When Kalyan Jewellers Chairman and Managing Director T.S. Kalyanaraman or his sons, Rajesh Kalyanaraman and Ramesh Kalyanaraman, go for a morning stroll around the Swaraj Round or visit the Vadakkumnatha temple of Thrissur in Kerala in the evening, they don't have to worry about carrying a wallet to pay for wayside tea or lemon soda or masala dosa. Like the famed caparisoned tuskers of Thrissur who enjoy superstar status, everyone in this small town knows 'Kalyan's Swamis', a pride of Thrissur. Despite owning private jets, a fleet of Rolls Royces and a big mansion, Swami and his sons chat with the roadside vendors in the unique local slang identifiable with rhythmic flow of Malayalam laced with open heartedness and affection. "That is because we know them very well and they know us very well," says Rajesh.
The 'Swamis' of Kalyan have been part and parcel of Thrissur for at least three generations where Kalyanaraman's grandfather had moved about a century ago from Kumbakonam in Tamil Nadu to start several textile shops in Thrissur town. After years of running the centrally located textile shop that he had inherited, Kalyanaraman decided to try his luck in jewellery by banking on the trust and affection of the people of Thrissur. In the last 25 years, he has used that 'Thrissur model' of customer trust and affection to beat competition and spread across India and abroad. Now India's second-largest jeweller after Tata's Tanishq in terms of revenues, thanks to years of steady growth, Kalyan Jewellers is getting ready to shift gears. It is looking to more than double the revenue and the number of branches within the next five years.
Will it succeed? The answer to this question lies in the finer details of how Kalyanaraman and his sons transformed a traditional business - infamous for lack of customer trust - with innovative thinking, transparency, personalised customer care, aggressive marketing and hyper localisation to win hearts of people in diverse geographies.
Textiles to Jewellery
Seetharamaiyer, Kalyanaraman's father, inherited the textile mill and shops from his father T.S. Kalyanaramaiyer. Kalyanaraman, the eldest among five brothers, started assisting his father at the age of 12. In 1972, he graduated in Commerce from the local Sree Kerala Varma College (from where his sons also graduated) and was given the charge of Kalyan Textiles, which then had a turnover of Rs 25 lakh. He managed that business well and inherited the textile shop in 1993.
Thrissur, the cultural capital of Kerala, is also the biggest city in Central Kerala. Hundreds of families used to flock to Thrissur every day for festival or marriage shopping. Kalyan Textiles was one of their favourite destinations. Customers gave Kalyanaraman the idea of starting a jewellery shop so that they could buy from the same premises. Ayodhya, Chiriyankandathu and Fashion were some of the well-known jewellery shops in the region but customers had limited choice. Salesmen or owners in dingy jewellery shops in narrow lanes would show sample pieces, take orders and tell customers to come back after some weeks to collect the ornaments.
In such a market, Kalyanaraman took the risk of offering luxury in his new shop, spread across 4,500 square feet, with four salesmen and plush decor, car parking and a wide range of ready-to-wear ornaments ranging from traditional to modern. All this cost him Rs 75 lakh to build, including Rs 50 lakh as loan. Kalyan Jewellers became an instant hit, attracting customers from places as far away as Aluva and Palakkad. "Soon we realised that neither the customer nor the goldsmith knew the actual purity of ornaments. They would come to know only when they re-sold and had no option but to believe what the jeweller said. They were also ignorant about gold prices and mechanism for pricing gold and how much value erosion happened on the pretext of making charges/wastage," says Kalyanaraman.
