Godrej Appliances Ltd has found a new channel for growth—its exclusive brand outlets in small towns. According to a senior company executive, Godrej hopes it will generate at least 10 percent of the group’s overall revenue in 2 years.
At present, the company gets just about 3-4 percent of its revenue from these exclusive brand outlets in tier-II, tier-III and tier-IV cities. Godrej does not have exclusive brand outlets in metro cities or tier-I towns.
The concept of setting up exclusive brand outlets came up following slower growth in metro cities and tier-I towns in 2015-16 which followed demonetization that impacted sales further. For growth, Godrej planned to go deeper in smaller towns and semi-rural markets.
“We realized there’s a huge market left untapped and the traditional distribution does not sell anything beyond the entry-level products. The exclusive brand outlets (EBO), established through franchisee, is a success. The most interesting part is, about 40 percent of sales at these EBOs come from premium appliances,” said Kamal Nandi, executive vice-president and business head of Godrej Appliances.
At present, Godrej has 85 such EBOs, which the company wants to increase to 200 in 2 years, Nandi said, adding small towns in states such as Bihar and Uttar Pradesh are growing faster.
“Demand for premium products, such as 450-litre to 600-litre refrigerators and front-load washing machines, is higher in these tier-II to tier-IV towns, compared with the metro markets. The economy there is backed by agriculture and the expected good monsoon will further boost that. What we need is to make premium products more accessible in these smaller cities,” Nandi said.
To support the demand for premium products, Godrej has invested Rs 400 crore to ramp up production at its factories in Mohali in Punjab and Shirwal in Maharashtra. The company has increased its capacity of washing machines production to 600,000 units per annum from 400,000 earlier.
Currently, Godrej makes 1.7 million refrigerators and 400,000 semi-automatic washing machines, 2.7 million compressors for refrigerators annually.
With the fresh round of investment, the capacity will now go up to about 3.75 million home appliances—3 million refrigerators, 600,000 washing machines and 150,000 air conditioners per annum at its Mohali and Shirwal factories.
Godrej Appliances reported revenue of around Rs 3300 crore in fiscal year ended March 2017, and aims to cross Rs 6000 crore by 2020. “This capex investment is in line with our vision of being among the top 3 in the Indian appliance industry by 2020,” Nandi said. –Livemint