The dry cell batteries major Eveready Industries has forayed into the confectionery business as part of its diversification plan. They have entered the market with a brand names Jollies Fruit Chew.
Talking about the new diversified plans, Amritanshu Khaitan, MD, Eveready India said introduction of confectionery was to utilise the distribution chain and the deep rural reach.
Moreover, being one of India's oldest FMCG Company, its main stay business of batteries and flashlight was limiting the overall growth potential.
First diversification was of the brand from batteries and flashlights into lighting and home appliances, which has yielded a revenue growth of Rs 400 crore over last few years.
Using the other key leverage of distribution, the company planned to diversify into confectionery, so that the same vans that carry batteries, flash lights and crisscross across the country can carry multiple products. In that initiative, the first step was packet tea but that being a mature category the success was limited without brand investment and therefore the company has decided to spin it off into a separate entity by letting Mcleod Russel to invest into that entity.
Confectionery was logical product to foray into because it is a mass market product and is at a price point of Rs 1.
Moreover, 30 percent of this category is still unorganised market and so it gives the company an option to reach deep into rural areas and gives people choice to upgrade from poor quality unorganised product to a branded product.
Going forward, the company aims to add more branded products in the FMCG space in couple of years.
To tackle with stiff competition in the confectionery space, the company has in an house team, from the same industry, to develop new products to be sold. Moreover, there would be no additional distribution cost for the company, giving competitive advantage, said Khaitan.
The fruit chew segment is growing rapidly and is less cluttered by competitors, said Khaitan, adding that they are confident of adding around Rs 150 crore revenues from it in FY19-FY20.
They will be completely outsourcing the product and spending about Rs 20-30 crore on advertising the Jollies brand in two years.
Below is the verbatim transcript of the interview.
Sonia: Over the last few years you have branched out from just being a battery maker into a whole host of different products and now FMCG as well. Tell us about the plan here and how much do you think this could eventually contribute to the business?
A: Eveready has been over 100 year old brand in the country and the company itself is one of the oldest FMCG company in India. Its main stay business of batteries and flashlights was limiting the overall growth potential of this company which leverages on two key assets brand Eveready and one of the distribution networks today in India which reaches out to about a million outlets and deep rural. The first step the company took was to leverage on the brand and we diversified into the lighting segment and into home appliances. This diversification has already yielded a revenue growth of about Rs 400 crore in the last few years. We now want to leverage on the other key asset of the company which is distribution.
The distribution network today basically sells batteries, flashlights a bit of lighting products and packet tea. So, there is immense scope for the same Eveready vans which crisscross across the country to carry multiple products much more than what we have today and we can increase the lines per bill being sold in to each retail store. The first step was packet tea. But packet tea being a very mature category we got limited success without brand investment. So, we are spinning it off into a separate entity and getting Mcleod Russel to invest in to that entity to grow that category.
Confectionery is another logical category for us because it provides a mass market product. It is at a price point of Rs 1. About 30 percent of the category is unorganised so companies like Eveready which reach down deep rural offers consumers better quality products and a choice to upgrade from a poor quality, unorganised product to a branded product. That is how the whole rationale came in that this is the first step of getting into confectionery and we would want to add more products going down the line in the next couple of years.
Latha: I completely take the synergies that you will get because you all have such a good distribution system. But confectionery is a huge and extremely competitive industry where there will be very nuanced understanding of taste. So you are up against the Nestle’s, Cadbury’s and a whole host of unbranded, even the guys like Parle’s would be over there. What kind of margins can you make when you are up against so much competition?
A: Our experience with the lighting category say that when you hire good talent from the industry which you are entering they bring in all the expertise required to make it successful. Similarly, on the confectionery side we have created inhouse team which have been hired from the industry of confectionery to develop a new product which can come in to be sold. The distribution cost is zero. So, for a confectionery product for other companies it is about 15 percent of sales which goes into cost of distribution. For Eveready it is at a zero cost. So that gives us competitive advantage.
We have selected the fruit chew segment which is a new segment growing very rapidly, not very visible and present across the country. So, our first foray is into a category which is less cluttered. You only have two or three brands out of which one brand is regional based out of Maharashtra which provides us opportunity to first establish and then we will see how we can grow.
Anuj: In terms of advertising cost how much have you budgeted for because again it is a very competitive space and you have a lot of advertisements of these kind of products, so if you could give some information on that?
A: You see this category comes with high gross margins and low entry barriers so we are working on a very asset light model. The product is completely outsourced though it is been developed by us. So, it allows us to spend about 15-20 percent of the turnover this category will generate in the first year for advertisements. So, we estimate that in FY19 which is a coming year and then if you look at just one year ahead if you take FY20 confectionary should add about Rs 150 crore odd revenue. We plan to invest to about Rs 20-30 crore behind the Jollies brand in terms of advertisement in the next two years.
Latha: Which is the biggest, I mean in this brand, there is Mango Bite, Hajmola, Pan Pasand, Pulse which is the biggest brand and what are you up against?
A: We have entered the jelly segment which is called the fruit chew segment and in the fruit chew segment the revenue is about Rs 400 crore with a market leader being Alpenliebe which has the brand called Juzt Jelly. You have a regional brand in Maharashtra called Falero from Mapro
and Candyman from ITC
these are the three big players.