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
| Need for caution, careful planning'|
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