ETMarkets Management Talk | Crompton 2.0: How premiumisation, innovation and smart products could reshape growth: Kaleeswaran Arunachalam

Crompton Greaves Consumer Electricals Ltd., one of India's leading consumer electrical companies, has unveiled a new Master Brand identity, marking the next chapter of “Crompton 2.0”—its strategic transformation into an innovation-led, consumer-centric business.

Over the last decade, Crompton has expanded beyond its core categories through sustained investments in technology and product innovation.

The new brand identity reflects this evolution, creating a unified platform for the company's next phase of innovation, premiumisation and long-term growth.


Against this backdrop, Kaleeswaran Arunachalam, Group CFO & Head of Strategy, Crompton Greaves Consumer Electricals, speaks to Kshitij Anand of ETMarkets on the sidelines of the launch event in Mumbai about the company's growth strategy, the shift towards premiumisation, the role of smart and connected products, rural consumption opportunities and the potential impact of innovation on margins. Edited Excerpts –

Kshitij Anand: Wanted to understand from you, India's consumer electrical market is actually seeing a great bit of shift from basic functionality towards premiumisation, which we saw in the presentation, and new design, energy efficiency and sustainability were big points that the management also highlighted today. How are you seeing the next phase of industry growth, and what will be the biggest demand drivers over the next three to five years?

Kaleeswaran Arunachalam: See, as you rightly said, I see the industry moving in two directions, or two tangents, I would say. There are consumers at multiple tiers and, as you would always call it, there is an India 1, India 2 and India 3. The needs of these three consumer sets are very, very different. There is a large part of India where you will find that the ARPU they spend is less than Rs 300, and that is 70%. Now, they need a certain value proposition that solves for them, and then there are value consumers above that, an India 2 and an India 3, who want things that are much more discerning.

So, if I divide this, an India A or India 1 is a consumer set that wants things to be functional, durable, reliable, long-lasting and something that they can trust. And in our industry, I think nobody is better than Crompton to address that. It has been a legacy that we have demonstrated for the last 85 years. And when I talk about 85 years, I also want to emphasise the fact that years have changed, consumers have changed, consumer profiles have changed, channels have changed, and the needs have changed, but our leadership has remained the same. So, what it means is that we understand consumers well, we understand consumer requirements well, and we understand our category well. We have been evolving with consumer needs, and that is what we are expecting ourselves to do in the forthcoming years also.

Some of the themes that we expect to play in this regard are, one, smart and connected is going to be a very big theme. We believe people want things to go beyond functionality. I consciously used two separate words: there is connected and there is smart. Connected is a basic functionality; smart is an intelligent functionality. Now, intelligence in equipment is going to be even more valued as we move forward.

The second is design. Aesthetically superior products are also going to be a big opportunity as we look at spaces getting attractive in this area.

Third, Indian rooms are getting smaller and smaller at the entry segment. Now, do we need to have a device that can be multi-purpose? Do we need to have a device that can be sleek and smart? These are the other things that are evolving.

Underpinning all these things, you also see India is getting into a market where health and wellness is becoming really important. Suddenly, if I have to take a different analogy and give you an example, the awareness of protein in India has been no less than anywhere else that you would have seen. The last is probably I am waiting to see deep-fried chips with protein; that is the only thing that is missed out, and maybe very soon that would also come in.

But I do see something similar that all the devices that we operate can do. One of that is today what we introduced as Biofier, as to how it is going to ensure the natural minerals in your water are retained, how do you ensure that you have a responsible manner in which you use water by saving it, and also a device that is smart and connected, which can tell you whether it needs preventive maintenance. You do not need to call customer care to understand whether it is working or not working. You know what kind of hydration levels you have got and what kind of minerals are there in your water at a TDS level wherever you are living. So, that is one example of how health and wellness can pan out.

So, these are some of the trends that I see will play out much, much more. There is also another interesting trend which is happening in parallel to this: regulation.

Now, regulation is also bringing in an aspect of standardisation in India. A fan should consume what kind of electricity? I think I got very curious when I knew that in India, the single largest equipment that consumes electricity is a fan. It is not an air conditioner because penetration of air conditioners is much lower, whereas every household in India has a fan that runs for 15 hours a day, and that is a multi-room fan.

So, therefore, the inability to be ahead of regulation is not only about meeting the compliance requirement but also making sustainability a mainstream agenda. This is something that we are seeing, and a manifestation of that is something that we have already demonstrated: India's first 5-star induction fan; nobody has done that. India's first 5-star cooktop, which got awarded by the Golden Peacock recently, is also something that came out of our portfolio.

So, there are some consumer trends that you are seeing. That is moving towards modern consumer households that need smart and connected products, design, aesthetics, health and hygiene, etc. There is also another thing that is playing out with regulation, and that is embedding sustainability into the mainstream. Everything that we do is energy.

So, when we talk about carbon footprint coming down, it is not going to be Scope 1 and Scope 2. We believe Scope 3 is going to be mainstream for us, and that is what we are working towards. And that is precisely the reason our head of sustainability turns out to be our CTO, our Chief Technology Officer, because we want to embed this right into the product at the time of design and not later.

