Narrow focus helps in FMCG, consumer business - Wipro consumer experience

Wipro Consumer grew from Rs. 300 crores in 2002-03 to Rs. 6,000 crores in 2015-16

(13 years, 20 times sales growth)

Strategy - Narrow Focus

1. Product Focus - Wipro focuses on personal care and home care segments

While in a country like India where lot of new players are disrupting, like Patanjali launching products across categories, a narrow focus is considered a viable strategy.

For an FMCG company to focus on all categories is tough, because then you have to maintain those many SKUs, so many products coming out and managing all that becomes difficult. You are up against strong players in every category. So, trying to focus on one or two categories and trying to become strong in those categories in a better way of branding.

2. Geographic Focus - Wipro focuses on narrow geographies
Example - West and South in India

In China, Wipro consumer made an acquisition which focuses on Guangdong, a province in China with a GDP of $1 trillion
Lessons for doing business in China: One of the reasons why many companies going to China don't have good experience is because they are all over the place. We focused on one geography and it helped us.

Strategy - Market Leadership 

Wipro consumer tries to compete in select areas where it can achieve market leadership or top 3 positions

Examples:
Santoor dominates in West and South India
The Chinese acquisition is the 3rd largest player in Guangdong in personal wash, roll-on and liquid detergent segments.
Indonesia - No. 1 in fragrances, No. 2 in female personal hygiene
Vietnam - No. 2 in shower wash

Strategy - Acquisitions 

Wipro consumer made 10 acquisitions in the last 13 years.

Example - Santoor, glucovita, Yardley, Chandrika, UNZA, Chinese acquisition being the latest

If any of the above acquisitions have not worked then we would not have been so aggressive on acquisitions. Company focuses on organic growth too. It doesn't do acquisitions for the sake of acquisitions.

Strategy - High Growth geographies, High Growth Categories 

Country focus - Indonesia, Vietnam, China, - sizable populations and developing economies

Growth Categories - Focus on personal care and household care
For example, we looked at liquid detergent category in China for the acquisition in China, because powder detergent is well penetrated while liquid detergent is still growing and is fairly small.

Similarly, we looked at fabric conditioner in India but not in Indonesia where is a well penetrated.


Source: Business Standard, jan 12, 2017

Manufacturing vs branding - top 100 valuable brands are into branding, not manufacturing

Trump and Modi are aiming to create jobs through manufacturing. This is central part of their economic agenda.

A graduate student in Economics could explain the practical limitations of these ambitions. But if the concepts of wages and productivity are beyond then, all they need to do is look at Forbes list of world's most valuable brands.

They need not employ a researcher for this. Even a cursory glances at the Forbes list will drive home the point. 14 out of the top 20 most valuable brands int he world are American. A similar number in top 100 most valuable brands are American. No Indian brands exist in the top 100.

What’s this got to do with factory jobs? Just this: Most of these globally valuable brands do not make the bulk of their goods and services in their country of origin, for good reason. MBA 101 tells us that value addition, and therefore competitive advantage, lies in the ephemeral business of branding rather than in the tangible activity of manufacturing. As a businessman Mr Trump should understand this: He has made a fortune licensing his brand of gaudy realty around the world, and no American workers are involved in building those monstrosities.

However, they don't realize that value is created in branding, not manufacturing.

If wage inflation and exchange rates are making manufacturing costly in China, mega-corporations can choose from: Vietnam, Bangladesh, Laos and Cambodia, Sri Lanka, Honduras, even Jordan and Israel. India should be on that list, but isn’t because of that seventies law that severely curtails the flexibility of corporations to hire and fire in factories employing more than 100 workers. Which large corporation – Indian ones included – would like to take on the challenge of hiring more than 100 workers who can, in effect, never be fired?

Source: Article by Kanika Datta in Business Standard, Dec 29, 2016

Ecom Express experience

All the founders have worked in logistics space before. For example Krishnan, CEO & co-founder, Ecom express says he spent 25 years in the space. There is nothing he knows other than logistics. He was heading ecommerce logistics set-up at Blue Dart before he quit and started this firm.

2012 - Four founder quit their job at Blue Dart and started the firm with Rs. 7 crores (Rs. 5.5 crores from Oliphans Capital, an early stage investor and the rest from founders).

Early 2014 - Ecom express was delivering in 60 cities. The founders did not want to raise equity capital so soon. 'We wanted to have traction and show our business to people before we hit the market.' says Krishnan.

The founders decided to borrow money from the market. Krishnan pledged his house in Delhi. They also borrowed from an angel investor. They managed to borrow Rs. 4 crores.

