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Asian Paints SCM

Asian Paints SCM



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Published by Amit

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Published by: Amit on Apr 12, 2009
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Asian Paints (AP) is the market leader in the Indian paint industry, commanding a marketshare of 38 per cent in decorative paints and 33 per cent overall in the organised sector.Its annual sales turnover exceeds Rs. 1,300 crore, way ahead of all the competitors inthe industry. In profits too, AP is far ahead. AP’s market leadership in the decorativepaints segments can be grasped correctly when we take note of the relative position of the various players in the industry. Whereas AP has a market share of 38 per cent, itsnearest rival, Goodlass Nerolac, commands a share of just 14 per cent. All others haveonly less than 10 per cent. Such an achievement by a company that is wholly Indian incapital, management and technology and in an industry historically dominated bymultinationals is certainly a commendable feat.
How did AP achieve this success?
AP’s success is the combined result of its strong corporate and marketing strategies.Maximum credit should, however, go to its marketing strategy. Within marketing, it wasdistribution excellence that took AP to the enviable position, which it holds today in theIndian paint industry. This case study explains AP’s distribution strategy.
This case study, in fact, depicts the distribution strategy adopted by AP in the early yearsof its operations. The interesting point is that this strategy serves AP well even today,when the context has somewhat changed. In the earlier years, in the decorative paintsegment, a wide product range in terms of colour and pack size was a crucial factor for success. AP literally leapfrogged and overtook all its competitors, and offered the widestrange of products. It also created the distribution outfit that was necessary for reachingthe wide range of products to customers in every nook and corner of the country. In later years, technology came to the rescue of the players in this regard. Customers could getthe colour of their choice through mixing at the retail outlet. With the help of anautomated machine kept at the retail outlet, paint is given the desired colour by mixingdifferent shades and stainers in the required proportion. The paint companies need tomaintain only half-a-dozen basic colourants with retailers; mixing can create the other variants. The new arrangement helps the campanies to manage with a narrow range of paints. They can reduce the number of SKUs handled and cut down inventory holdingcosts.The above shift has no doubt reduced somewhat the importance of the physicaldistribution task in the business, compared to the position in the earlier years. At thetime AP entered the Indian paint business, the physical distribution and channelmanagement task was the most crucial one in paint marketing. This context iselaborated in one of the sections in this case study. We can appreciate the lessons of the case study better, if we keep in mind this contextual position. Even now, physicaldistribution and channel management continue to be crucial functions in the business.In the matter of product range too, companies are not able to totally dispense with theneed for variety in view of the many practical limitations of mixing at retail outlets. It isno easy task to provide mixing and computers. Before we actually go into AP’sdistribution strategy, let us have brief profiles of the company and that of the paintindustry, so that the contextual setting of the case is clear. Let us start with the industry.
The paint industry of India is 100 years old. Its beginning can be traced to the setting upof a factory by Shalimar Paints in Kolkata in 1902. Till the advent of World War II, theindustry consisted of just a few foreign companies, and some small, indigenousproducers. The war led to a temporary stoppage of imports leading to many more localentrepreneurs setting up manufacturing facilities. Nevertheless, foreign companiescontinued to dominate the industry. Even now, they remain active contestants, thoughtheir foreign shareholdings stand reduced, with two of them having become totallyIndian. Currently, the industry has a sales turnover of about Rs.3, 600 crore. In terms of volume, it corresponds to 5 lakh tonnes. The industry is composed of two sectors, theorganised and the unroganised. The organised sector controls 70 per cent of the totalmarket. The remaining 30 per cent is in the hands of the unorganised sector, consistingof 2000 odd small-scale units. The industry is not capital intensive. It is however workingcapital intensive. The demand for paints is fairly price-elastic and is linked to economicand industrial growth. Demand is somewhat seasonal in nature-low during monsoonmonths, high during festival seasons.
