Abstract:

The case examines the evolution of a small regional player - CavinKare Pvt. Ltd., from a one-
product company to a multi-product company with nation-wide presence in the fast moving
consumer goods (FMCG) industry in India.

It discusses in detail the brand-building, promotion and distribution strategies adopted by

CavinKare, which enabled its product brands to compete directly with market leaders such as
HLL, P&G, Godrej and Henkel successfully.

The case traces the launch and growth of CavinKare's successful brands such as Chik, Nyle,
Meera, Fairever and Spinz.

It also discusses the company's brand extension efforts and takes a look at the company's
entry into other segments of the Indian FMCG market in the early 21st century and critically
analyses the rationale for this move. Finally, it explores the future of the company in the light
of increasing competition in the FMCG market and its limited resources in comparison to
FMCG majors such as HLL, P&G and Henkel.

Issues:

• Innovation, brand-building, pricing and promotion for the success of a product,

Diversification

Cavinkare in the Food Business

In November 2003, the Chennai-based CavinKare Pvt Ltd. (CavinKare), the Rs 2.64 billion
(bn) hair, skin and personal care company, announced the acquisition of the Andhra Pradesh-
based Ruchi Agro Foods' pickle brand, 'Ruchi,' for Rs 150 million (mn).

The acquisition also included the Ruchi Agro Foods' pickle manufacturing plant (with a
capacity of 130 to 150 tonne per month) and machinery in Gudur, Andhra Pradesh. Ruchi
was the first major brand acquired by CavinKare, since its inception in 1983. The acquisition
was aimed at boosting the branded food business, which the company had entered in
September 2003, through its Chinni's brand of pickles.

The 'Ruchi' brand was the market leader in Tamil Nadu (a Southern state in India) and was
also a major player in other states in South India. The brand was expected to give CavinKare
a firm footing in the food market in the region. According to sources in CavinKare, the
"Ruchi" brand would be promoted as a premium brand, while "Chinni's" would cater to the
mass market.

CK Ranganathan (Ranganathan), chairman and managing director, CavinKare said, "The

price of Chinni's is half that of Ruchi and we will position both brands to capture the entire
market and also take Ruchi nationally."2

CavinKare, which began as a small regional player in the early 1980s, emerged as major fast
moving consumer goods (FMCG) player in India in the early 21st century, competing directly
with multinational companies (MNCs) like Hindustan Lever Limited (HLL)3 and P&G Home
Products Limited (P&G)4, in various product segments like skin, hair and personal care.
However, analysts wondered whether CavinKare would taste similar growth and success in
the food business.

Background Note

CavinKare was founded by Ranganathan in 1983, with a modest capital investment of Rs

15,000 and with a single product. The company was called Chik India Pvt. Ltd., and its
product was Chik shampoo. The company targeted the local market and within a few years
emerged as a leading regional player in the shampoo market in South India.

CavinKare's strategy of outsourcing manufacturing activities was a major reason for its
success. It helped the company to keep the costs low and allowed it to focus on marketing
and distribution. Commenting on this, Ranganathan said, "The concept of exclusively
outsourcing our manufacturing operations resulted in lower overheads, while ensuring all the
advantages of in-house manufacturing operations.

We associate with people of similar wavelength in thinking - who will definitely take care of
quality first and foremost - and besides, we have a strong system of quality monitoring. This
is part of our strategy.

We lay down all the ground rules for the manufacturers in maintaining our standards. This
helps us in being nimble and agile."5 Outsourcing was one of the three cardinal rules of
CavinKare's corporate strategy (See Table I for Cardinal Rules of CavinKare's Corporate
Strategy).

In 1990, CavinKare changed its name to Beauty Cosmetics, in line with its decision to
establish itself as a national player. The company hired professionals in various business
areas such as R&D, sales and distribution and expanded its network beyond South India.

In 1993, the company entered the non-cosmetic segment, by founding Packaging India, a
wholly owned subsidiary, to manufacture polymer and packaging material for in-house
consumption and for sale.

By 1995, Packaging India began exporting to countries such as the US, Nigeria, Bahrain,
UAE, Taiwan, Nepal, Bangladesh and Sri Lanka.

Between 1991 and 1998, CavinKare launched five product brands - Meera Herbal Wash
Powder (1992), Nyle Shampoo (1993), Spinz Perfume (1997), Fairever Fairness Cream
(1998) and Indica Hair Dye (1998). In 1998, the company adopted its present name,
CavinKare Pvt. Ltd., to signify its change from a single-product company to a broader FMCG
company, encompassing various market segments such as hair, skin and personal care...

Excerpts

The Marketing Strategy

CavinKare's brand-building, marketing-mix and distribution strategies can be
better understood by examining the marketing strategies of its six most
successful product brands - Chik, Meera, Nyle, Spinz, Indica and Fairever.

