Competition Commission of India (CCI) recently ordered a probe against Asian Paints (APNT) for unfair business practices based on evidence provided by JSW Paints. CCI has instructed the Director General to investigate the case and submit report in 60 days. This incidence shows why not many players have been able to make it big in Indian paint sector which is a $9 billion industry.
After three years of investing in building up the business and spending sums of money on its brand, JSW Paints launched its decorative paints in May, 2019, in Bengaluru and Hubli. JSW Paints launched its products in Kerala (Kochi and Kozhikode) in June, 2019, Telangana (Hyderabad), and Tamil Nadu (Chennai) in August, 2019. However, JSW Paints has complained to CCI that immediately after its launch of decorative paints, Asian Paints began pressurizing dealers who had agreed to stock and display decorative paints manufactured by them. Asian Paints targeted dealers/distributors/retailers partnering with JSW Paints directing them to stop dealing with JSW Paints, stopping supplies to these dealers, dropping service levels by delaying supplies and deliveries, asked dealers to remove display of JSW Paints products from their retail shelves and dealer signboards, threatened dealers by not allowing discretionary discounts, not inviting them for trips and loyalty schemes, etc. Asian Paints did this through its sale personnel in the relevant regions. Such conduct has been alleged to have created fear amongst retailers/dealers, as a result of which a number of them stopped dealing with JSW Paints.
JSW Paints is stated to have faced problems in the States of Karnataka, Tamil Nadu and Telangana, so far. JSW Paints had planned to launch its products in more states and cities in South and West India like Andhra Pradesh, Goa, Maharashtra, Gujarat, etc. in the ensuing months and also introduce its products to dealers in upcountry towns, supplying from its warehouses in larger towns. It, however, believed that it would be denied access to dealers even in these states in the absence of intervention by the Commission and would face the same resistance in other regions as well due to coercive action taken by Asian Paints against the dealers.
Pressure tactics by the market leader
In addition to above mentioned acts against the dealers, Asian Paints allegedly also pressurised enterprises that provided infrastructure facilities like warehouses to JSW Paints to not keep products of JSW Paints. In an instance cited, the enterprise that provided warehouse facility rescinded the contract with JSW Paints on account of Asian Paints requiring it to choose between Asian Paints and JSW Paints. It has been alleged that the sheer volume of business given by Asian Paints and the potential loss in revenue resulted in the enterprise succumbing to the pressure of Asian Paints. The rescission of contract with JSW Paints led to delay in the launch of JSW’s products in Hubli, which resulted in loss of revenue, reputation and credibility.
Wide network a pre-requisite for success
Despite the advent of e-commerce most of the sales in decorative paints is till happening in conventional manner and therefore, wider and larger dealer network would ensure larger market share. That’s why Asian Paints has 60,000 dealers and 135 depots across the length and breadth of the country. The next competitor is Berger Paints at second place with 25,000 dealers and 129 depots.
Market leader has done it in past too
Past experience says that Asian Paints has the history of making the life of new entrants difficult. For example, Asian Paints had taken punitive action against a dealer in the past on account of its decision to stock and sell paints manufactured by Nippon Paint India Private Limited. In the year 2015-16, Nippon had attempted to enter the decorative paints market in Chennai. Asian paints is believed to have resumed its supplies only after the dealer agreed to cease business relations with Nippon.
Why JSW is a threat
Unlike other players like Nippon Paint, JSW is a local player with deep pockets. Also, JSW is gaining foothold in building materials sector through JSW Cements. In fact, JSW Cements is making its presence felt in South Indian market by appointing dealers even in tier 4 cities and that too in a short span of time. Thus, it may not take much time for JSW Paints to gain foothold in decorative paints due to its past experience. Further, JSW is reportedly offering 3-5% higher discount to the dealers which may help the brand to attract more dealers.
The industry is going through a critical phase where unorganised sector is losing its market share to bigger players in the formal segment. In such a situation, it would be much easier for the newcomer to gain a foothold. However, everyone wants a share in the unorganised market pie to increase their own share. So, there is competition to grab this share which is also leading to restrictive practice.