Recipe for growth

TTK Prestige plans to target the north of India with a wider product portfolio and retail network besides heavy promotions

On June 29 last year, while addressing shareholders at TTK Prestige’s 54th annual general meeting in Hosur, Chairman TT Jagannathan made an interesting detour. Not so long, he told the shareholders, the company was in the grips of a crisis. The combination of high excise and sales taxes had punched a hole in its pocket, and exports had taken a hit after the 9/11 terrorist attacks on the United States. The low point was reached in 2002-03: Sales had slumped to Rs 113 crore, there was an operating loss of Rs 17 crore on the company’s books, and the debt burden had mounted to Rs 80 crore. With quiet pride, Jagannathan then read out the numbers for 2009-10: Turnover of Rs 516 crore, operating income of Rs 76 crore and free cash balances of Rs 30 crore, in spite of capital expenditure of Rs 40 crore.

 

The dip in the fortunes had actually prompted a significant course correction for the company. TTK Prestige at that time had a single-product in its portfolio — pressure cookers. Ten per cent excise tax meant that the unorganised sector had a field day; indeed, local price-warrior brands that functioned under the radar screen of the excise collectors enjoyed a share in excess of 50 per cent in the Rs 900-crore market. And TTK Prestige was heavily dependent on the southern markets for sales; though it had some presence in the west, its visibility was nominal in the north and the east. There was an urgent need to guard itself against these risks.

The question was in which direction should it expand. Its flagship brand, Prestige, had over the years built strong equity amongst women in the kitchen (the group was launched in the mid-1920s by TT Krishnamachari who went on to serve twice as India’s finance minister); this was a strength TTK Prestige could leverage. Thus it was decided to grow in kitchen appliances and other items that goes into a kitchen. Some bit of the diversification plan was driven by market research, some by gut feel and some by simple observation. Jagannathan had observed a small village with a population of 5,000 and found that nobody had a pressure cooker. That was not odd; what caught his attention was that every household had a mixer. That was an indication of where the business potential lay. Over the years, the company has thus launched stoves, mixers, grinders, grills, coffee makers, toasters and even chimneys and modular kitchens. All told, it has over 500 stock-keeping units in its portfolio.

TTK Prestige operates 228 Prestige Smart Kitchen outlets in 136 towns to showcase its range of products. Kitchenware in India has always been sold through multi-brand outlets. As a result, brands often offer higher profit margin to the retailers to gain a prime slot on the display window. Aware that this game can bleed the company, TTK Prestige has gone for its own flagship stores. In addition to Prestige Smart Kitchen, the company also runs the Prestige Kitchen Boutiques for modular kitchen. It had even set up Prestige Life Style stores for top-end products, but the initiative has been mothballed. Ever since the exclusive Prestige Smart Kitchen stores came up, claim TTK Prestige executives, sales have picked up in the multi-brand outlets as well.

The expansion in the product portfolio and retail network was accompanied by outsourcing. Production capacity, it was felt, ought not to derail the company’s plans. The other reason is that many kitchenware items are reserved for production in the small-scale sector; and outsourcing is a convenient way to overcome this hurdle for a large company like TTK Prestige. “I blame my grandfather (TT Krishnamachari) for the present condition of Indian industry. The policy of reservation did not allow anybody to scale up. Meanwhile, look where China’s industrial sector has reached today,” says Jagannathan.

So, what has been the result on the ground? Pressure cooker, which contributed the bulk of TTK Prestige’s sales, now accounts for 46 per cent. Kitchen appliances contribute 20 per cent to the overall sales, non-stick cookware 17 per cent, gas stoves 12 per cent, and others including modular kitchens 5 per cent. Its share in the kitchen appliances market is small, less than 10 per cent. But the company claims it is growing faster (30 per cent per annum) than the market (10 to 15 per cent), and so its share of the pie is on the rise.