Chik Shampoo

In 1983, when CavinKare decided to launch its first product - Chik shampoo, the
shampoo market had over 200 players with HLL being the market leader with its
Clinic Plus brand, which was positioned as a health shampoo...

Meera Herbal and Nyle Shampoo

In 1992, CavinKare identified good potential for herbal products in the hair care
market. The company launched Meera Herbal wash powder in 1992 for the
benefit of traditional customers, who used herbal powders at home to wash
hair...

Brand Extensions & Business Diversification

Apart from building many strong brands, CavinKare also introduced brand
extensions whenever it identified a category where such a move might serve the
purpose better than a new brand. Through the 1990s, the company came up
with many brand extensions such as Meera Shampoo, Nyle Wonder, Nyle
moisturizing lotion, Nyle cold cream, Chik toilet soap, Chik Kali Mehendi, Chik
talc, Spinz talc, Spinz deodorant, and Meera soap...

The Future

By early 2004, CavinKare succeeded in positioning itself as a company with a

national presence, breaking its 'South Indian' company image. It was rapidly
growing in other parts of the country.

By this time, the company had significantly increased its revenues from non-
herbal products, as a result of which, in the fiscal year 2002-03, herbal products
accounted for 40% of its revenues. The rest came from various other businesses
and synthetic product categories. CavinKare reported revenues of Rs 2.63 bn for
the fiscal year 2002-03...

Success is a journey not a destination. CavinKare began with a young mind choosing the road less
taken. In 1983 with a single product, CavinKare started out as a small partnership firm. The Company
that began its journey as Chik India Ltd was renamed as CavinKare Pvt. Ltd (CKPL) in 1998. With
innovative Entrepreneur C.K. Ranganathan at the helm, CavinKare emerged into a successful
business enterprise.

Today, CavinKare, having established a firm foothold in the national market, is increasing its
popularity in the international arena. A dedicated Research & Development centre, equipped with
latest equipment and technologies, constantly supports the various divisions in their endeavour. The
Company, which primarily relied on contract manufacturing for many years has now set up its own
world class plant at Haridwar to cater to the demand of both domestic and international market.

CavinKare has touched a turnover of over 700 Crores INR in 2008-2009. The Company has
employee strength of over 1000, and about 25 lakh outlets nationally. CavinKare's astute
professionalism, innovative products and consistent quality are results of its significant corporate
practice.

“ To succeed we believe that we need total commitment and highest standard of ethical and corporate
behaviour in order to provide the best for our consumers, stakeholders and employees”.

CavinKare sets up own distribution arm

Parallel set-up helps scale up reach; co to post best ever growth this quarter.

Mr C.K. Ranganathan, CMD, CavinKare

Vinay Kamath
R. Ravikumar

Chennai, March 16 The Chennai-based FMCG major CavinKare Pvt Ltd has set up its own distribution arm under
a group company called Hemalatha Enterprises Pvt Ltd with over 700 people on its rolls. However, the company
will not totally move away from the existing traditional distribution system. “The new set-up will run only as a
parallel distribution system in the market,” said Mr C.K. Ranganathan, Chairman and Managing Director of
CavinKare.

According to him, there is a phenomenal potential yet to be tapped in the market, and the company seems to
lose out in the existing set-up. “If the distribution system gets better equipped with necessary technology, enough
manpower and logistics support, our products can reach more outlets in time,” he explained.

The company has developed an “exclusive software” for the purpose and has invested in other logistics support
systems such as transport and manpower. It has recruited over 700 people from rural and semi-urban areas and
trained them in the system. “As this would involve heavy investment, some of our existing distributors are not
willing to upgrade. So, we had to create the new distribution outfit on our own to run as a parallel system in big
cities and towns such as Chennai, Puducherry, Kadalur, Dindivanam, Coimbatore, Erode and Madurai,” says Mr
Ranganathan.
In addition to making business transactions more transparent and efficient in terms of billing and order
placements, the new software “will also facilitate generating lots of data for us to work backwards effectively,”
said Mr Ramesh Visvanathan, Executive Director, CavinKare. According to him, though this is investment-
intensive, it will prove worthwhile as the company’s sales improve over a period. While CavinKare brands reach 8
lakh outlets now, this alternative distribution system will help scale up reach to two million outlets. In the
meantime, CavinKare is all set to post 23-25 per cent growth in the last quarter of the current fiscal and expects
to go past the Rs 700-crore mark in turnover. “We expect this to be the best ever quarter for the company,” says
Mr Ranganathan. In the first three quarters of the current year, CavinKare posted 15 per cent, 17 per cent and 20
per cent growth over the corresponding quarters of the previous year.

