut its ad spends by 3 per cent to Rs 112 crore in the same fiscal.
Brand experts say small appliances may be low-ticket purchases but they have very high margins, as much as 50 per cent, attracting new players. "In addition, these products don't need much after-sales service and logistics support," says Karwal.
Crompton says the major task of its consumer products business is to ramp up its marketing enroute to restructuring itself from a 'factory-driven' entity to a dynamic 'customer-driven' enterprise. "This work has begun," Gautam Thapar, Crompton's chairman has told shareholders in his annual communication.
Apart from the expanded distribution network, it has launched an LED flat panel luminaire in the branded lighting category, and gained a market share of 25 per cent within the first quarter. New products accounted for 17 per cent of total sale of lighting and 24 per cent of luminaires (light fixtures) in FY-14. In fans, Crompton's net sales grew by 15 per cent - outpacing the market growth of 10 per cent - again thanks to new product launches which accounted for 30 per cent of revenues. In pumps, Crompton's market share increased marginally to 13.6 per cent in FY-14, while in residential pumps, it improved its leadership position with 27 per cent of share even though overall demand was flat. It has introduced a new range of electric kettles and rice cookers in home appliances.
Small home appliances include domestic appliances and kitchen appliances. Players such as Philips and Bajaj Electricals figure high in brand recall.
Analysts say the demerger will drive a re-rating of the consumer business as Crompton's consumer business is around 60 per cent of rival Havells in revenue terms. Bajaj Electricals, on the other hand, clocked Rs 2,878 crore.
Crompton gets around 70 per cent of its revenues from fans and lighting, compared to 30 per cent for Havells. For Bajaj, another close rival, around 54 per cent was earned from fans, lighting and luminaires and pumps in 2013-14. In domestic and kitchen appliances, it earned Rs 1,115 crore from its own brand and Rs 190 crore from its tie-up with UK-based Morphy Richards.
A major challenge is differentiation as sourcing is mostly from China. Most of the products ultimately originate from China as it is impossible for Indian brands to match the economies of scale of its modular and specialised ecosystem, says Karwal. Private labels of large retailers, using the same sourcing route, face low entry barriers, as a result. "Over the next four-five years, there would be a shake-out in the segment," says Karwal.
The competitors are already getting ready for it. While Havells is aggressively pushing its identity as a onsumer electrical goods company with multiple brands, players like Bajaj Electricals are premiumising with separate brands such as Morphy Richards. With the companies getting ready to fight for market share, it will certainly be a battle to watch out for.
