Moneycontrol Pro Weekender | The man who walked on water

Representative image

Dear Reader,

People from a generation earlier to mine still miss the era when train travel meant carrying a steel container or clay pot filled with drinking water. That memory also includes wistful musings about holdalls for bedding and tiffin carriers for food. And, there is the inevitable story of the uncle who got off to refill water and boarded a train on the opposite platform by mistake.

Bisleri put an end to that. Or, more accurately bottled water did. And there is little nostalgia for those days in my generation, what to say about the younger lot. When Ramesh Chauhan followed through on his nineties’ dream of selling packaged mineral water to Indians, few thought it had the potential to become a mass market product. But his vision of the future of packaged water was spot on, in the process also giving Bisleri a pole position in the market. While this may immediately bring up that cliché of visionary entrepreneurs pursuing an idea with single-minded focus and attaining success, don’t forget that he was also flush with money from the sale of his company’s carbonated beverage brands to Coca Cola with ones such as Thums Up and Maaza popular even now.

That money allowed him to fund the market development for packaged water. Bottled beverages is a business that’s as much about building distribution as it is about consumer taste and convincing retailers to create space in their chillers. That we don’t bat an eyelid while paying Rs 20 for a 1-litre bottle of water, a natural resource that city-dwellers are actually entitled to have free in its potable form, is a measure of the success achieved by Chauhan and the lack of confidence in municipal tap water.

But, why sell the company at this point? He’s, of course, made it clear that he is ageing and his daughter has no interest in running the company. That may be true. But he may also have foreseen that the road from here is going to get very difficult.

In the mass market, packaged mineral water has reached a certain level of adoption or usage. Bisleri opened up a market and many national and regional brands have followed. The low entry barriers in this business have also become apparent. Since it will not want to compete on price or retailer margins, that will also limit growth.

Then, there’s the pandemic’s effect on out-of-home consumption as work-from-home meant less demand for water in offices. But people are returning to office and travel is also returning to more normal levels, so this should get sorted out eventually.

If the mass market has reached a certain threshold in terms of size, then the real play is in going up the value chain. While premium may have seemed like a fad that FMCG companies were flogging a decade ago, it’s proved to be a successful strategy during the slowdown in the past few years. Most listed FMCG companies have managed to earn more revenue and margins by selling premium products. It’s here that Bisleri may have missed a trick. The current generation of consumers has shown not just a willingness to pay for new and expensive products but also a preference for it. This can be seen across diverse product categories in foods and non-food products.

But premiumisation takes time. Hindustan Unilever has been selling liquid detergents for many years, but it’s only now that acceptance is growing at a rate that’s making its stodgy detergents business a star performer. It also requires significant investments in various stages such as product innovation, packaging and marketing so that consumers get a premium feel. Bisleri does have a premium brand called Vedica, but growing it will involve sizeable investments and there’s Tata Consumer’s Himalayan brand already in that market.

Maybe, Chauhan’s assessment was that the premium market was too small or too difficult to crack. But there’s one trick that the entrepreneur may have missed, of capitalising on the affection that many Indians have for Bisleri and his brand of entrepreneurship. He could have listed Bisleri instead of selling it and raised capital to fund its future plans. A professional CEO could have led the company, as so many FMCG companies founded by Indian promoters have successfully done. A recent one was Bikaji Foods International that’s getting a good reception on listing. Even if the next generation did not want to manage the day-to-day operations, this arrangement could have worked.

But, why is the Tata group interested in Bisleri? Their interest—and one could hazard a guess here that it is probably the founder’s interest—is a very old one. In 1996, Tata Consumer (then known as Tata Tea) paid a substantial sum to acquire an equity stake in Energy Brands. Its founders were selling value-added water—now called Smartwater or distilled water combined with electrolytes. While tea and coffee (global acquisitions were done here also) were important, consumer tastes were shifting to other beverages. Eventually, the founders of Energy Brands and Tata Consumer sold that business to Coca Cola. But Tata Tea did acquire Mount Everest Mineral Water in India, which makes the Himalayan brand of mineral water, with water sourced from the Himalayas. That sells for Rs 70 a litre.

In its quest for growth, Tata Consumer may have identified bottled water as an opportunity. The entry barriers are low and it does have one brand and all it needs is to figure out a strategy for the mass market. While that may seem like a commodity business, it’s already in a business of selling packaged commodities—such as lentils and flour—to Indian consumers, who are upgrading from loose to branded staples. Water makes for a good addition.

If they acquire Bisleri, then they will right away straddle the mass and premium segments, and not have to invest in a new brand or engage in a punishing war for market share. Why, they may even introduce a new product at a price point between Rs 20 and Rs 70, gently nudging the customer up the price ladder.

Once Bisleri is sold, everyone is likely to wonder if Chauhan will really call it a day from business and focus on CSR or if he will pull another rabbit out of his hat. There’s a busload of cash coming his way and he may just be tempted to have another go at it. Students of business will be hoping he gives them one more engaging case study to pore over.

Cheers,

Ravi Ananthanarayanan

Here are some of the stories we did and the investing insights we offered this week:

Stocks/investing

Which life insurance stock?, Safari, Aarti Industries, NMDC, Aditya Birla Fashion & Retail, Rategain Travel Technologies, KEC international,  Nykaa, Emami, TCI, Gujarat Gas, Gabriel India and the Weekly Tactical Pick.

Economy

Economic Recovery Tracker | Rural sentiment recovers, bank credit softens

From the Financial Times

Do not regulate cryptos as finance

The Gulf is partying while it can

Collateralised fund obligations: How private equity securitised itself

Why Visa and Mastercard have yet to face their Kodak moment

On Markets

Smart money says prepare for a sluggish phase in equities

GuruSpeak: Nikhil Zelawat's journals the secret sauce of his successful trading recipe

Personal Finance: Is your PMS fund manager doing a great, middling or poor job?For inflation, crude oil is the biggest joker in the pack: Lakshmi Iyer, CEO, Kotak Investment Advisors

How gold may gain from the crypto crash

The FTX contagion is unlikely to spread beyond cryptos

Crude oil can spoil the equity market party in December

Policy

COP27 | More promises made, but India needs to move on decarbonisation

Draft Data Bill — A mix of comfort and concern

Fertilisers | India has nimbly tackled rising costs, but subsidy outgo remains a concern

Industry and companies

Steel export duty removal: here and here

JLR chief Thierry Bollore’s exit raises questions about Tata Motors' prospects

Can tyre companies be part of your long-term portfolio?

For IEX investors, a buyback may provide limited relief

Online gaming faces a moment of reckoning

Why green energy stocks fail to click with investors

Indian CEOs get a much longer rope than Disney gave Bob Chapek

Geopolitics and trade

The Eastern Window | New self-seeking world order may be good for India

India needs to take urgent steps to get exports back on track

Others

Redeveloping Dharavi poses a huge political challenge

Startup Street | Dilute now or later is a critical question for founders