Kalyan attached price tags to each piece and offered purity tests free of cost. Until then, even reputed jewellery shops were relying on inaccurate acid tests, which also damaged the precious metal. Kalyan offered customers an X-ray-assisted Karatmeter which showed gold's purity (in percentage) per 22-karat gold and claims to have pioneered quality certifications from agencies such as Bureau of Indian Standards. "It was a disruptive business strategy that attracted the ire of fellow jewellers. Now, they follow the same methods," says Ramesh. It took another seven years to start the second showroom at Palakkad, about 70 kilometers from Thrissur. There, Kalyan also offered localised products as the region has a lot of Tamil influence. The success made Kalyan start another showroom at Perinthalmanna and then the first shop outside the state in the city of Coimbatore. By 2008, it had managed to open 5 branches in South India using the same strategy of hyper localisation. At this stage, it resorted to a different marketing campaign.
Ambassadors and 'Big B'
By early 2000s, television had become an unavoidable medium for local businesses to attract customers. Many jewellers such as Atlas Jewellery were showing commercials featuring the owners themselves. Instead, Kalyan experimented with Mammootty, then a rising superstar in Malayalam film industry. It clicked for the company. Kalyan replicated this with Prabhu, son of Shivaji Ganeshan, in Tamil Nadu, Nagarjuna in Andhra Pradesh and Shiva Rajkumar, son of Kannada film icon Rajkumar, in Karnataka. It retained them for a longer stint as brand ambassadors.
"Our brand ambassadors come from the big league of the respective regional film industries and are very close to the hearts of people of their states," says Ramesh, Executive Director of Kalyan, and who handles marketing, branding and sales.
By 2013, Kalyan had expanded to 25 showrooms with over Rs 1,000 crore revenues and was thinking of a big push up North. It chose Ahmedabad first, followed by Mumbai and Delhi, with a target of 25 more showrooms in the next five years. Around this time, it thought about roping in Amitabh Bachchan. "We met him at a film studio in Mumbai and told him about us and said we would not roll out shops in North India without him," remembers Ramesh. Big B took more than a month to say 'yes'. In the first two years of commercials featuring him, Bachchan did not talk about Kalyan but only about purity of gold and rights of consumers. At present, Kalyan's national campaigns are run with Amitabh Bachchan and Katrina Kaif.
While Swami and sons were cleverly creating brand equity for Kalyan, they were, at the same time, also focusing on efficient operations, supply chain management and hyper localisation. With a hub and spoke model, they started opening My Kalyan in the periphery of their shops. These act as service centres, promote the brand and sell low cost jewellery. There are 650 My Kalyan shops in the country.
While the plan was to expand Kalyan to North India, private equity companies eager to invest in scalable business opportunities in India showed interest in the company. One of them was US-based private equity (PE) player Warburg Pincus. Kalyan was generating adequate cash for expansion (its profitability is claimed to be among the best in the industry) and was not in hurry to raise cash. But Kalyanaraman and sons felt handholding by an expert like Warburg - whose Indian clients included Kotak Mahindra Bank, Bharti Airtel and Metropolis (which it exited)- would help them raise cheap funds, and create better visibility and brand equity, besides getting them expert advice. Negotiations went on for months and in October 2014 Warburg reportedly invested Rs 1,200 crore for a 10 per cent stake (which neither Kalyan nor Warburg wish to disclose), valuing Kalyan around $2 billion (Rs 13,000 crore). This was the first large PE investment in India's jewellery sector.
What attracted Warburg to invest in a small-town family business, that too a traditional one, run by a father and two sons? "We assessed many jewellers in India and abroad. We were impressed by the vision, passion and industry knowledge of the promoters and the company's rapid growth over the years," says Vishal Mahadevia, Managing Director of Warburg Pincus India. Warburg invested another Rs 500 crore in April 2017. It has a board seat in Kalyan.
Kalyan's business model is attractive for PE players. According to an HDFC Securities sector report in June, India's jewellery market remained flat at Rs 2.7 lakh crore over FY14-18 as neither volume nor prices rose. However, the 17 organised jewellery chains, which are expected to grab 42 per cent market share in the next five years from the current 29 per cent, have been growing at 11 per cent CAGR, says the report. "Now these 17 chains, mostly from South India, account for a measly 4 per cent BIS-listed jewellery stores in North and West (versus 8 per cent store share/40 per cent revenue share down South)," it states.
