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The other face of Wipro
Govindkrishna Seshan | May 16, 2007
That isn't a commonly cited list - you will rarely, if ever, hear Wipro mentioned in the same breath as the country's leading consumer goods companies. Stands to reason, say stock analysts - consumer care accounts for barely 5 per cent of the company's Rs 15,000-crore (Rs 150 billion) revenues.
It is part of company lore that the Western India Vegetable Products Company (Wipro, for short) started out in 1945 as a vendor and manufacturer of edible oils, vanaspati and soap.
Entry into the electrical business had to wait until 1975, seven years after present chairman Azim Premji took over. The software programming business didn't begin until 1991. IT is Wipro's money spinner - the business is worth Rs 11,000 crore (Rs 110 billion), while consumer care and lighting stands at a mere Rs 818 crore (Rs 8.18 billion - source: annual reports).
But Wipro's focus on consumer care remains undiluted. Indeed, it is still investing substantially in the business - from Rs 121 crore (Rs 1.21 billion) in 2006, to Rs 295 crore (Rs 2.95 billion) this year.
"Our consumer care and lighting business delivered industry leading growth rates. Given the prospects, we look forward to 2007-08 and beyond with excitement." Premji commented recently, while declaring the results for 2006-07. In a word, why?
Figure it out
"This debate stands closed," declares Vineet Agrawal, president, Wipro Consumer Care and Lighting, "given our performance in the past four-five years." The numbers support him. Since inception, the consumer care and lighting business has been treated as an independent business unit, diverse from the main business.
Between 2003 and 2007, revenues from this unit have grown at 28.6 per cent compounded annually, taking the business from Rs 299 crore (Rs 2.99 billion) to Rs 818 crore (Rs 8.18 billion). While the overall FMCG market in India grew at 22 per cent last year, Wipro's consumer care business recorded a 36 per cent increase.
That's just two percentage points less than the growth recorded by the IT business. Wipro's consumer care business is usually overshadowed by its faster growing IT business.
But although the consumer care business is growing on a much smaller base, stock analysts and consumer products industry experts agree that 36 per cent is not to be sneezed at.
Especially considering that 38 per cent in IT is par for the course, while 36 per cent is exceptional in an industry that's been recording 20-25 per cent growth rates for some time now.
If those numbers aren't reason enough for Wipro's continued presence in the consumer goods market, there's the latent potential in the market itself.
According to a just-out study by the McKinsey Global Institute, the consumer goods market in India is expected to quadruple from Rs 17 lakh crore currently to Rs 70 lakh crore by 2025. Over the same period, India's middle class will swell by over 10 times from the present 50 million to 583 million people.
By 2025, over 23 million Indians - more than the population of Australia today - are expected to be among the country's wealthiest. Moreover, the share of wallet of health care and personal products is also likely to increase, from 4 per cent to 13 and 11 per cent, respectively. It is hardly surprising, therefore, that Wipro is building its presence in both these categories.
In 20 years, health care and personal products are expected to be worth Rs 890,000 crore and Rs 740,000 crore, respectively. Within the next five years, Wipro wants to be among the top 10 FMCG companies in the country - a climb of six or seven places by its reckoning. In the same period, it wants to become the No. 2 player in all categories in health and wellness where it is present.
The name game
Wipro has been firm about extending its brand across all new businesses, related or not. From software programming to baby care, from lighting to isabgol, all products carry the Wipro tag and its ubiquitous many-petalled flower logo. There's a good reason for that, explain Wipro officials.
In 1999, the company conducted an extensive survey among 1,500 respondents in four major cities to understand what Wipro stood for. The key finding - consumers believed that the Wipro tag stands for good quality. Hence the decision to promote the common brand.
That's a good move, believes Unni Krishnan, managing director of brand consultancy Brand Finance India. According to him, irrespective of their strength, certain brands due to their defined characteristics can be extended while others cannot.
He explains with an example: "The Virgin brand stands for a good deal, something surprising; hence, it can stretch to financial services, mobile telephony and airlines. On the other hand, Coca-Cola and Pepsi may be world-recognised brands, but they cannot be stretched beyond their immediate category. Wipro, given its heritage and characteristics, is a brand that can be stretched."
Go where the growth is
Wipro's strategy for the consumer care and lighting businesses has been a mix of conventional and niche, depending on the product category and business. Even its 2004 entry into the modular furniture business can be traced to this gameplan; the company claims it is a natural extension of its existing institutional lighting business.
The modular furniture market was worth about Rs 550 crore (Rs 5.5 billion) and growing at 30 per cent a year when Wipro entered. Wipro's business, claims Agrawal, has been growing at over 100 per cent and is now worth around Rs 66 crore (Rs 660 million).
In existing businesses, like the Rs 3,000-crore (Rs 30 billion) lighting business, the company has performed well by sticking to a strong product line and investing in its distribution network. In consumer lighting the company reaches 250,000 electrical stores. But what gives the company an edge is that due to its presence in soaps it can also be available at general and convenience retail stores.
