De-commoditising ‘FMEG’, premium by design...

Can you explain the evolution of Havells, from an industrial to a consumer products company? What role did advertising play in this?

I have been at Havells for 14 years. It is an owner-driven organisation. When we started out, we were not a very marketing-savvy company. We were into product categories like switchgears, MCBs (Miniature Circuit Breakers), changeover switches, etc. Most of our product categories were low-interest or low involvement so there was no point in advertising.

In 2001-‘02, HTA (now JWT) said that we were a kind of client that was more B2B since we spoke with architects and builders, and hence their direct marketing arm Thompson Connect started working for us. They also felt that we should have more of BTL than ATL communication.

Wire in those days was a commodity. There was competition but there were unorganised players in the market. With local and regional brands in this category, Finolex was the only national brand. Our initial experience with Thomson Connect was not very satisfying. We thought that MCB could also be promoted well with ATL while they felt otherwise. That was before 2003.

When we started producing fans, we thought that mainline HTA should get on board for ATL advertising. Few TVCs for our MCBs were shot (by Pradeep Sarkar). We were a small or medium advertiser with Rs 5 to 10 crore budget.

We wanted to make our presence felt in media and make the consumers aware of our brand. However, HTA did not give us a pinpointed strategy or a budget to become a brand we aspired to become. Yes, we got noticed a little but it did not result in increasing our sales volume. Fans was a crowded market. Usha, Khaitan, Polar, Crompton were well-entrenched. At that time, we were just entering.

In 2003, we also introduced new product categories of CFLs, lighting, and bathroom appliances. Then we called for a creative pitch. The real creative breakthrough came about when we got Lowe Lintas on board. Over time, the brand started getting built. We called it FMEG, and it took us lot of time to build the category.

Ads for MCBs have given us good recognition in the market and we are number one in that space. We always thought we were a low-interest, low-involvement category and we made it interesting. We made them interesting by saying ‘Shock Laga’. The message went to general masses. Even wires, the path breaking ad came with the ‘Mother-son’ ad. Balki had experimented with similar kind of ads on a sentimental note. It was a commodity that we made into the brand. Today, the consumer is demanding our wire. They associate our brand with ‘Wires that don’t catch fire’. It has been a great story in terms of (building a brand in) certain categories that were commodities and non-interest product categories.

Balki and his team have given us special attention from day one. We gave them the opportunity to experiment with the communication because they are specialists in the domain. They are the ones who have been responsible to take the brand to a certain level in the minds of the consumer.

Havell’s has consistently associated with big ticket cricket events. Arguably, building awareness, recall and preference, and establishing differentiation, has been achieved – do you agree? If yes, will we see a shift in the spends, away from big ticket properties?

When we got Lowe Lintas on board as our creative partners, they advised us to use cricket as a platform. That year, IPL had just started, and then we advertised in NatWest series. The strategy was very simple. We felt that this was one of the most popular games in the country. It is almost like a religion. Also, our TG matched with the cricket-watching population - SEC A and B, usually 40 year-plus male, who is building a house and is going to decide about the lighting, fans, wires.
When we entered cricket, the popularity of the game also started increasing. We booked all cricket that was available. We have been an associate sponsor for IPL for six years in a row.

But there is a part of population that does not see cricket and is our target customer. Hence, this year, we are focussing on advertising through GECs, press, and not only cricket. There is a possibility that we may take a U-turn depending on viewership (towards cricket). This year, we advertised in the Indian Badminton league. Sports in India is a platform that works. In future, we may change our course if need be.

How big is the marketing budget now, and how is it growing? How is it changing?

We spent close to Rs 110 crore last year. If you look at the turnover, last year we closed at Rs 4,200 crore in India. Our marketing spend is close to 2.5 per cent of the net revenue, which is pretty good for our industry. EBITA (profit before tax, etc.) margin is 12 to 13 per cent in our electrical FMCG category.

Commercials such as ‘Shock Laga’, ‘Wires that don’t catch fire’ created buzz. Not at all campaigns have. How do you measure response from various campaigns?

There are two ways to look at it. We have been a growth-driven organisation. Since we are growing, we give the credit to advertising. How much of it is due to advertising or how much of it is due to service, we have never tried demarcating it. We are happy that it is effective. Our dealers do not find resistance in pushing more products in the market. We see the sales graph of all our dealers and distributors going up. And it is all across the country since we do our advertising on national platforms. Yes, there have been syndicated studies by Frost and Sullivan. We are happy with the advertising.

What percentage of marketing budget is allocated to digital? Is Havells eyeing online sales as well?