Mr Ranganathan attributes this to robust demand from the rural space. For CavinKare, its Chik shampoo is the
flagship product with an almost 19 per cent market share nationally in 2008 (second to HUL’s 39 per cent share
for its Clinic Plus). Eighty per cent of the shampoo market comes from sachets, while for CavinKare it is a little
higher, at 83-85 per cent. The shampoo category saw strong volume growth of 16 per cent in 2008 over the
previous year.

Talcum powder (Spinz, 11.5 per cent value growth), deo sprays (Spinz, 51 per cent growth) and hair colour
(Indica, 23 per cent growth) also did well this year, he says. Volume growth for fairness cream brand Fairever
was muted, under one per cent, though it grew at 13 per cent in the Tamil Nadu market in the past year.

In this financial year, the company has so far invested close to Rs 180 crore in capacity expansions at various
facilities and acquisitions (it acquired fruit drink brand ‘Maa’) and setting up of facilities for new businesses such
as its milk brand Cavin’s.

COMPANY OVERVIEW

CavinKare Pvt., Ltd. manufactures and markets personal care and food products. Its personal
care products include ethnic care, skin care, and home care products, as well as hair care
products, including coconut oil; and food products include pickles, vermicelli, and peanut
candies. It markets its products in India, Nepal, Sri Lanka, Malaysia, Singapore, Bangladesh,
the United States, and the GCC region. It was formerly known as Chik India Ltd. and
changed its name in 1998. The company was founded in 1983 and is based in Chennai, India
with a plant in Haridwar, India.

CavinVille

No.12, Cenotaph Road

Chennai, 600 018

India

Founded in 1983

Phone:

91 44 2431 7550

Fax:

91 44 2436 2879

www.cavinkare.com

KEY EXECUTIVES
Mr. C. K. Ranganathan

Founder

Compensation as of Fiscal Year 2009.

KEY DEVELOPMENTS FOR CAVINKARE PVT. LTD.

CavinKare Pvt. Ltd. Launches New Nyle Strengthening Shampoo

08/20/2009

CavinKare Pvt. Ltd. has announced the launch of its new range of herbal shampoos under the
pioneer brand Nyle. Keeping the hope of traditional herbal products through their constant
innovation, the company has come up with the new Nyle Strengthening Shampoo. The new
Nyle Strengthening Shampoo is enriched with Almond and Soya extracts, which are
considered to be the rich sources of protein. The combination of Almond and Soya extracts in
Nyle Strengthening Shampoo strengthens the hair and reduces hair breakage by more than
50% from 1st wash itself. Other brands offering similar proposition require consumer to use a
conditioner along with their shampoo, but Nyle Strengthening Shampoo delivers it without
use of any conditioner. Packaged attractively, the New Nyle Strengthening Shampoo is
available in 4 different pack sizes, starting from a 30 ml trial pack, priced at only INR 10. It is
available in Hyderabad, Bangalore and across the northern parts of the country.
CavinKare Close To Acquiring A Snacks Brand

08/5/2009

CavinKare Pvt. Ltd. is set to acquire a snacks brand for INR 0.50 billion. Mr. C.K.
Ranganathan, Chairman and Managing Director of CavinKare, said: “We are very close to
clinching the deal…it may happen within the next couple of weeks.” The Chairman did not
reveal any further details. As per sources, the snacks brand has a national footprint and based
in the western part of the country.
CavinKare Might Tap Capital Markets

08/5/2009
CavinKare Pvt. Ltd., which is eyeing achieving a turnover of INR 10 billion plus by March
2010, is looking to hit the capital markets. CavinKare Chairman and MD, C K Ranganathan,
said: “To acquire big brands that could cost INR 5 billion or so, CavinKare would tap the
capital market. For now, all investments would be funded through internal accruals and debt.”

When Cavin Kare launched Chik shampoo in the market, there was a severe competition in
the market. For a company, the so called “retailer” is the primary customer and obviously the
problem of margin arises. A study revealed that customers are purchasing velvette shampoo
repeatedly, since they are the pioneers in introducing shampoo in sachets and the customers
are not brand conscious. Hence Cavin Kare decided to enter into the competition to give
quality products and create an awareness about the brand “chik” among the target audience.
In 2003, Chik Shampoo was declared the winner of the best performing brand in 2003 by
AAAI, amongst the top ten brands in household availability.

Target Audience: Girls and women of rural and semi urban population of India

Flavours: Chik Black, Chik Jasmine, Chik Egg, Chik cool, Chik anti dandruff

Branding strategies:
Cavin Kare decided to give away one sachet of Chik Shampoo free for 5 empty sachets of any
shampoo brand and further extending this strategy in the next stage it restricted the free
shampoo exchange only for empty sachets of Chik.