In institutional lighting, Wipro claims, it benefited due to its industry specific solutions. For instance, the company offers different types of lights like day light warm, day light cool, yellow light and so on specifically for different industries. While yellow lights help view products better in retail stores, daylight cool helps give a day-like feel in BPOs where executives work night shifts.
Wipro's lighting business is now the No. 3 player and competitors agree it has become a worthy rival.
"Wipro has become a serious player after it improved its distribution," say R Nandkishore, director, marketing, Philips, the market leader. Adds Shekhar Bajaj, chairman and managing director, Bajaj Electricals, "Wipro has grown fast and is doing especially well in luminaries and lamps."
Meanwhile, in soaps, too, Wipro has stuck to conventional methods of growing the business - by launching brand extensions and variants. Its flagship Santoor became India's third-largest soap brand in value terms, behind Lux and Lifebuoy, when it overtook Hindustan Lever's Breeze in the March quarter.
Santoor grew 29 per cent (value) last year and according to industry estimates accounted for 40 per cent of the division's revenues. Part of that growth can be attributed to the variant of the soap launched last year.
The newly launched Santoor White was targeted at consumers from the northern market, as Santoor Sandal sells predominantly in the southern markets. Says Agrawal, "The launch increased the brand's sales by 10-12 per cent, without cannibalising the existing sales of Santoor Sandal."
If the soaps and lighting businesses are being run along standard lines, Wipro's entry into the health and wellness segment has been all about capturing niches.
Two months ago, the company entered the Rs 75-crore artificial sweetener market with Wipro Sweet and Healthy. The category is tiny, but the potential is immense, points out Agrawal. India has more than 32 million diabetics - the highest number in the world - and the World Health Organisation estimates that the number will climb to 79 million by 2030. That's a natural target for a sugar substitute, as is the growing health-conscious brigade.
The entry into the sweeteners market is Wipro's fourth major foray in the health and wellness segment in the past three years. The company started by buying glucose supplement Glucovita from Hindustan Lever in 2003. Industry estimates valued it to be worth Rs 8 crore (Rs 80 million) at the time, Wipro claims the brand has since tripled its turnover, in a market worth Rs 175 crore (Rs 1.75 billion).
The company's key effort in this segment has been to change the consumption pattern. Its advertisements and all communication with consumers has been directed towards increasing substitution of plain water with glucose-enriched water, as an instant energy booster.
The next venture was in an equally niche category: in 2005, Wipro launched Sanjeevani honey to compete in the Rs 125-crore category against established players like Dabur.
To stand out, Sanjeevani was launched in flavours: with added ginger and lemon, for instance. Of course, it isn't only about product differentiation. Wipro has been working hard at raising awareness of its products - it has been advertising consistently in television and print.
"Our ad spends in all these categories are significantly higher than the rest of the industry," agrees Nagender Arya, general manager, business development, Wipro. "We spend at least 30 per cent more," he adds.
The idea of tapping niche categories and then attempting to grow them through advertising and product innovation appeals to Raman Mangalorkar, head of AT Kearney's consumer industries and retail practice.
"As Indian markets mature, consumer proliferation will increase and markets will get increasingly segmented. In such conditions, it makes complete sense to tap niche markets and grow them." Mangalorkar points to Gatorade as a prime example: from being a niche drink in the small sport/energy drink category, it is today worth over $3 billion globally.
There are similar examples closer home as well. Dabur's Real fruit juices, for instance. When Dabur launched Real in the mid-1990s, the category was worth just Rs 25-30 crore. It is now estimated at Rs 350 crore (Rs 3.5 billion) with Dabur claiming a 57 per cent share.
"We spent disproportionate amounts on advertising and research. Our share of voice in advertising was always close to 50 per cent of the segment. Also, even when the category was worth just Rs 40-50 crore (Rs 400-500 million), we would spend close to Rs 20 crore (Rs 200 million) on research alone," recalls Sanjay Sharma, general manager, sales and marketing, Dabur Foods.
But then, Dabur understands niche products well - almost its entire basket comprises such products, including rosewater, digestives and Chyawanprash.
Says V S Sitaram, Dabur India's executive director, consumer care division, "Unlike Colgate, HLL or P&G, we have not tried to be huge in only large categories. We have tried to create distinct products in large categories and have created our economies by being present in different categories."
The strategy is not without its pitfalls, of course. Naimish Dave, director of consultancy OC&C points out a couple.
"First, the company's attention is divided across various categories. Second, if you do not manage to successfully grow the segment within a reasonable period, the entire exercise may end up being fruitless."
Wipro and Dabur have experienced that for themselves. Wipro has been in the shikakai hair care category for more than two decades now, but the business remains stagnant at Rs 25-30 crore (Rs 250-300 million).
"Consumers are keen to experiment with the various hair care product lines available today. Also the segment has witnessed very little activity, which is why it hasn't been growing," says Agrawal.
The company has now launched a new advertising campaign, aimed at attracting youngsters by explaining the benefits of shikakai. Dabur, too, hasn't been too successful with its cooking pastes.Still, Mangalorkar stands by the strategy. "Even if two out of five attempted markets succeed, companies will enjoy disproportionate growth in these categories, hence the strategy is beneficial." Looks like Wipro shares his view.