This is not to say that TTK Prestige has put the pressure cooker business on the backburner. In 2005, after some hectic lobbying by the industry, the government reduced the excise tax on pressure crooker from 10 per cent to nil. This was a huge plus for companies like TTK Prestige. As a result, the share of the local unorganised brands in the market has come down to about a third. Of the other two-thirds, TTK Prestige lords it over half. Jagannathan is perhaps aware that it will not be easy for him to raise his market share from here; that’s why the foray into kitchen appliances makes sense. Also, the technology used in pressure cookers is elementary, and it can be mastered by anybody in no time. Thus, there are no entry barriers. TTK Prestige has tried to create some differentiation through innovation in design. Some time back, for instance, it launched the Apple range of pressure cookers which were shaped like an apple. It has launched pressure cookers with long-lasting coating and one that is built like a handi, the traditional North-Indian cooking vessel.

Some rivals and observers feel that TTK Prestige hasn’t created enough technological barriers in the new areas it has entered. “Many others who entered the business had to exit as they could not meet consumer demands and were unable to provide high-quality products,” says Maharaja Appliances Chairman & Managing Director Harish Kumar. “Appliances make a technology- and design-driven business. It requires a lot of work and constant innovation to improve your products.” He also cautions against the use of imported products, especially from low-cost producers in China, because of the quality problems.

Still others feel Prestige, being a hardcore pressure cooker brand, doesn’t lend itself to extension to appliances. “Prestige’s association with pressure cookers makes it a little difficult to have an impact in kitchen appliances,” says Milagrow Business & Knowledge Solutions founder and former Philips chief executive Rajeev Karwal. “People will be a little skeptical of its appliances as it is better known for its pressure cookers and non-stick cookware. It will have to ensure quality and features to attract the consumers.”

Jagannathan, on his part, is convinced the company is on the right track, though he knows there are issues that need to be sorted out. One is how to tackle the rural markets. With increased farm income, the demand for pressure cookers and even kitchen appliances is on the rise. These markets, it so happens, have always been serviced by local players and national brands do not have much of a presence. TTK Prestige has formed a new business model involving non-government organisations or NGOs and self-help groups to sell pressure cookers in rural India. The initial investment will come from the company, while the management will be provided by the NGOs. The company hopes to boost its revenues from the rural market with this model in place.

The other bit of the problem was expansion to the North. TTK Prestige had in 1997 set up a factory in Uttarakhand for inner-lid pressure cookers. The factory benefits from the tax sops on offer, on excise as well as corporation tax. The company has decided to expand this factory to make kitchen appliances like mixers and grinders, gas stoves and induction cooktops etc. But it will need to look at its product strategy for the North carefully. Unlike the South, meal preparations in the North do not require heavy grinding and blending; as a result, the food processor market there is different from the southern states. What TTK Prestige seems to be banking on is its high expenditure on sales and promotion — this year the company has a budget of Rs 50 crore. “With our tagline, Are you ready for a smarter kitchen, we have always aimed at making the loudest noise in the kitchen appliances market,” says TTK Prestige Executive Vice-president (marketing) Chandru Kalro.

It is also clear that the company will focus on the domestic market. It has after all got singed badly in markets overseas. Exports were a huge focus for TTK Prestige in the 1990s and the early years of the current decade. It had started a new brand called Manttra for the US market and even set up a subsidiary there, called Manttra Inc, to develop the market. A team of 25 salesmen was taken on board and soon several retailers were selling Manttra pressure cookers. Then the bankruptcies began to happen and TTK Prestige was in a soup. “They killed us with charges and bankruptcies. I decided to withdraw from the market,” says Jagannathan. At the moment, only Sears and K-Mart sell its wares. One retailer hasn’t paid the company for 300,000 pieces, while another one rejected a consignment of 400,000 pieces. Walmart, the biggest retailer on earth, is out of bounds because it wants deliveries within 24 hours. Wiser now, Jagannathan says: “When the Indian market is doing so well, we are not very keen on exports.”

The true test will lie in the markets north of the Vindhyas in the months to come.