Indian decorative paints market is oligopolistic in structure where handful of players control most of the market. In fact, top four players account for nearly 80% of organised market for decorative paints in the country (organised market account for nearly 65% of the total market). Of the total organised market, Asian Paints, the market leader, accounts for more than half of the market share. Though paints business is not a technologically intensive business not too many players could make it to the business successfully in the past.
However, since last two years situation is changing with two business houses announcing their plans to enter the paints business. Interestingly, both these players, JSW and Grasim, are already recognised players in the building materials industry.
Past failures not due to entry barriers
Traditionally paints business has some entry barriers thus making the entry of new players difficult. However, past failure of the new entrants was not entirely due to so called entry barriers but due to the limitations of the new entrants. In case of MNCs, it was the restrictive policies of the parent company and in case of others, it was due to charting product portfolio without proper study and analysis of Indian markets.
But hurdles are there
Nevertheless, decorative paints business has some hurdles, if not barriers, in the form of dealer driven market, constraints posed by tinting machines and strong brand name of the existing players. Each one factor by itself may not be a major constraint but when they present themselves in unison may form a formidable barrier.
Tinting machine was a game changer
Tinting machines are of recent origin but they have changed the way paints are distributed and marketed. In olden days (when tinting machines were not in vogue) a dealer had to maintain the inventory of all the shades with him. In other words, if a paint manufacturer manufactures, say, 100 shades, the dealer had to carry inventory of all 100, or at least a large majority of the fast-moving ones. If a particular shade is out of stock, the dealer had to place orders with the manufacturer and procure it from him leading delays or ‘produce’ himself by mixing certain shades manually which may not produce the perfect end product.
However, with the advent of tinting machines this problem at the dealer level is sorted out. Because of tinting machines paint manufacturer need to manufacture only a few base shades and a few colorants, and the dealer could produce thousands of shades with the help of the tinting machine. In other words, tinting machines have reduced the inventory level at the factory and dealers’ level while increasing the number of available different shades for the consumer. Thus, tinting machines have become an indispensable marketing and distribution tool for present day paint manufacturer.
Tinting machines have some limitations
But tinting machines too have their own set of limitations, the main being the cost associated with the machine. Tinting machines consume lot of space, at least 80-100 sq ft and in major cities this will put an additional burden on the capital cost of the dealers. Further, tinting machines cost Rs 1.5-2 lakh thus putting additional financial burden on dealers. However, some manufacturers are offering tinting machines free of cost or at concessional rates just to incentivise the dealers.
Machines can be manipulated
However, tinting machines, the ones which are manually operated, are no longer an entry barrier as some dealers have developed skills over the years to produce any particular shade of any paint company, irrespective of which company’s tinting machine he has. Though this practice is not widely prevalent in the industry, it shows that tinting machines may soon lose their status as entry barriers.
This kind of manipulation is possible even in the case of automatic tinting machines. Experienced dealers know exactly what combination of a company’s colorants will provide a particular shade of another company.
Despite whatever is said about tinting machines today (and may be for next few years at least) these machines will act as a barrier especially for the new entrants as the dealers will be hesitant to invest huge money in case of new brand. Therefore, new entrants like Grasim may have to think of ways to deal with issue of tinting machines.
Branding plays an important role too
No doubt branding too plays an important role in influencing the consumers decision. In fact, top paint manufacturers are one of the largest spenders on advertising and publicity.
Grasim feels already at home with the paints industry as the company is a leading brand in white cement and putty business. The company (through its subsidiary, Ultratech) presently has 54000 dealers of which 38000 are selling paints also. The company plans to leverage this distribution network strength to market paints. But Grasim is not going to bring Ultratech’s white cement business under its umbrella.
Still some experts and analysts are sceptical about the plan. While Grasim is present in paint outlets via white cement and putty, that is a rather small part of a paint outlet’s sales and therefore, the presence is not very strong. In other words, out of the 38000 paint cum white cement dealers, many may not opt for the dealership of the new manufacturer unless the offer by the latest player is very lucrative.
On the other hand, Ultratech Cement, Grasim’s subsidiary and the largest cement manufacturer in the country, also has “UltraTech Building Solutions” division with a network of 2,300 outlets and plans to double it over net 3-4 years. This may also help Grasim initially. Also, relationship with real estate developers (through Ultratech Cement) may help Grasim to gain share in project business.
So interesting times are ahead, both for paint manufacturers and consumers. Competition will increase efficiency resulting in competitive prices and frequent new product inventions. Also, it will help the market to expand. It may be too early to say who will win or lose in this battle but the consumer will be the ultimate gainer.