The industry comprises two main segments decorative/architectural and industrialpaints. The decorative/architectural paint segment accounts for 70 per cent of the totalpaint market while the industrial paint segment accounts for the remaining 30 per cent.The industry is, however, expected to undergo a structural shift towards industrial paintsin the next few years, when its share is expected to go up to 50 per cent in line with theglobal trend. Industrial paints thus holds greater growth potential in the coming years.Actually, with the decorative segment gradually bottoming out, companies are alreadyincreasing their focus on industrial paints. Industrial paints are technology intensive. Theindustrial paints segment can be further classified into automotive paints, marine,powder coatings, high performance coatings, and others. Original equipmentmanufacturers (OEM) of products such as automobiles, furniture and white goods suchas refrigerators are prime consumers of industrial paint. The automobile industryaccounts for 50 per cent of the industrial paint market. A good part of the demand isfrom shipping and heavy industry. Navy being the largest customer in shipping.
Asian Paints, Goodlass Nerolac, ICI (India), Berger, Jenson & Nicholson and Shalimar are the leading companies in the organised sector. The top six manufacturers accountfor about 80 per cent of the market in the organised sector in value terms. AP is theindustry leader, with an overall market share of 33 per cent in the organised sector.Threat of global competition is minimal in the industry. AP dominates the decorativesegment, with a 38 per cent market share. Goodlass, a Tata company, is number twowith a 14 per cent market share. Berger and ICI have 9 per cent and 8 per cent shares,respectively, in this segment followed by Shalimar, with 6 per cent.Goodlass dominates the industrial paints segment, with 41 per cent market share. AP isa poor second here, with a 15 per cent market share. Berger, ICI, and Shalimar are theother substantive players in the sector, with 10 per cent, 9 per cent and 8 per centshares, respectively. The dominance of Goodlass in industrial papints is largely the resultof its technical associated with the Japanese paint major, Kansai Paints, which has a29.5 per cent equity stake in the company. Goodlass has a lion’s share of 70 per cent inthe OEM passenger car segment, 40 per cent share of two-wheeler OEM market and 20
per cent of commercial vehicle OEM market. Goodlass also holds 20 per cent of thewhite-goods segment.The market shares of the five leading companies are shown in Exhibit 1
Exhibit 1 Market Shares of Five Major PlayersSr.CompanyMarket Share (%)DecorativeIndustrialOverall
1.Asian Paints3815332.Goodlass Nerolac1441183.Berger Paints91094.ICI Paints9995.Shalimar687
As already mentioned, Asian Paints is India’s largest paints company and the marketleader in decorative paints. AP manufacturers and markets a wide spectrum of coatingsand ancillaries, which include decoratives, production paints and heavy-duty coatings.The manufacturing facilities of the company for paint products are currently spread over four locations- Bhandup, Mumbai, which was established in 1955; Taloja, Maharashtra,where AP established its second unit in 1980; Ankleshwar, Gujarat, where operationsstarted in 1981; and Patancheru, Andhra Pradesh, where manufacturing started in 1985.Asian Paints offers the widest range of paints in terms of products and shades, as wellas pack sizes. Availability of wide range of shades is in fact, one major critical successfactor in the decorative paints business. And AP scores high in this factor. APmanufactures and markets more than 2,800 items of paints (SKU).
AP has been consistently turning out a good performance over the years. For more thantwo decades now, it has been the market leader. Besides, the company has alsoconsistently proved its excellence in operating performance. Exhibit 2 gives details of AP’s sales performance during the last four years. Exhibit 3 gives some other importantdetails of AP’s performance. AP has set a target of gross sales of Rs 2,100 crore by2003. It aims to be amongst the top ten decorative paints manufacturers in the world by2003 and among the top five by 2005.
Exhibit 2: Asian Paints-Sales Performance : 1998-20011998199920002001
Sales Value (Crore)9111,0331,2211,373Sales Volume (Tonne)116,942132,284162,110181,271
Exhibit 3: Asian Paints – Select Performance Indicators (FY 2000)
AP’s operating profits stood at Rs 191crore in FY 2000, an increase of 37.7percent over the previous year.
The net profit stood at Rs 97 crore ascompared to Rs 77 crore the previousyear, higher by 26.6 per cent. Net

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