‘Merely copying a model from the West is not enough’

“I never had to work a day in my life,” says Nihal Kaviratne, chairman, AkzoNobel (formerly Imperial Chemical Industries Ltd), which makes the Dulux brand of decorative paints.

A veteran in corporate boardrooms, Kaviratne’s career with the Unilever Group spanned 40 years during which he held various senior level management positions in sales, marketing, brand and strategic planning and development and as chairman across Asia, Europe and Latin America.

He talks to DNA about the roadmap for the Dulux brand, growth drivers for the fast moving consumer goods (FMCG) industry and why modern retail has not taken off. He also serves as an independent, non-executive director in various listed companies and works with non-profit organisations such as The Bombay Mothers and Children Welfare Society, Indian Cancer Society, and is the founder of St Jude India Childcare Centres in Mumbai. Excerpts:
 
After a difficult first half of the year, how has business fared at AkzoNobel?
The first half of this year was all about investing in the brand, and of course, the prolonged monsoon didn’t help. It is very difficult to paint homes when it’s raining. The second half has taken off very well. October’s been a good month, so, hopefully the second half (of the year) will be good. For AkzoNobel the next leg of growth is especially in second-tier towns, and the middle-income homes. And this is about painting walls and we can sense a boom approaching the industry. And the discretionary element in decorative paints is going down. Earlier, it (decorative paint) was all about the premium and top-end segment, but now has become a common feature among the middle-income group also.

You’ve served at Unilever for nearly 40 years...
I never had to work a day in my life. I found the job I loved and they then paid me to do it. They sent me all over the world. And being an Indian, they sent me to the most difficult places at the most difficult times. For example, in 1998, when Indonesia was going through a social, political, economic crisis, would it be safe to send high-profile Dutchmen, who were eventually slated to become chairmen of Unilever subsidiaries globally? They (Dutch) did not want to go to Indonesia and that was the job I always wanted. And it couldn’t have worked out better. When I went there, the company’s (Unilever in Indonesia) growth was half of what it was before the crisis in terms of dollar value and its profits were diminishing. By the time I left, its market capitalisation was 12 times from when I took over. And today, the market cap is 40 times from where it was at the height of the crisis.

What is the way forward for the brand Dulux?
I discovered that there are three levels. We start off at the bottom level, where as a salesman we sell to customer. Then, as we move up and go into marketing at level two, you find consumer needs, company capability. At level three, we say the brand doesn’t belong to the company; it belongs to the consumer. The consumer manages the brand; what you manage is the relationship with the consumer. And it’s about managing that relationship, building equity, building strong iconic brands and that’s what we want to do with Dulux in India. What we need to do is take it out from the top-end, where it is a premium, well-established brand, to tier 2 and tier 3 towns. It needs to go down to the 60 million middle-income homes with new wealth that have come above the threshold of basic things and are able to spend on things such as paint. You see so many companies investing in middle-income housing.

In addition to Dulux, is there a need for additional brands to cater to different markets?
Yes, there may be a need. There has been a dilemma over whether we can hold a dominant position in market with one brand or do we need a portfolio of brands. Some markets do need a portfolio of brands and in some markets you can stretch a brand across. If we can do it with one brand, it is the most efficient way, because then you need to spend all your money behind that one brand. If we can do it with Dulux, it would be ideal. We want people to own the Dulux brand and not just ask how much it costs. Also, we need to build AkzoNobel, as it is relatively unknown in India than ICI. ICI was old-fashioned, fuddy-duddy, but a very well-known brand.

With the industry progressing towards concepts such as eco-friendly paints, what innovations can we expect?
Innovations will have to do with profitable economic growth today, without compromising with the needs of the next generation, which is the core part of it. We have to have a balance of both. And for that you got to meet the needs of the people today, providing them with affordable products that spread easily, dry quickly, and protect as much as decorate.

After being away for so long, how different is it working
in India?
It’s wonderful to be back after 24 years overseas. Now, I spend about half the year in India. I still work on the boards of five Temasek companies in Singapore, and I am on one board in the Netherlands and one in Indonesia. I do keep a foot in the global industrial world, because it gives you a window to the future, something that might happen in India. Having moved from 40 years of focus with one company, I am now at a different stage in life, which is independent, non-executive and more about governance and strategy and policy. Apart from advisory roles, I very rarely get into operational things. Those are left to the company management. 

How do you balance your time between work and social initiatives?
It’s about half and half. I spend half my time on welfare of needy children and half on these companies. I am on the board of Titan, which makes watches, jewellery and prescription eyewear; TVS which is into motorcycles; GlaxoSmithKline, a pharmaceutical firm; AkzoNobel, which is into paints; Fullerton, which is a financial services firm; StarHub, which is into telemedia, cable television, broadband; Singapore Tourism Board, which is all about zoos and night safaris... It’s like being a bee, moving from flower to flower, sucking a little honey here, leaving a little bit of it behind for someone else, to transfer learnings. It’s been great fun and a lovely stage in life. I don’t think I am going to ever retire actually. 

What is your view of the current FMCG scenario and modern trade in India?
These 60 million families are going to drive the growth of FMCG; we got to reach the other 150-180 million homes if we are going to really get an inclusive growth in the FMCG business. And I don’t think we have still found the answer there. And it is not about providing them with cheap and nasty products. It is about making these hallmark brands accessible to them. We have tried to do it through smaller unit sizes and that worked in one way, but it’s also about their economic development and that really is something we can help. The real boom in the FMCG market will come when inclusion takes place, not just financial inclusion but social inclusion as well.

Modern retail is something I have been disappointed with, frankly. You know, when we talk about the recipe of thinking big, but starting small and moving fast... I think that’s where people have done the opposite. They thought small and started big. They have thrown a lot of money at it thinking that’s what is going to work. They haven’t thought exactly how to make this thing work. Just copying or mimicking a model from the West is not the way to make it work here. We have got to develop an Indian model for the modern trade, and we haven’t done that yet. The person who does it that way is going to crack it, and when that happens, within 3-5 years, around 30% of businesses will go through modern trade. But until that happens, it is going to be complete failure. It is not going to grow beyond 5% until then.

How do consumer companies juggle between supporting the trend of premiumisation and at the same time catering to mass market, where most of the growth is?
One of the big scars on my back, which I have tried to share with others —- but no, they want to make their own mistakes —- is the mass market. There are three things about the mass market. You have to find something that is successful in the mass market, that makes money in the mass market, and that can actually reach the mass market. And it is very difficult to find all those three things; sometimes you find two of them and not the third. And often, it’s about making money.

It is very easy to sell a thousand of tonnes of something without any margin at all. I am not a great believer in just going for volume without having a good business model. The thing about succeeding in the mass market is about getting a good business model and that requires margins.