When you hear 'paint', what brands come to your mind?
Asian Paints, Berger, Indigo, Nerolac, Dulux. And the list just stops there, right?Ā
The decorative paints sector is a large Rs.40,000 crore market. Yet, only a handful of players dominate the industry. Why? Didnāt someone ever try challenging this status quo?
Oh! A storm is brewing in this sector. A storm that can change the face of this industry anytime now.
Hereās the gossā¦ Read on!
There are multiple ways to grow a company. One way is to capture the increasing market demand for your product. Yet, another way is to introduce another product that complements your original one.Ā
Say if you are selling cement and putty, you also start selling paint. After all, if a customer is building a house, they will also need to paint the house at some point in time, right? This is called ācross-sellingā.
You already have distribution channels established. You already have customer trust. You already understand your customers and their needs. All that you have to do is start selling paints!Ā
And, thatās exactly what the Jindals and Birlas are eyeing.
JSW, which has a strong foothold in the construction industry, set its foot in the paint industry in 2019. It recently attracted an investment of $100 million and will soon roll out its distribution pan India.
You think it'll be all easy for JSW, right?
Nuh-uh. And here lies the answer to why only a few players dominate the paint industry.
Big established players like Asian Paints are exploiting the strong relations that they have established with dealers across the country.Ā
This is what JSW claims: If dealers agree to stock JSW Paints then Asian Paints is warning the dealers of cutting their ties with them. As a result, many dealers backed out from dealing with JSW Paints.
The problem became so worrisome that JSW had to register a complaint with the Competition Commission of India against Asian Paints.
But, that wasnāt the only issue.
Another tricky technicality that created an entry barrier in the paint industry. A machine called automatic tinting.
Companies have over 1000 shades of paint. Do you think they manufacture all of those?
Naah. Let us take you back to your first-grade art class.Ā
Remember how there were only 3 primary colours? All other colours could be produced by mixing these 3 in different proportions.
Similarly, these paint companies also have to produce only a handful of shades. The distributors then use something called a tinting machine to mix. And, voilĆ ! Thousands of shades at their disposal.
But this method also has some challenges.
To begin with, tinting machines vary from brand to brand. It wonāt work out if you use one brandās machine to mix colours of other brands. So the distributors have to invest in machines of multiple brands.Ā
And mind you, they are expensive and occupy large spaces. So a distributor might not commit to a brand if they donāt see the demand for it.
JSW solved this problem by building a model where they created those tinting hubs near every dealerās place so that the dealers donāt have to think twice about partnering with them.
Brilliant, no?
While the incumbents were busy keeping JSW at bay, there was a storm in making by another big name.
Aditya Birlaās Grasim industry is foraying into the space. And it is going all-in with an investment of Rs. 5,000 crores in the next three years.
Its investment plans make it the second-largest player in the industry. Birlaās UltraTech Cement already has the second-largest distribution network in the paint industry.
But, arenāt you thinking, why is the paint industry getting so much fanfare?
Hereās the deal:
The industry has been growing at a stupendous rate.
It doesn't stop here. The industry is predicted to grow even faster, owing to urbanisation. Tier-two, tier-three cities, and the rural areas still use old traditional techniques for paintings. This market is yet to be penetrated.
Another important factor is repainting. Repainting constitutes ~70% of the demand in India and its cycle has shortened from 7-8 years about a decade ago to 4-5 years now.
So, itās not the end of the tale for the Indian paint industry yet. Rather, itās just the beginning!
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