Godrej's Frosty Bite

GIVEN the circumstances, the figures are quite stunning. In a snoozing market, Godrej-GE Appliances (G-GE),has sold 30 per cent more refrigerators in the first seven months of 1996-97, than it did in the corresponding period last year. In terms of value, it's sold 60 per cent more. And this, when the fridge market has grown by a modest 8 per cent, driving manufacturers to despair. Bucking every market trend, the company is targeting Rs 780 crore in turnover this year, against Rs 640 crore last year: a growth of 22 per cent.

So what was the big idea? "The big idea was that there wasn't one," says Vijay Crishna, managing director, G-GE. The company claims to have just stuck to classic marketing rules even as the market was sent into a tailspin. Political uncertainty had triggered off a spiral and consumers deferred their purchases, resulting in the market shrinking by 5 per cent in 1996-97. A trend that continued in the first half of this financial year. Add to this several global giants—Whirlpool, Electrolux, Samsung, Daewoo, LG—crowding the market. Soon, dramatic discounts and exchange offers became the name of the game.

As a result, 1996-97 saw shops flooded with nearly two lakh refrigerators. Whirlpool alone, apparently, accounted for nearly 80,000. More recently, a leading marketer gave away fridges for free, along with purchases of Akai TVs. But the freebies ended up at the dealers, as customers didn't want to duplicate their existing fridges. Result:dealers offloaded them at prices lower than the company's, and these units ended up competing with the company's own stocks.

In comparison, G-GE preferred to shut down its factory for a few weeks in December-January to control inventories. "We made sure not to pump in stocks till the dealers asked," states Crishna. So while others had to pamper the trade by giving ridiculous credit periods—even beyond 90 days in some cases—G-GE managed to contain it within 20-30 days. "This could differentiate a winner from the others, as the margins on fridges have reduced to less than 3 per cent overall in the past 18 months," admits a rival.

This couldn't have been easy, considering that the company had just invested Rs 120 crore in two new plants, a five-lakh-unit refrigerator plant and a three-lakh unit washing machine plant. And the cost of funds was debilitating.

Help from rivals was forthcoming too. When US giant Whirlpool bought the company that made Kelvinator fridges, it lost the Kelvinator brand name to Swedish giant Electrolux, which has an as-yet small presence in India. As Kelvinator's supply dwindled, and with customers unfamiliar with the Whirlpool name, Godrej moved in aggressively. BPL, which was till sometime back seen as a benchmark for consumer durables, has been performing indifferently. This financial year, G-GE quietly moved its prices up to a little more than BPL, staking claim to the industry-standard position.

Of course, this was possible only due to the focus on product development initiated in 1995, an exercise Crishna did not budge from, despite a poor market. G-GE has bulldozed headlong into the higher-profitability frost-free segment, hitherto virtually ruled by BPL. This Diwali season—when most of G-GE's sales of 4.45 lakh units occurred—the company claims to have notched up a 40 per cent share, which it is confident of holding on to.

Further, the company claims to have reduced production costs by over 6 per cent by redesigning functions right from improving product design to deploying people differently in the plants. It has entered into agreements with companies like Philips and Dunlop for return loads on G-GE's massive 90-truck fleet to fights inflation and take care of rising fuel costs. Together, these factors have fattened up margins considerably.

The company has also entered two smaller businesses—air conditioners and cooking ranges. G-GE sold about 52,000 washing machines by October: close to an 8 per cent marketshare. It hopes to notch up over 10 per cent by the year-end. Long-term aim: to move from being a single-product company to a multi-product home appliance marketer.

But G-GE is not one to rest on its laurels. It has been struggling to better its after-sales and customer service (facets crucial to consumer durables) for two years now. Client lists are fed into computers; technicians move around with pagers to reduce response time, operators at the Intelligent Care Centre, Mumbai, tackle most consumer queries, (modelled after GE's consumer care system).

Naturally, G-GE has reason to believe that the worst is over. Even the rosiest market growth scenarios will not need the company to invest more in manufacturing for the next couple of years. Though funds have continued to be expensive this year, Crishna is confident of clearing all debts by the year-end. G-GE is getting into consumer financing under the Godrej name, exploring rural markets and enhancing its product range. But as of now, Godrej-GE looks like the only consumer durables company moving full steam ahead.