Vapi is a two-hour train ride from Mumbai. This small city in Gujarat with a population of 160,000 people once used to be in the news for its worrying pollution levels. More than that, the city is also known for its enterprising business community with high levels of disposable income. But like in many non-metro cities of India, that money is not always visible.
About a year ago, the management of Saint-Gobain India caught a glimpse of this wealth when they received a request for a quote from an individual in the city for doing up his home. The requirement included shower enclosures, doors and sliding shutters, among other fitments, and the amount to be spent was a not-so-small Rs 20 lakh.
Narrating the story, B. Santhanam, CEO of Saint-Gobain, Asia-Pacific and India Region, and Chairman of the Indian business, says that the company’s foray into the B2C (business-to-consumer) space was driven by an opportunity observed in the home improvement segment coupled with its own strengths in the areas of designing, manufacturing and distributing various home improvement products. Apart from Saint-Gobain India, the group’s only unlisted entity in India, its operations also include Grindwell Norton and Saint-Gobain Sekurit India—all operating in the B2B (business-to-business) space. Now, a strategy to get a chunk of the B2C market in India by way of home improvement solutions is underway. The group currently provides solutions in the form of products such as windows, shower cubicles, kitchen and wardrobe shutters, ceilings and roofing products and mirrors, among others.
Across its three companies in India, the revenue for the current calendar year is expected to be Rs 12,000 crore. The target for 2030 is set at Rs 30,000 crore, which will be a steep 2.5x jump on an already large base. Today, just 5 per cent of the group’s revenue comes from the B2C business, and on a larger revenue base, that proportion will increase too.
Sounds Like a Plan
Sitting in his office at the company’s World Glass Complex (WGC) located in Sriperumbudur that is about an hour’s drive from Chennai, Santhanam speaks of how the need to get into consumers’ homes was an idea conceived around a decade ago. A company lifer (he joined Grindwell Norton in 1980 before it was acquired by Saint-Gobain in 1996), he outlines the challenge quite succinctly when he says, “We knew it had to be done but did not know how to go about it.”
The sprawling campus, spread across 177 acres on the Chennai-Bengaluru highway, provides an interesting backdrop for this conversation, interspersed by the chirping of birds. The French major, with a global turnover of over €44 billion, has put in place robust facilities for rainwater harvesting and other sustainable measures. With a somewhat rueful smile, Santhanam explains the challenge of completing an order and what normally transpires between the time an order is received and when it is completed. “You have the fabricator coming over to take measurements and then he will go to the dealer for the glass. That is only the beginning of a long and often arduous process,” he says.
To him, the entire value chain is unorganised and messy but digitising it is a must. To that end, about two years ago, Saint-Gobain rolled out the first My Home physical store in December 2020, with 38 more having come up since then. The model is quite simple. The store is run by an individual with an understanding of the home improvement business while the company supplies the finished products. At the core of this is the philosophy of convenience, which of course, comes at a cost. How does one convince the value-conscious Indian consumer to pay that extra amount? “If I remove the pain points, then my product will be easily accepted,” says Santhanam. In today’s scenario, he explains, it is anything but easy to get a plumber and electrician to your home at the same time, which leads most Indians to look for a value proposition. “If the issue is one of time and I can offer a quality product at your doorstep, the consumer will definitely pay for it,” he says.
We have a deep understanding of material science with a focus on sustainability and a huge brand recall
India is a high-growth market for Saint-Gobain and the company is on track to invest Rs 6,000-8,000 crore between 2021 and 2025, with a large part marked for greenfield and brownfield expansions and a small chunk on acquisitions. The B2C business will also see considerable investment. Around half of its existing business comes from glass and glass solutions and another 25 per cent from gypsum solutions and construction chemicals. Ceramics and refractories bring in 10 per cent, as does surface solutions, with 5 per cent being accounted for by life sciences.
Shajai Jacob, MD & Country Head of ANAROCK Group Business Services, points out that at least 80 per cent of the overall real estate demand comes from residential, with the rest 20 per cent being commercial, which includes office space, retail, hospitality and warehousing. “The trend of discerning, demanding and aspirational consumers is more evident than ever before. One is seeing demand for premium brands from cities like Lucknow, Jaipur, Indore, Aurangabad, Mangaluru, Kochi and Coimbatore,” he says.
To explain this transition, he points to how Jaquar was a premium bathroom fittings brand a decade ago. “Today, the brand is a hygiene requirement for most washrooms and consumers. The reasons for this are higher disposable income and savings as well as reverse migration especially into Tier II centres,” Jacob says. The latter is an accelerated result of the pandemic, he adds, with those moving out of metro cities wanting the same product quality that they had while staying in Delhi or Mumbai.
So, just what kind of numbers are we speaking of here? There are around 4 million homes built in India each year. Santhanam says even if the company manages to service 10 per cent of that (around 400,000 units), it would throw open a significant market. Assuming that an average of Rs 3 lakh is spent on each house, it adds up to revenues of Rs 12,000 crore annually. “Higher disposable incomes mean a lot more will be spent,” he says, while quickly pointing out that Saint-Gobain is well-placed to take advantage of the B2C opportunity. “We have a deep understanding of material science with a focus on sustainability and a huge brand recall. Besides, there is an unorganised value chain where digital can be of great help.” The change in the consumer’s mindset from looking for brick, cement, steel and labour will be about wanting a solution. Of course, all this means that Saint-Gobain will now deal with the end consumer without any third-party intervention.