June 2014 - Raised around Rs. 80 crores from Peepul capital

Once the money came, they expanded to 200 cities from 60 cities. Deliveries increased from 45,000 in June to 120,000 by October.

June 2015 - Announced funding of Rs. 850 crores from global PE firm Warbug Pincus.

Other notes:
- Krishnan says that logistics market is huge
- It can support 4 or 5 big players
- In China, there are many multi-billion dollar logistics companies
- He says ecommerce companies could eventually focus on marketing. Logistics companies will take care of logistics, even warehousing. Even for big firms like Amazon and Flipkart.
- His comments on hyper-local delivery logistics
Companies need a density of orders and order size beyond Rs 500-600.
This business needs lot of capital till the companies grow.
My view is companies should not focus on multiple cities. They should take one city at a time and then go to another city to replicate it. You can't have burn rates in multiple cities at the same time.
- They should focus on one city, build the infrastructure, delivery points, have their own people to handle delivery, only then this model works.
- This is a highly capital-intensive business and thus break-evens take much longer. The gestation period could be 6-8 years.
- Only when the order density improves can the business become profitable, until then companies need lot of capital.

http://www.livemint.com/Companies/4akh4nn0zJ2b8AtDKo6dlM/Ecom-Express-Cashing-on-the-ecommerce-wave.html

Profits vs Growth

Note; In all industries below, profits is what matters eventually.

Travel Industry

Interview with CFO, Anil Khandelwal, Cox & Kings

My observation: Cox & Kings primarily focused on 'packaged tours' while other players like Makemytrip, Cleartrip, Goibibo, and Yatra focused on flight ticket booking and hotel bookings.

The competition in flight booking and hotel booking is intense. In flight booking, the margins are wafer thin (5-7%). The margins in hotel business are better (10-20%). However, because of heavy competition, all players are under-cutting each other. Especially,  emergence of players like oyo, treebo, fabhotels etc., has intensified the competition in hotel bookings.

In fact, in FY 15, Makemytrip made a loss of $89 million (about Rs. 600 crores loss)  on revenue of $169 million (Rs. 1,100 crores). Goibibo made a loss of $69 million ( Rs. 450 crores) on revenue of $91 million (Rs. 600 crores).

So, competition is that bad. What does a smart player do in such a market scenario?

Well, Cox & Kings side-stepped the low margin airline ticket booking business and heavy competition hotel booking business, instead it is focusing on 'packaged tours' business. So, it doesn't bleed much. When things settle down, may be it can selectively start getting the other business.

So, this is what smart players have to do in a heavy competition market. They have to play 'smart' and let the growth-chasers raise capital and perish when no capital is available.

Other points that the CFO makes:

- Travel sector is highly under-penetrated in India.
- There is enough space for more players to come into this industry (this seems to be the theme across industries. Industry sizes of travel, retail, logistics are so large that there is space for many players and atleast 4 or 5 large players). This is not a winner takes it all scenario.
- One interesting point the CFO makes is that they see online and offline as just two points of sale. And both allow customers to choose packaged holidays as per their convenience.
- Customer may prefer off-the-shelf packaged holidays because they don't have to worry about planning everything. We do it for them.

Retail Industry

Similar strategy seems to have been played by D-Mart's founder Radhakishan Dhamani. He started may be a year or two later than Big Bazaar's Kishore Biyani. While Biyani focused on rapid growth, Damani focused on profits. Eventually, we see now that Damani's firm is many times more valuable than Biyani's.

In fact, Biyani tried to do so many things - groceries, apparel, real-estate, kirana format, financial services, etc., - he did not do well in any of them. Damani tested and perfected one format, he continues to do well.

Logistics Industry

Ecom express was set up in 2012 as a pure play logistics supplier for ecommerce portals. Before it was set up, in 2011 Delhivery was set up. So, Ecom express is not first.

While others tried to grow aggressively into many cities and into different categories, Krishnan (CEO & Founder of Ecom express) says that they chose to perfect one city before moving to another. Otherwise, they would be spreading the capital thin on many cities. Just like Damani they seem to have taken experiences from each city into the next city.

Also, Krishnan says that they are not interested right now in local delivery of groceries etc., because it is not viable right now. They economics don't work with such low volumes. Logistics is expensive.

Sources: 

Cox & Kings
Interview with CFO, Anil Khandelwal, Mint Newspaper, Oct 20, 2016 (original source: Interview on CNBC TV18, Oct 19, 2016)

Makemytrip
http://www.livemint.com/Money/2h2MuHNF72HyiW3GGY8T3N/Along-With-Ibibo-MakeMyTrip-also-gets-absurd-private-market.html