Key South India jewellers concur that North and West is where the battle will be fought. While Titan remains a distant leader in terms of national presence, able contenders are visible across all zones. These include PC Jeweller (North), Kalyan Jewellers, Malabar Gold, Joyalukkas (South) and Senco (East)," say analysts Jay Gandhi and Rohit Harlikar in the HDFC Securities report.
Kalyan has an advantage as it gets only 45 per cent revenues from South India as compared to most competitors who rely on South India for a lion's share of their revenues. Ramesh says the company has 135 showrooms in India and West Asia with a revenue of Rs 10,500 crore and is growing at 8-10 per cent every year. A new showroom costs Rs 30-40 crore depending on the location. This is higher in metros or cities having flagship/large showrooms, which require Rs 100-200 crore each. Kalyan's target is to open 20-25 showrooms every year.
"Many of our showrooms now generate an average of Rs 100 crore revenue a year and break even in six-eight months as footfalls start from day one since we are investing a lot on brand creation and promotion nationally and regionally," says Ramesh. A PE player investing in a hospital or an FMCG company has to wait for at least seven-eight years for breakeven. Kalyan spends about 2 per cent revenue on advertisements and promotion.
Rajesh says they study the local market for six to eight months before opening a showroom there. "We have five showrooms in Mumbai and each of them caters to different customers. Andheri is our flagship showroom, while the Borivilli showroom mainly caters to Gujarati customers. Thane, Ghatkopar and Vashi showrooms offer a mix of Maharashtrian, Gujarati and South Indian jewellery. Same is the case with our four showrooms in Delhi," he says. While Delhi customers like Polki jewellery, Bangalore prefers temple jewellery and Ahmedabad antique, he observes.
"We have 3 million customers and 80 per cent of them have been repeat customers for the last 25 years," says Kalyanaraman. The company employs about 8,000 workers and has opened 12 purchase offices across India for sourcing raw material. Kalyan spends Rs 3-4 crore a year on creating IT infrastructure for backend and supply-chain management, which Rajesh heads. It spends about Rs 800 crore a month on buying raw material.
Kalyan is now looking at a huge expansion in India and abroad. The plan is to open at least 20 showrooms every year for the next five years to reach a target of 250 from the current 135. Apart from countries in West Asia, it is also planning to expand in the US and Malaysia. "But the huge potential is in India, especially states like Madhya Pradesh, Uttar Pradesh, Bihar and the eastern region," says Ramesh.
Kalyan will require an investment of at least Rs 4,500-5,000 crore for expansion over the next five years. It is looking at an initial public offer to raise money. "We are thinking about an IPO. It is sure to give us more visibility and also help us raise additional capital. We have not decided the timing for the IPO yet," says Rajesh.
In the race to conquer the rest of India and abroad, Kalyanaraman, 71, Rajesh, 43, and Ramesh, 40, travel at least 15 days a month. For that, the trio has an Embraer Legacy 650 executive jet, another smaller jet, an Embraer Phenom, and a Canadian Bell 427 helicopter, besides a fleet of expensive cars. Kalyanaraman had a networth of over $1.3 billion as of December 27, 2018, as per the Forbes.
The down-to-earth Swami and his sons, who neither studied in famous management schools in the US and Europe, nor employ an army of suit-clad executives who have studied in such institutions, know their business in and out and are not concerned about wealth. They also have Kalyan Developers, now a small real estate company with land assets, run by Karthik, who is married to Kalyanaraman's daughter Radhika.
"To be frank, when my father opened the second showroom, I was being inducted full-time into business after studies. He wanted to give the first showroom to my elder brother and the second one to me. By God's grace, the rest of the expansions just happened," says Ramesh.
It seems the private jets carrying Swami, Ramesh and Rajesh are ready for take-offs from Kochi to open new Kalyan stores in new geographies.