|GM Pens has roped in the master blaster to help it hit the competition for a six, says Venkatachari Jagannathan.|
Chennai: He may not be doing too much on the cricket field, but master blaster Sachin Tendulkar will soon be going out to bat for Reynolds pens, made by the Rs175-crore GM Pens International Pvt Ltd. On 15 May 2006, the company's promoters announced Sachin's signing, as well as showcased the company's product portfolio, which has grown from a single product to 150 shop keeping units (SKUs).
Other developments are also in the air, including a possible stake sale to the US-based Sanford Corporation, owner of the Reynolds brand and part of the $7-billion Newell Rubbermaid group. The company is entering the pencils and stationery segment, expanding its the pen store chain Writesite, and also looking at setting up ball point pen vending machines.
"We are open to the US company acquiring some stake in our company," says Managing director K Mohamed Meeran, "and it may happen two or three years down the line." Is that a result of pressure? Originally the French company Reynolds owned the brand, and it had licensed GM Pens to use it in South Asia. In 1999, Sanford acquired the global operations of Reynolds, including its pen tip making unit near Chennai. The total global sales of Reynolds branded products are now $250 million.
Before the Reynolds takeover, Sanford's parent Newell Rubbermaid had a 50-per cent stake in Luxor Writing Instruments Pvt Ltd, which manufactured Parker, Waterman, PaperMate and Pilot pens in India. The Indian promoter bought out Newell Rubbermaid's stake sometime in 2001, and secured the licence to make and sell the brands in India.
With two licencees in India, no presence of its own and a fast-growing market, did Sanford exert pressure on the promoters of GM Pens to part with a stake? Since it supplies two crucial items for the pens – ink and the tip – Sanford can start selling the Reynolds brand on its own if it refuses to renew GM's licence on its expiry. Is the relationship reaching the proverbial seven-year itch?
Responds Meeran, "Sanford is not exerting any pressure on us. It is nearly seven years since Reynolds came under Sanford's fold, and the relationship has been smooth." Except for the brands sold by Luxor, G M Pens – which has a Rs5-crore equity – imports and sells Sanford's other products through Writesite, nearly 30 per cent of whose sales are from Sanford's other products.
Meeran feels India could be a base for export of components for writing instruments, and this may have made Sanford relook its Indian strategy. "The Chinese pen manufacturers can't make inroads into India because of our competitiveness," he says.
But why sign the exorbitant Tendulkar when Reynolds is logging a 20 per cent growth? In the Rs1,750-crore pen market, Reynolds is already the undisputed numero uno in brand recall and sales. "We sell around 1.5 million pens a day. Our product price range starts at Rs5 and goes up to Rs500," says Vishwadeep Kuila, vice president, sales and marketing.
Before 1986, when GM Pens pioneered branded ball pens, the trade ruled the market, pushing products with the highest margins. Ball pens were then available for 50 paise and one rupee, and not many were willing to pay Rs3 for Reynolds. But the brand gained because of its superior quality, to become the generic brand in its category. With top-of-the-mind brand recall, does Reynolds really need celebrity endorsement?
Answers Kuila, "It is time to invest in branding as the market is witnessing a margin-price war." The prices of low-end ballpoint pens (below Rs5) are going down, thanks to competition between manufacturers and also between retailers. Industry sources say that retailers demand up to 60-per cent margins, and sell the product below maximum retail price (MRP). There's no war yet in the branded segment (above Rs5), where the major players are Reynolds and Cello. The move to invest in branding is a preventive measure to ensure that the price war does not extend to the branded segment.
Besides, the bulk of sales are from students, for whom Sachin is an icon. The company hopes to see increased sales at the vending machines that are already installed in a few schools, once television commercials go on air. Research shows that in other user segments, pen purchase is also on impulse, and a celebrity endorsement helps.
Celebrity endorsement for pens is not new in India. Actor Amitabh Bachchan has endorsed Parker, while actress Raveena Tandon has promoted Rotomac pens. But the competition has mixed views about celebrity endorsements for pens. Anand Shetty, senior marketing manager, Flair India, says, "The sales of Reynolds would go up. Already, it is the brand with top-of-mind recall." But Amit Safi, vice president, sales and marketing, Add Corporation disagrees: "We don't see value in celebrity endorsements for pens. Add is the best-known gel-pen, and branding is important for pens now."
Would the industry's ad spend go up because GM has signed Sachin? It isn't clear, as one gets a yes and no answer to the question. However, GM does not expect Sachin to create a drastic increase in its promotional spend. "We normally spend around 10 per cent of turnover on promotion, and we don't expect it to go up substantially," says Meeran.
The industry's other product segments are:
- Retractables, used by executives for their good looks and performance. Price range – Rs15 to Rs50. Major players – Cello and Reynolds.
- Gel range, made by Add Corporation and Reynolds.
- The Parker range: Made by Luxor Writing Instruments.
- Institutional sales.
- The gift pens segment.
- Speciality segment: Markers, highlighters, micro-tips, etc.
Kuila agrees that GM Pens is a small player in the institutional and gifts segment and has no presence in the Parker-type range. "But in retractables, we have strong brands like Jetter and Racer," he says. The speciality segment, says Kuila, is too small in India: "In the US, 1.5 million markers are sold daily, which is the equivalent of our total pen sales," he points out.
To expand its product range, GM Pens has entered the lead pencils market. It also plans to get into office stationary products like post-it slips. "We sell around six million pencils per month, and the stationary products will be locally developed or imported from France," Kuila explains. The first in the industry to have its own as well as franchisee-owned Writesite retail outlets, G M Pens is expanding the network to 25 stores from the current seven. Everybody is waiting to see if Sachin can help the company hit the competition for a six.