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Kshitij Anand: In fact, some of the things that touched me as well in the whole presentation were the fact that whether we talk about the fan or the motor, rural areas were also using the same product, and it was also being consumed in urban areas, or the Tier 1 or metro areas, you could say. How do you see the trend evolving as we move forward? Is premiumisation more of an urban-area thesis, or is it something which you think will catch up in Tier 2 and Tier 3 cities as well

Kaleeswaran Arunachalam: See, two interesting things have happened in rural areas in the last 5–10 years. One is rural electrification has seen a significant upsurge in the last few years. Jal Jeevan Mission has ensured that water availability is not a challenge. It is augmented by PM Rozgar and this entire Surya Ghar Bijli initiative, which is also working on the solar rooftop initiative that the government is bringing in.

Coupled with this, there are two or three other things that are happening silently. One is, you talk about the entire microfinance sector which is coming into rural areas. While it had its own challenges, I believe it is going to be a big, big enabler as we look at growth in rural areas.

We are also talking about rural areas starting to get a taste of aspirational products that you see only in urban areas, with data democracy. Today, what you see in Bandra is something that you can see in Yavatmal also. The aspirations are the same; the affordability is different. So, the solution for getting rural premiumisation to work is affordability.

Now, that affordability can be addressed in two ways. One is, we talked about how something like microfinance can be a big enabler. The second is also to look at—we have seen this happening in FMCG—low-unit packs. When we did research long back in my earlier organisation, we figured out that it is not that a rural consumer loves nimbu pani; a rural consumer would love to have a Tang, but all they need is a low-unit pack.

Now, how are you able to innovate your product portfolio to that extent, and can I get something which is similar to that in this industry, which will also help to premiumise? So, thanks to data democracy, today the aspirations are similar. It is up to organisations like us to see how we make it affordable to them.

Kshitij Anand: Also, you did talk about the portfolio. Let me also get your perspective. Crompton has launched Rhion as part of its premium strategy. What consumer gap is Rhion designed to address, and how large can this brand become within the overall portfolio?

Kaleeswaran Arunachalam: See, first, let me talk about why Rhion. See, today India has consumers who are very discerning and who really want to reimagine living. These are not consumers who are looking at products as functionality. They want a product to understand their requirements and help them to serve those requirements in a much better manner.

Gone are the days when people would talk about gadi kitna dega; that is a story of the past. Today, I want to know whether it has infotainment, whether it has a massage chair, whether it has alloy wheels, and so on and so forth. That has never happened in this industry. A water purifier needs to purify, a fan needs to give you air, a mixer needs to grind. That is how the traditional ecosystem has worked.

But there is a discerning consumer who is ready to look at products that bring in disruptive technology that makes their life meaningfully better and are smart, connected and aesthetically superior. This is made for those kinds of consumers.

So, when we are looking at every category that we work upon here, we are not trying to do something which is me too. We want to look at something which is breakthrough.

So, we could have entered water purifiers because the story is very attractive. We have got a great brand name, Crompton. It is a 6% penetrated market, 94% is not penetrated, it is a ₹6,000-crore category, so much positivity that comes in, but then it would have been me too. But that is when we felt that, boss, eventually, if I need to serve this discerning consumer, I need to give them something that is much better and superior and reimagine the entire solution.

Kshitij Anand: Why do you want to think it is a water purifier?

Kaleeswaran Arunachalam: Biofier—bio means life, and water is life. The only way I can bring water to life is to retain its natural form.

So, if you look at it, every village, every town or every city in India has a nativity to water. I come from Coimbatore; I know how differently the Siruvani water tastes compared with something that you get from a Bombay river. But today's consumer does not know what native water even tastes like. Native water has its own benefits, with minerals being retained, ensuring that the proprietary nature of that water is much better suited, and so on and so forth.

So, we want to give consumers the experience of those things without tampering with what is naturally available. That is the solution. Come in with a product that is also environmentally responsible, so you do not waste water to the extent that other solutions get into it, and also get them a device that is connected.

So, that is what Rhion is trying to address. Biofier is the first product. We do expect a few more categories that we can enter, which could be within the same categories we operate in, but with a very reimagined solution of what we can bring in.

The second part of the question is, there are certain businesses you need for market share, and certain businesses are needed for mind share. Eventually, mind share creates an aspirational value for the overall brand.

Kshitij Anand: What is it expected to do?

Kaleeswaran Arunachalam: I will create a halo and glow through Rhion, and that is going to address a very, very niche—I would not say niche—a targeted consumer who needs refined living. For them, this can become a ₹300-crore business or so in, say, three years.

But then there is a scale engine that is sitting below in Crompton. Now, once we get these things proved at the Rhion level, I can democratise this as we move forward in Crompton.

So, that is the way we are thinking. So, it starts in Rhion and then it funnels down to Crompton over a period of time, and it also helps to manage product life-cycle management through that.

Kshitij Anand: So, how do you see the premiumisation strategy impacting gross margins and EBITDA margins over the next two to three years?

Kaleeswaran Arunachalam: See, at the end of the day, the way we are looking at it is that our EBITDA margin has already been factoring in heavy investments in advertising and innovation, which was not the case before Crompton 2.0. We have doubled our advertising spends from 1.6% to 3.2%. Our innovation spends have moved from 0.5% to 1%. That is almost, roughly, 2% of EBITDA margin shaved off by investing for future growth, and we believe these are some of the things needed to keep the brand relevant for the next multiple decades to come.

So, therefore, investments are already up and running. Premiumisation will help me realise better margins. My gross margins will meaningfully improve, and that should get into operating leverage also. So, we expect, on a long-term basis, a 200-bps expansion in our EBITDA margin, and that should also help us make it a virtuous cycle to reinvest back in the brand on a continuous basis.

(NOTE: The journalist was invited to the launch event)

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