The Rs 1,000 cr premium domestic appliances market is growing at 30% annually

This Q&A first appeared in DNA Money edition on Wednesday, March 14, 2012.

One of India’s largest electrical and power distribution equipment manufacturer, Havells entered the the over Rs 5,200 crore Indian domestic (home) appliance market in August 2011. The idea, according to Anil Gupta, joint managing director (JMD), Havells India Ltd, is to grab a significant pie of this business by leveraging on their existing distribution channel network. He speaks on the company's new business vertical and the way forward. Edited excerpts…

What really led Havells to enter the domestic appliances business?
Previously we were dealing in products (electrical and power distribution equipment) which never required a consumer interface. However, 6-7 years ago, we added fans and lightings to our product portfolio which gave us a consumer interface which significantly increased over the years. The new offering also resulted in building a large dealer as well as service network across the country.

We were then looking at expanding the product category further thereby allowing us to foray into the consumer segment. We also wanted to take advantage of the existing infrastructure and realised that the dealer and service network required by the domestic appliances products was very similar to what we already had in place. We thought the best way to leverage on this distribution channel was by entering the Rs5,200 crore domestic appliances market in India.

Are your products catering to the entire domestic appliances market in the country or addressing a specific segment?
We consciously decided to address the premium category which currently is Rs 1,000 crore market in the country. Interestingly, this market is growing at a very fast rate of 25-30% annually. Going by the Havells brand perception, it made more sense for us to tap the premium domestic appliances segment with related products. We are currently offering a host of domestic appliances across five categories including food preparation, garment care, home comfort, cooking and brewing. The price range is anywhere between Rs 1,000 going up to Rs10,000.

Who would your direct competitors be in the domestic appliances category?
Our products compete with brands like Philips, Panasonic, Murphy Richards etc.

How much has the company invested in this business?
A capex of Rs 150 crore has been earmarked already in this fiscal of which Rs 70– Rs 80 crore is being spent towards marketing, research and development of small appliances range in next 24-36 months.

What is the company’s strategy with respect to designing and manufacturing of these products?
We already have a large research and development (R&D) base in China, which has been designing our products snice a couple of years now. Of our entire range at present, 50% is coming out of China and the balance from India. We have not set up our own manufacturing plants and are using large outsourcing partners to make these products based on our prescribed design and quality standards. In fact, this is the first time ever that Havells has outsourced manufacturing of the products as 95% of the company's products were manufactured in-house.

Will you continue outsourcing route or plan to set up own manufacturing facilities as well?
It depends on how the volumes grow. If a particular product category requires to be done in-house, we will certainly look at the option.

What is the size of this business for Havells?
We are expecting to do more than Rs 100 crore in revenues in the first full year of operation i.e. the next financial year. The target for next fiscal will be Rs 200-odd core and eventually hitting the Rs 500 crore mark in the next 4 years.

Could you throw some light on the company's distribution network?
As far as overall business is concerned, we currently have more than 4000 distributors across the country. Of this approximately 1,500 distributors are for consumer and domestic appliances business.

How are you going about leveraging this distribution network?
We have identified various distribution channels for the domestic appliances business. To start with, we have the direct dealer network (1,200) that operates multi-brand outlets, then we have distributors (100) who sell to retailers primarily in the tier II, III cities and finally the Havells' single brand - Havells Galaxy Stores  - outlets (150) being rolled out through the franchise mode. This apart, we are also selling through 40-odd modern retail outlets like Croma, Spencers, More, Vijay Sales etc which are significantly growing across the country.

Considering the extensive range of products being offered under the Havells brand, we are looking to significantly expand the network of single brand outlets across the country. Havells Galaxy Stores will be increased to over 200 stores within a year.

Are you also planning to take the e-commerce route to retailing the Havells brand?
Although the kind of sales being generated through the online channel is extremely small right now, online shopping for such products will also increase in the coming years. Keeping that in mind, we have already started work on our e-commerce platform and will definitely launch it in the near future.

Any plans to get into the consumer electronics segment down the line?
No we don’t intend to tap that space as that business requires a completely different kind of a distribution network.

Are you also witnessing pricing pressure owing to increasing input costs?
The challenge for any good company is how to get the right quality at the right price. There certainly is a lot of focus on expanding the distribution and keeping the costs at bare minimum. Companies work on various designing concepts to reduce the cost of the product for the end customer. So while we are committed to give a high quality product, it does not necessarily mean a high cost.

Would you consider tapping the mass market segment of domestic appliances as well?
When I say premium products it is actually mass market but high quality. There is a switch happening from the low quality to high quality branded products which is why the over Rs1,000 crore market is growing at 30% odd annually.