Chennai: Last year, when Netherlands-based Royal Philips Electronics NV bought Tamil Nadu-based Preethi, a brand of mixers and grinders, it expected a comfortable boost to revenue of its consumer lifestyle business in India. That hasn’t really worked out because of freebies pledged at poll time.
The April 2011 state assembly elections, which led to All-India Anna Dravida Munnetra Kazhagam’s J. Jayalalithaa becoming the state’s new chief minister, indirectly squeezed the mixer-grinder market in Tamil Nadu—accounting for 50% of Preethi’s revenue.
The reason: Jayalalithaa’s pre-election pledge to offer freebies, including kitchen mixers and wet grinders.
Why buy when you’re getting something free?
“It was a dampener and for the first time in eight years our growth halved from 30% year-on-year sales growth we had seen,” said Vijay Srinivasan, managing director of Preethi Kitchen Appliances Pvt. Ltd, a unit of Royal Philips.
Preethi did not get the government order to supply the appliances.
Retailers tread cautiously on stock following the freebie announcements and Royal Philips’s India unit Philips Electronics India Ltd’s market share in the category barely moved, while that of Preethi merely inched up in 2011. The two brands may nevertheless have exceeded their combined market share of 20%—the largest ever for any one entity—in the roughly Rs 2,300 crore juicer, mixer-grinder and food processor category in 2011-12, according to Francis Kanoi Marketing Research.
Mumbai-based Bajaj Electricals Ltd with an 11% share is No. 2 and Delhi-based Maharaja Appliances Ltd has a 9.4% share at third place.
Philips and Preethi are now trying to make up for lost time by rapidly expanding their product basket and widening distribution in India and overseas. It still needs to be seen whether the two brands can successfully piggyback on each other’s strengths and increase market share.
“Tamil Nadu being so dominant for Preethi, no other state could compensate for the losses incurred last year,” said Francis Xavier of Chennai-based research firm Francis Kanoi. “But Preethi is now diversifying fast into induction cooktops and that helped its revenues grow last year. Else, it would have really been a disaster for Philips.”
Preethi’s rank as India’s top mixer-grinder brand, largely through its dominance in the south—Tamil Nadu, Andhra Pradesh and Karnataka—was one of the key reasons Philips acquired Preethi’s owner Maya Appliances Pvt. Ltd early last year.
It was bought to provide a much-needed boost to Philips that saw its 2010 India revenues grow 14% to Rs 3,724 crore but witnessed a 27% sales drop in the consumer lifestyle segment—the company’s traditional stronghold comprising blenders, electric razors, phones and television sets. It was the only business to register a drop in sales.
The acquisition was formalized in April, the month Tamil Nadu’s voters cast their ballot and elected Jayalalithaa as chief minister. The Preethi brand, with Rs 350 crore in 2010 sales, witnessed a first-ever slowdown in revenue growth —from a 30% jump every year since 2003 down to around 15% in 2011. Close rival Bajaj, which isn’t as exposed to south India, grew at 20%, said Xavier.
“There are always headwinds and tailwinds, but we are the No. 1 kitchen appliances maker,” said Rajeev Chopra, managing director and vice-chairman of Philips Electronics, the Dutch bulbs-to-medical-equipment maker’s Indian arm. “The objective was to leverage Preethi’s position in the south and there will be more cross-leveraging in the coming months.”
While Chopra brushes off the impact of Preethi’s sales slowdown last year, he acknowledges Philips’s rapid diversification strategy for both brands, a move that will possibly shrink excessive dependence of either brand on a geography or a product category.
Late last year, Philips adopted Preethi’s know-how on induction cooktops and launched products under the Philips brand name.
“We believe induction cooktops can be bigger in volume and value than mixer grinders,” said Srinivasan.
Preethi is readying to re-launch irons based on Philips’s expertise and is seeking to export to markets such as Malaysia through the Dutch parent’s distribution network.
Meanwhile, Preethi’s distributors are pushing Philips products in the south.
“Both individually and collectively they are strong brands,” said G. Viswanathan, general manager of operations at appliances retailer Vivek Ltd that didn’t stock Philips products all of 2010 because of inadequate service and stock refills. “Now they have to ensure that there is a surfeit of their products in trade.”
Fast diversification is key to reducing the risks of a precipitous sales drop on future poll promises, said Viswanathan.
“There’s no question of reversing this trend and the next politician coming to power will once again have to shower such gifts,” he said. “Common sense seems to suggest that companies shouldn’t be overly dependent on a geography or category.”