In June 2010, C.K. Ranganathan, 50, founder of CavinKare, suffered a drug allergy. It affected his immune system and he was advised rest in an isolated, sanitised environment to avoid infections. The enforced six-month break gave him muchneeded time to reflect on the business he founded as a partnership firm back in 1983.
On the face of it, Ranganathan had reasons to feel satisfied. In business circles, CavinKare is a legend - the David of the fast moving consumer goods, or FMCG, sector, which successfully took on Goliaths like Hindustan Unilever, or HUL, and Procter & Gamble, or P&G. CavinKare's first and most memorable innovation, in 1983, was the sachet: it sold shampoo in tiny, low-priced sachets at a time when the big players only marketed it in high-priced bottles. By doing so it discovered a vast, untapped market and forced its big rivals to follow suit. Today 87 per cent of shampoos sold in India are in sachets, of which CavinKare has a 30 per cent share. In 2010/11, it grew a respectable 22 per cent, with revenues touching Rs 1,040 crore.
Yet Ranganathan was worried. He was neither happy with his company's growth rate nor with the kind of innovations his teams were suggesting. He was concerned that around seven of every 10 innovations presented to him were aimed at the relatively low-end segment of consumers. No doubt it was this segment that brought CavinKare its initial success, and still provided about 60 per cent of the company's revenues, but Ranganathan wanted to target the premium segments, where margins were much higher.
To make CavinKare an enduring organisation, with a global presence and a strong line-up of luxury brands
It is a strong regional player with primary focus on the 'bottom of the pyramid' segment
The organisation needs to reinvent itself to bring about the change
Change the company from within to ready it for the next level of growth
Another major worry was the lack of adequate leadership down the line. "Growth is directly proportional to a strong leadership pipeline," he says. He also felt that CavinKare had become a somewhat reactive organisation and his people were not learning enough. "Innovation is important but without the right culture, it cannot be sustained."
Ranganathan got back to work in December 2010 with definite ideas about how he wanted CavinKare to change. He intended his company to grow much bigger and acquire not only a pan-India presence but a global one, too, without losing the agility of the small player. His first task was to get the employees to become more achievement oriented. He introduced a new working system for better and faster product development, shifted CavinKare's marketing office from Chennai to Mumbai and began looking around for acquisitions and tie-ups to bring premium products under his company's umbrella. The workforce was divided into creators (research and development, or R&D, marketing and sales), enhancers (production, purchase, logistics and supply chain) and protectors (accounts, finance and management information system). "Creators are the key group. Their performance is critical. The bulk of the resources is targeted at them," says Ranganathan.
Brainstorming meetings on Monday were also started. "These meetings speeded up the process of product development as decisions were taken on the spot," says T.D. Mohan, Joint Managing Director. Ranganathan also got the team to start anticipating the competition's moves and prepare to counter them early. This helped when, earlier this year, rival Pantene slashed its shampoo sachet price from Rs 1.50 to Rs 1 to match CavinKare's Chik. "We had the response - a better formulation of shampoo - ready and launched it in less than a month. It was an improved product at the same price," says T. Mukhopadhyay, Executive Vice President, R&D.
Profitable growth was chosen as the theme for the company's annual conference in April 2011. The 'creators' were asked to come up with innovations that targeted the high end of the market. "We want 60 per cent of our revenues to come from the premium segment," says Ranganathan. CavinKare has also embraced the 'Blue Ocean Strategy' - outlined in an influential book on business strategy with the same name - to identify uncontested market spaces and create products to fill them. For instance, it launched Indica 10, a hair dye which can be washed off within 10 minutes of applying it. Rival hair dye brands require at least 30 to 45 minutes to take effect. Not surprisingly, Indica 10's offtake has been growing at 45 per cent every quarter. The company has set itself a revenue target of Rs 5,200 crore by 2017/18.
Ranganathan's reforms have already started yielding results. The product development time has shrunk to 11 months from 12 months earlier. CavinKare is also making a conscious effort to expand its pan-Indian presence. Pursuing Ranganathan's new thrust towards tie-ups, as well as towards improving premium market presence, the company has entered into a strategic alliance with Coty Inc. - the world's largest fragrance company.
But threats remain. "The vulnerability of an innovator is that he can be copied," points out V. Balaraman, a former director of HUL. "Once large FMCG companies latch on to an idea, they unleash all their financial and organisational might to smother competition."