Interestingly, the move from B2B to B2C is not new in India. Analysts say there is sound business logic for players to do that. “There is limited growth from a single product category or a single business channel. To realise further growth, a firm has to either widen its product portfolio or build multiple distribution channels. Besides, getting closer to the consumer helps businesses in product innovation based on direct feedback,” says Harshit J. Kapadia, Vice President at Elara Securities. He cites the example of HSIL, owners of the Hindware sanitary ware brand, that launched Hindware Appliances. “When it comes to profitability, the margins in the long term for a B2C channel are higher than what one sees in a B2B business,” he adds.
While the opportunity looks significant, it is not devoid of challenges. Kapadia says that management bandwidth is taken away in managing a B2C business or in creating a new one. “Ideally, there should be a separate team for the B2C channel. Besides, a company needs to get the right channel partners and offer the right incentives apart from constantly innovating products when it comes to B2C,” he says.
More than 95 per cent of it (the home improvement market in India) is unorganised and serviced by independent interior designers, contractors and labourers
CO-Founder & CEO
Digital All the Way
Last November, Saint-Gobain picked up a minority stake in Livspace, a digital-first intermediation platform that offers end-to-end solutions for home interiors. “We bring the expertise and solutions, while Livspace has built up relationships with its customers,” says Santhanam. Today, Livspace, that turned unicorn this February, serves around 25,000 homes annually in India and counts the likes of Ingka Group Investments, Jungle Ventures, Venturi Partners and Peugeot Investments among its investors. Meanwhile, Saint-Gobain’s investment in Livspace will allow the French major to pick up insights into consumer behaviour, technology and supply chain while also promoting its solutions under the Saint-Gobain brand.
“One of the lesser talked about aspects of the pandemic is an increase in disposable income. A part of this discretionary spending, especially for homeowners, has gone towards home renovation projects—to improve the new ‘home office’,” says Saurabh Jain, Co-founder and CEO of Livspace India. It’s not just the workspace where the money is being spent. “There has been significant interest in renovating specific spaces such as the balcony area, kitchen, and wardrobe; more specifically in the non-metros. In an average home, modular solutions make up over 50 per cent of the renovation spending, with that number being higher in non-metros,” he points out.
This spending is quite marked when one looks at homeowners moving into new apartments and high-rises. Jain estimates the size of the home improvement market in India to be at around $30 billion. “More than 95 percent of it is unorganised, serviced by independent interior designers, contractors, and labourers,” explains Jain. On the issue of the accelerated adoption of tech across consumer segments, he maintains that there has been a substantial shift in an industry known to be high on touch and feel. “Today, we see customers comfortable with virtual collaboration visualising their homes in 3D and selecting materials through an e-commerce-like material listings. In fact, two out of three of our new orders originate through virtual collaboration.”
There is limited growth from a single product category. To grow further, a company has to widen its product portfolio or build multiple distribution channels
HARSHIT J. KAPADIA
Livspace gives Saint-Gobain a foothold in the apartment segment but a larger market lies in wait for them. Hemant Khurana, Executive Director, Saint-Gobain India (Home and Hospitality Business) speaks of how satellite maps are now being used by the company to identify high-density residential clusters, both in the premium and non-premium segments. “That is the starting point. Through digital [tools], we can use public data to look at those who have applied for a licence in the hospitality business or RERA (Real Estate Regulatory Authority), which tells you at what stage of construction a building is apart from its detailed drawings,” he elaborates. According to him, Tier III and IV centres have a large number of independent homes—a potential market for the firm. “The home loan disbursals in these locations account for 35-40 per cent of the total,” he adds. ANAROCK’s Jacob sees merit in Saint-Gobain’s strategy and sees high levels of latent demand in Tier II and III centres. “These areas are quite underpenetrated with premium offerings and the move from a more commoditised scenario to one led by a preference for brands is already underway,” he says.
In the end, it is a question of picking the right adjacencies and by the looks of it, Saint-Gobain has its hands full, at least for a while. “Even if we stick to what we are good at and don’t get into something like plywood or lighting, we will be on course to hit the revenue numbers,” says Santhanam. India has seen the foray into adjacencies such as that of Havells India which went from cables and wires to switches, fans, appliances, etc. “Other examples include Polycab India or Crompton Consumer via the acquisition of Butterfly Gandhimathi, Orient Electric’s foray into switchgear and lighting, Jaquar launching lighting products or Asian Paints venturing into home décor and furnishings. These adjacencies have helped companies register double-digit growth and enhance the valuation multiples,” says Elara’s Kapadia.
A cautiously optimistic Santhanam admits that the road ahead will not be easy, but B2C is a path Saint-Gobain India must take. “If we don’t, someone else will,” he says in all seriousness. The next chapter of the French major’s India story seems interestingly poised, and could very well be growth beyond glass.