Can CavinKare rediscover growth in FMCG space?

CavinKare is now just a medium-sized Co with modest national presence. But CK Ranganathan insists his company can become a big player.

By Sangeetha Kandavel, ET Bureau | Updated: May 06, 2012, 02.12 PM IST

Theticket to CavinKare’s stardom was the humble sachet. When its founderChinni Krishnan Ranganathan started selling shampoo for 50 paise in sachets in1983, it did create a stir in a market where biggies such as Hindustan Unileverand Procter and Gamble (P&G) had ruled the roost for decades.

With that one innovation, thehitherto non-existent rural market was well within Ranganathan’s grasp. Asbrand consultant Harish Bijoor puts it, “It democratised shampoousage.”

Building on that,by the early years of 2000, Chennai-based CavinKare (named after the classicalTamil word for beauty) and known for its Chik shampoo managed to come across asa doughty challenger to the big guys of the FMCG industry. It had startedgetting termed “the giant killer”. By 2004-05, when CavinKare wasabout Rs 400 crore in revenue, the momentum was so good that Ranganathanpredicted joining the billion-dollar club by2012.

BillionNever Happened

Eight yearslater, it is clear the company hasn’t lived up to its promise. CavinKarehas just managed a fifth of what Ranganathan had predicted: Rs 1,070 crore inrevenues. A recent PINC Research study gives details. In skin care, a moneyspinner for fast-moving consumer goods (FMCG) companies, CavinKare has justabout a 5% market share.

HULhas a whopping 58% of the market while L’Oreal, P&G and Emami have a13%, 10% and 9% market share, respectively. In the shampoo market, CavinKare mayhave a better record, with a 11% market share, but still lags the likes of HUL,P&G and Dabur. As Nikhil Vora, managing director of IDFC Securities, putsit, “They have taken a backseat. They are no longer challenging theleader.”

WhatWent Wrong?

You can get theanswer by comparing Ranganathan’s business interests a decade back andnow. Then, he was essentially building a base in the FMCG sector. In fact, in2002, his talcum powder foray itself was just three years old. Now, hisinterests go beyond FMCG. In the past 10 years, he has forayed into salons, intofood, into beverages, into home care, into snacks, into restaurants and intodairy.

Newbusinesses in themselves aren’t bad. But, critics point out, they havecome at the cost of the core FMCG business. “They were aggressive inentering new spaces but weren’t growing their existing business,”says Vora. Ranganthan may have lost the opportunity of scaling up his corebusiness as he had to spend management bandwidth and money on newer interests.And, diversifications such as food and beverages won’t work without bigmarketingspends.

LosingIts Core

One of the keyfallouts of the defrayed focus is seen as CavinKare’s inability to readthe market in certain instances in its core business. Take the example ofshampoo. While the market was moving toward anti-dandruff shampoo, itdidn’t. Today, a fourth of the market is anti-dandruffshampoo.

Also, Vora says,“The market was moving towards premium brands and CavinKare was at thebottom end.” Bijoor agrees: “The brand still suffers the mindset ofa down-market player.”

Also, MNCs, whom CavinKare iscompeting against, have deep pockets for R&D. So, there’s virtually apipeline of new products and innovations at all times. A smaller player overtime needs to match that. For CavinKare, innovations such as sachet may havebecome far and few. Also, to do it in multiple businesses is a bit too much fora medium-sizedplayer.

‘WeWill Grow’

Ranganathandoes agree to the criticism that his company has spread itself quite thin.“Having taken those steps, we can’t reverse it. We will not take anymore step in diversification. We will only look at consolidating andgrowing,” hesays.

Ranganathan the person isactually quite like Ranganathan the businessman on the point of wide-ranginginterests. He is interested in the Tamil language and loves birds (he has 200different species of birds). What more, he has even modelled for a shirtbrand.

In business, however,his wide-ranging interests haven’t paid off till now, he admits. “Wedon’t leverage the advantage of one division to another,” he says.That’s especially true of his food, beverages, snacks and dairybusinesses. “If all the products get into the same distribution line, thenI can leverage.”

Ranganathangives the example of his foray into dairy four years back. It was a market thatwas completely different from what he had experienced earlier. That includedeverything from the highly perishable nature of the product, the cold processdistribution, the profile of people who were willing to invest and also thesystems and processes to be used. “So I don’t leverage anythinghere,” hesays.

NewRevenue Hopes

Diversificationsdone, lessons learnt, the CavinKare chief believes growth will follow now. Hishope is that his group would double its revenues in two years. Those who havetracked the company believe some positive moves have been taken of late.Raveendra Chittoor, a strategy expert who teaches at the Indian School ofBusiness, Hyderabad, says the move to go slow on the restaurant business is onesuch.

Also, Ranganathan alsomoved his marketing team to Mumbai from Chennai last year. One reason is toeffect a pan-India presence, something that CavinKare has struggled with untilnow. That’s a pragmatic move, says ad veteran Suguna Swamy. “Thismove reflects the realism of the man. If he has to go national, he needs to belocated in Mumbai, both for resources and bandwidth of talent,” shesays.

Ultimately, focus,Chittoor believes, is inevitable. “It should focus on a few productcategories in which it has a competitive edge and try and achieve nationalleadership in those.” That’s the lesson one can learn fromsuccessful companies such as Marico, says Chittoor. That could be key to itsfuture.

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