Even as he eyes wider horizons, Ranganathan remains careful not to lose touch with his regional base. Some of his company's most successful practices, especially its ability to visualise and create products from observing local habits, have stemmed from its proximity to its customers. For instance, its Shikakai powder brands - Meera and Karthika - geared for the Tamil Nadu market command 95 per cent market share in the state.
And innovation has been the cornerstone of its success. When CavinKare entered the market, the only way it could stand up to the likes of HUL and P&G, with their deep pockets, was by offering something different. After introducing shampoo sachets, for instance, CavinKare took on HUL's most profitable brand, the 'fairness cream' Fair & Lovely by launching Fairever in 1998. To get a competitive edge, Ranganathan included milk and saffron among Fairever's ingredients - both are traditionally associated with fairness in south India. The product immediately connected with consumers and snapped up a market share of 12 per cent at the cost of Fair & Lovely. "Innovation helped us take on big players with minimal marketing and distribution costs," says Ranganathan. More innovations, such as Nyle Herbal Shampoo and Meera Herbal Oil, have followed.
Many Indian companies which showed initial promise at innovating have in the past lost their way. They could not institutionalise the innovation process as they grew. Again, the FMCG market remains as competitive as ever. Even established players such as Henkel have had to exit following reverses. In such a situation, a more enduring route for CavinKare's growth would be to find a larger social purpose where genuine customer needs are identified and satisfied, Balaraman adds. This could well help Ranganathan realise his global dream.
| |Need for caution, careful planning'
Subbu Subramaniam N., Founder, MCap Fund Managers
CavinKare has distinct strengths that it has built upon to reach more than Rs 1,000 crore in revenues. Its most prominent characteristic has been innovation. But the company should be aware that while innovation is a strength and quick action an advantage, it should not drive this at a pace that will upset the apple cart.
Today, the cost of building a new brand has increased significantly and the mortality of brands is high. Judicious and rational allocation of capital is essential to build businesses to critical mass.
We can identify three phases in CavinKare's progress and growth: LOCAL - launching local products for local market at local prices; GLOCAL - launching global products for local markets at local prices; and GLOBAL in aspirations, to launch global products for local markets at global price points! Each new phase is almost like building a new business. Distribution, branding, communication, packaging - the processes are completely different.
As far as the entry into services (CavinKare has a small, Vegnation-branded restaurant business) is concerned, the control systems have to be totally different from those in the products business. CavinKare's projected growth rates, although ambitious, are not unrealistic. The tailwinds of eight per cent economic growth, together with the fact that the company is addressing market segments like deodorants, packaged foods and services, all of which are growing at around 16 per cent, or twice the GDP rate, will work in its favour.
The company should be conscious that while its action bias can be maintained and frequent meetings are all very well, the plans formulated must have components of both long-term strategy and short-term tactics.
Subbu Subramaniam N. is Founder, MCap Fund Managers
Good record, can do more
A number of Indian companies such as CavinKare - and before that, Nirma - have identified and successfully captured large market segments by serving consumer needs till then ignored by large multinational companies, or MNCs, dominating the FMCG space. However, most of these successes tend to be in the low-end space, traditionally considered unprofitable by the large MNCs.
The challenge for CavinKare now is to repeat such low-end disruptive innovations in many more product segments and more importantly, to create a few completely new segments. The company seems to be on the right track as shown by its adoption of the Blue Ocean framework, displayed in the new 'faster acting' hair dye it has created. The company's steps to re-energise its innovation processes are good. In line with this, CavinKare needs to step up its investments in research and even collaborate with independent R&D labs. Innovations in packaging can be easily imitated. However, if the innovation efforts are aimed at creating completely new products that cater to unfulfilled consumer needs or address existing needs in a superior manner, it will lead to sustainable competitive advantage and growth.
It is puzzling why CavinKare has been unable to establish a strong pan-India presence even after nearly three decades of existence. Expanding into other parts of India alone will give a significant boost to its growth. Such geographic expansion can then be extended into select international markets as well. Inorganic growth is typically more expensive and should be contemplated only if it significantly accelerates the execution of some of the strategies outlined above.
Raveendra Chittoor isProfessor of Competitive Strategy, ISB, Hyderabad