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A cool move

Arti Sharma in Mumbai | September 04, 2004

It's gunning for a big fight. Earlier this year, the Rs 1,330 crore (Rs 13.30 billion) Voltas Limited changed the face of the one million unit air conditioner market. Its low-priced, smaller sized window products -- 0.6 tonne and 0.8 tonne ACs -- had a huge impact.

So gung ho is Voltas with the results, that it wants to leverage the experiment to expand product portfolio, introduce a basket of products and invest in brand building. With this, it hopes to revamp its fuddy duddy image to a tech-savvy one.

Last fiscal, Voltas sold 1,27,000 AC units, up from 78,000 the previous fiscal. In the same period, market share has increased from 10.5 per cent in 2003-04 to the current 12 per cent.

So what are its plans now? By December, a technology driven product range will be launched including ACs with inverter technology and telephone control. This month-end will see the split version of the 0.8 tonne AC priced below Rs 15,000. The one tonne split units retail at Rs 22,000.

Splits account for 25 per cent of the AC market. With the new launch, Voltas hopes to see its 23 per cent market share to slide up.

At the same time, it is emulating the small is big experience in its ColdCel refrigerators. It has launched a 55 litre fridge, the smallest available size, aimed at children branded Teeny-Weenie earlier this year, priced at Rs 4,990.

"We want to reach out to people who have smaller requirements. We find a lot of children want their own space to cool their own things," says K J Jawa, vice president - operations, cooling appliances business division, Voltas Limited.

Although currently the range is available only in 7 to 8 cities, Voltas plans to roll it nationally. There are also plans to enter other consumer durable categories like microwave ovens and washing machines.

These activities come on the heels of Voltas losing share to players like LG, Samsung, Carrier and Hitachi which together hold a 55 per cent share. Now, Voltas is all set to regain lost ground.

Says Jawa, "We are not going to take this lying down but will only become more aggressive."

Today, the cooling appliances division (includes ACs for individuals, small offices, refrigerators, water coolers and dispensers) accounts for Rs 423 crore (Rs 4.23 billion) of total turnover. The rest comes from electro-mechanical projects and services and engineering agency and services.

Compare this to 2001, when the retail division's turnover was Rs 196 crore (Rs 1.96 billion). With the mass market strategy, by 2008, Jawa and team expect the division turnover to touch Rs 1,000 crore (Rs 10 billion).

It was only in 2001, that Voltas was unsure about continuing in the segment. That's when it launched the Vertis range. For technical inputs, it entered into a 50:50 manufacturing joint venture with US company Fedders Corporation.

It hived off its Dadra manufacturing plant for a cash consideration of Rs 21 crore (Rs 210 million) to the new company -- Universal Cooling Products Pvt Ltd.

Today, UCPL accounts for an additional Rs 177-odd crore (Rs 1.77 billion) billing (ACs manufactured at UCPL and sold directly to the end consumer under the Voltas brand).

"With Vertis we wanted Voltas to move from a consideration set to a consumer preference set," says Rajesh Jain, general manager-marketing, cooling appliances business division.

But Vertis on its own wasn't enough. Research had shown that there was a market for ACs below Rs 10,000. Says a competitor, "With other players dominating the market and an ensuing price war, it was the only way out for Voltas."

That's when Voltas launched the 0.6 tonne AC priced under Rs 10,000, with the promise of affordability and low recurring power costs. In comparison the one or two tonne ACs retails anywhere between Rs 15,000- Rs 24,000, depending on the brand and features.

It sure was a master move as 80 per cent of the market is dominated by the 1.5 tonne ACs. "It was meant for smaller rooms, places with moderate temperatures and the key was affordability," says Jain.

Voltas spent Rs 50 crore (Rs 500 million) in the last three years trying to get consumer attention. This year it has earmarked Rs 17 crore (Rs 170 million) for advertising.

Will all this work? "Such moves may shake up the market but they won't work for too long," says a competitor.

For instance, the 3.5 million unit refrigerator market has grown less than one per cent in the first half of this year compared to a two per cent growth over the corresponding period last year.

Last year the segment grew only three per cent compared to an eight per cent growth in 2001.

In the AC market, competition is already responding. While players like LG are not reducing prices, two months back, Electrolux introduced the 0.75 tonne split AC priced at Rs 14,990.

"We will be competitively priced and have the advantage of a large dealer network since splits are sold largely through that channel," says Jain.

Voltas' re-entry into the refrigerator market, comes eight years after it sold its refrigerator brand to Electrolux. Voltas will be able to sell refrigerators under the Voltas brand only after 2006.

"Our real thrust on refrigerators will start post-2006. Till then we will only maintain a presence in the key markets," says Jain.

Competitors say that by then, it may be too late for Voltas to gain share. But Jawa and team are not worried.

"We are on track and are meeting all our targets," he says. In 2003-04, the division reported profits of Rs 6 crore (Rs 60 million) compared to a loss of Rs 1.24 crore (Rs 12.4 million) in the previous year.

So what's the game plan now? "We want to cater to different kinds of customers," says Jawa. That's why Voltas is improving distribution network and putting systems in place.

Today it sells from 1,400 multi-brand outlets and 450 sales and service dealers, up from 300 dealers and 600 retailers in 2001. Yet, inspite of the number of outlets it is present in, 60-65 per cent of sales still comes from the sales and service dealers.

"We find their systems are not in place and it is still a bureaucratic company to deal with, so we do not stock their products," says the proprietor of a large multi- brand outlet in Mumbai. Says Jawa, "That's because we don't have a basket of products to offer them. But we are trying to improve that."

Like Voltas is also considering entering into washing machines and microwave ovens. It has also begun exporting ACs to the Middle East, and though revenues are currently negligible, it hopes to touch 20 per cent by 2008.

The efforts do not impress competition. "The company has a very diffused identity and it lacks a vibrant, aggressive personality. Also, it is unclear whether the company wants to be a mass player or a premium player," says a competitor. Jawa disagrees.

"We have never been more ready to meet competition and we've turned around only to stay on in this market," he says. Now, that staying power will be eagerly watched.



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