"I want to grow bigger than my suppliers," declares Mr. B. A. Kodandarama Setty, managing director of Viveks, India's largest consumer durable chain. He is not day dreaming. It has happened elsewhere in the world and Mr. Setty wants to replicate it with 200 showrooms…
…And signs of that happening are visible now. Firstly, the Rs. 140-crore turnover retail group (consisting of Viveks Rs 108 crore and its subsidiary, Jainsons, with a Rs. 32 crore turnover) is targeting to achieve a combined turnover of Rs. 220 crore this fiscal. The figure is higher than the turnover of some smaller consumer durable companies.
Secondly, the Viveks chain commands better faith and brand equity than that of the brands it sells. It is common to hear, "I bought a new television at Viveks," omitting to mention the brand name.
So how does Mr. Setty intend to achieve his ambition? Expansion is the one word he has been breathing since1995 when Vivek & Co. became a public limited company. Between 1965-1995, the company owned just three showrooms. The number went up to 16 by 2000.
But what gave Mr. Setty a vision of big growth was the takeover of Jainsons, a competing chain with 14 showrooms, in 1999 for an undisclosed sum.
The Jainsons acquisition gave Mr. Setty an immediate presence in small towns in Tamil Nadu, apart from eight showrooms in Chennai. The reason for keeping two chains, instead of merging them into one, he says, is that "the customer profile and brand equity of the two chains are different". Soon after the takeover, four more showrooms were opened under the Jainsons fold in Tamil Nadu.
According to him, Jainsons will be confined to Tamil Nadu while showrooms under the brand Viveks will be opened in all southern states, before going national. "First I have to become the regional king. Only then, I can think about marching towards the west and north," he remarks. Adds Mr. B. A. Srinivas, director of the company and Mr. Setty's brother, "By this March, we should have about 40 stores."
The economic liberalisation and the resultant growth of the consumer durables industry gave the necessary impetus for Viveks' expansion. According to a study conducted by CII-McKinsey & Co, the consumer durables market grew from Rs. 12,000 crore in 1995 to Rs. 20,000 crore by the end of 1999.
And so did competition for Vivek. According to Mr. Setty, there are around 200 consumer durable outlets in Chennai alone and 8,500 stores in the country. The CII-McKinsey study estimates that traditional dealers do 75-82 per cent of the consumer durable sale. The study further states that organised retail chains and company showrooms account for less than 5 per cent with street markets contributing the balance.
However, the proliferation of consumer durable brands is squeezing the small dealers as they lack the financial muscle to stock all brands. This, in turn, augurs well for retail chains like Viveks, Jainsons, Vasanth & Co, Chennai and Vijay Sales, Mumbai.
The acquisition of Jainsons gave Viveks a good bargaining power with its 75 suppliers. "It centralised the sourcing and availed of cash discount," remarks Mr. Srinivas. Further, the increased competition amongst suppliers resulted in better margins for Viveks. This hastened the breakeven point of each new showroom. According to Mr. J. Ramanan, director, finance, the outlay per store remained around Rs. 50 lakh while the brand building cost increased manifold with the expansion.
The strategy being followed by Mr. Setty now is to capture market share in one particular city/town and then branch out to other places. Having one showroom in each city is not the success recipe, he feels. In Chennai, Viveks has a market share of 17 per cent, 6 per cent in the rest of Tamil Nadu and 8 per cent in Bangalore.
Product-wise in the Chennai market, Viveks commands 10 per cent of the television market, 15 per cent and 18 per cent of the refrigerator and washing machine markets. However, the inventory cycle time is around 30 days.
With its presence in all major cities/towns in Tamil Nadu through its two chains and with five showrooms under Viveks' name in Bangalore, Mr. Setty is now setting his foot in Andhra Pradesh by opening one showroom each in Hyderabad, Vizag and Vijayawada.
The target of 200 showrooms will be achieved through the franchisee route by rewarding high performers with a license. But before embarking on that, the company has to streamline its supply chain management and investments have been made in IT systems.
With a sizeable number of showrooms, the next plan for Vivek is introducing store brands. "We will do it for kitchen equipment and other items like iron box and water heater, etc.," remarks Mr. Srinivas. "Our investments will be in packaging and promotion," adds Mr. Ramanan.