It is just the beginning but in the times to come, it is certainly going to occupy much space. There are more than 10 crore people who access the internet. It is important to be present on the digital medium. We are keen on online sales. It began a month or two back. But it needs more work and effort in terms of logistics.

Have you earmarked a budget for marketing spends in the festive season?

We have a campaign budget of Rs 10 crore 30 lakh earmarked for this festival season and print advertising will be more than Rs 11 crore, and this is only for appliances.

We started with Onam in the South, wherein we had lots of blitzkrieg on regional channels, full-page ads in Malayala Manorama, Mathrubhumi and other language papers. We are doing it in Bengal in regional language newspapers. On the occasion of Navratra, we are taking full page ads across national dailies for appliances. We are looking State-wise, in terms of festivals and media. This campaign for appliances is press-centric but we will also do television. This leg of the campaign would end in December.

Is Havells priced at a premium in most consumer categories?  What explains this positioning, and has it evolved over time or has it been consistent?

It is not by default. It is by design. It was a resolve that we will not cut corners in any product category. Normally, it happens that when you are unable to gain market share, you cut corners and reduce prices. We have not compromised in any product category, and thus, are prices of our products is high.

As a differentiating factor, we give better quality across all products. Luckily, for us, our sales come from product categories that are neither very economical nor very expensive. Our products do not target the lower middle class. We target middle class and upper class. It has been a part of our strategy.

Within ‘consumer products’, how much of sales comes from actual consumers, and how much is from institutional sales and intermediaries?

We supply only to trade. We do not have institutional pricing since we do not deal with institutions directly. We sell only through trade.

How does Havells rank in terms of market share, in different consumer categories? How much does each contribute to sales, within consumer products?

In different product categories, it would be different. We are number one in MCBs. When it comes to fans, we are number one in energy-saving fans in terms of units sold. In wires, we are next to Finolex. In cables, we are next to Polycab. We have just entered the home appliances category. We are positioned well in the market. We do not have dominant market share. The maximum market share is 15 to 20 per cent in most product categories.

To our revenues in FY 2012-13, wires and cables contributed Rs 1,800 crore, lighting and fans contributed Rs 1,400 cr and switchgear and appliances over Rs 1,000 crore.

In 2007, Havells launched Galaxy stores. In which cities/towns are they present? How much do they contribute to sales?

Galaxy is franchisee-operated one-stop-shop for all Havells items. We were earlier only a MCB company, then only a wire cable company. Gradually, we kept adding product after product. Now Havells has 14 different verticals and different product categories. We have more than 11,000 SKUs. The 14 different verticals are managed independently but when it comes to a dealer or wholesaler, who is our channel partner, they cannot handle so many products at a time.

We have 220 Galaxy stores, and by the end of this year, it should be 300. While in small towns we prefer having only one Galaxy store, there could be many in metros.

This year, we are expecting sales of Rs 800 to 1,000 crore through Galaxy stores. Last year, it was around Rs 500 crore. The number of stores is growing; the revenue is also growing.

What has been the growth rate at Havells? What is the contribution of out-of-India brands like Sylvania in this?

Havells has clocked a CAGR of 30 percent year-on-year growth for the last eight to nine years. Barring hicupps like the slowdown of 2008, the going has been good. For most of our product categories, the demand driver is construction.

We acquired Sylvania in 2007. We acquired a company that was bigger than our size. Currently, 55 per cent of our global turnover comes from India. The balance comes from Europe and Americas. Rs 7200 crore was the combined turnover last year.

What percentage of sales revenue comes from Tier 2 and 3 towns currently? How do you see this growing and what are the plans to address this market?

We have 40 branches, in terms of dealer presence and service arrangement. We are not only in every State headquarters but also present with branches in Vijaywada, Vizaq, Trivandrum, Kozhikode and so on. In some States, we have three or four branches. Out of 652 cities of the country with a population of one lakh and above, we are present in 490 to 500.

The next challenge is reaching (through an official distribution channel) the next 1,200 cities, which have population between 50,000 to one lakh. FMCG companies may have already reached there, but it will take us time. The brand (Havells) is present there too through the indirect channel, but it is not tracked sales. The second level of growth will come from these towns - we must have an official channel to reach there.

All these years, we were in modular switches, but to reach these towns, we have introduced non-modular switches (Reo, priced only marginally higher than competition). There was lot of debate within if we should enter the non-modular switch category since it is a non-premium switch. Eight months back we took a call that we should. We have already started doing about Rs 8 crore a month from this category. This we think is the first product for rural India.

With brands like Reo, we are making an entry in Tier 2 and 3 towns. Other products will follow. Once the channel distribution is in place, we might introduce more products. That will be a driver for a future growth.

The article appeared in the issue of Campaign India dated 18 October, 2013