Retailers too got benefited from the idea. Apart from the service charges Cavin kare also gave
retailers a Chik Sachet free for every 15 empty sachets they get from the consumer.
Cavin Kare also kept the prices of the brand higher than the rest of the shampoos in the
market, to maintain profits.
They advertised more often and hired well qualified professionals to compete with the
MNCs.
The iconic Chik Girl in every Chik Shampoo commercial showcased the possibility of soft and
manageable hair for the customers.

The inspiring success story of CavinKare

March 22, 2007 15:00 IST

C K Ranganathan, chairman and managing director of CavinKare, has shown the world it is possible to beat the
multinationals even in the most difficult market of fast moving consumer goods.

Ranganathan's journey, which started from a small town of Cuddalore in Tamil Nadu, has been an amazing
one. A business which he started with only with Rs 15,000 is now worth Rs 500 crore (Rs 5 billion).
He learnt the first entrepreneurial lessons from his father, Chinni Krishnan, who started a small-scale
pharmaceutical packaging unit, before moving on to manufacture pharmaceutical products and cosmetics.

In an interview with rediff.com, the CavinKare chief speaks about his inspiring journey.

His father, his inspiration

My father, Chinni Krishnan, an agriculturist, was also into pharmaceutical business. As I was poor in academics,
he wanted me to either do agriculture or start a business.

My siblings were good in studies -- two of them became doctors and another a lawyer. I was the odd one out.
While my siblings studied in English medium schools, I was put in a Tamil medium school. I used to suffer from
an inferiority complex because of my poor academic record.

Studies did not interest me, but rearing pets did. When I was in the fifth standard, I had a lot of pets -- more than
500 pigeons, a lot of fish and a large variety of birds. I used to earn my pocket money out of pet business at that
time. Perhaps, the entrepreneurial spirit in me showed its first streak.

The origin of the concept of sachets

My father died as I entered college. He had come out with the sachet concept a couple of years prior to his
demise. He felt liquid can be packed in sachets as well. When talcum powder was sold only in tin containers, he
was the one who sold it in 100 gm, 50 gm and 20 gm packs.

When Epsom salt came in 100 gm packets, my father brought out salt sachets of as low as 5 gm.

'Whatever I make, I want the coolies and the rickshawpullers to use. I want to make my products affordable to
them,' he used to say.

Selling things in sachets was his motto as he said, 'this is going to be the product of the future.' But my
father could not market the concept well. He moved from one innovation to another but never thought of
marketing strategies. He was a great innovator, but a poor marketer.

Joining the family business

After my father's death, my brothers took charge of the family business. In 1982, when I joined them after my
studies, they had launched Velvette Shampoo. Within eight to nine months, I left the business because my
ideas clashed with theirs.

As I was in the manufacturing unit, I did not know anything about marketing or finance. But, my inferiority
complex notwithstanding, I was somehow confident of doing business better.

Starting his own business with Rs 15,000

I had left my brothers saying that I did not want any stake in the property or business. That was a defining
moment for me. I had saved Rs 15,000 from my salary and that was all I had. Yet I was confident of achieving
success. I did not feel anything about riding a bicycle after having got used to cars.
For a week, I could not make up my mind as to what business to do. I knew only two things; making shampoo
and rearing pets. I didn't want to venture into the shampoo business as it would initate a fight with my brothers.
However, I decided to do the same later as I could only make shampoo.

I rented a house-cum-office for Rs 250 a month against an advance of Rs 1,000. I took another place for the
factory for a rent of Rs 300 a month and against an advance of Rs 1,200. I bought a shampoo-packing machine
for Rs 3,000.

How Chik Shampoo was born

I named it Chik Shampoo after my father. The product did not succeed immediately; we learnt many things during
the process. In the first month, we could sell 20,000 sachets and from the second year, we started making profits.

I moved to Chennai in 1989 but our manufacturing unit continued to be in Cuddalore. It took me three years to
get the first loan because banks asked for collateral. I did not have any. But one particular bank gave me a loan
of Rs 25,000 which we rotated and later upgraded to Rs 400,000, Rs 15 lakh (Rs 1.5 million), etc.

You know what the bank manager wrote in our loan application? 'This person does not have any collateral to
offer but there is something interesting about this SSI unit. Unlike others, this company pays income tax!'

I must say my business never looked back because I was very particular about paying income tax.

Strategies that made Chik Shampoo No. 1 in South India

When Chik entered the market, Velvette Shampoo was being marketed aggressively by Godrej [ Get Quote ]. But
a scheme of ours became extremely successful -- we exchanged five sachets of any shampoo for a Chik
Shampoo sachet, free.

Later, we altered the scheme -- we started giving one free Chik Shampoo sachet in lieu of five Chik Shampoo
sachets only. Soon, consumers started asking for Chik sachets only. The sales went up from Rs 35,000 to Rs 12
lakh (Rs 1.2 million) a month.

When we introduced jasmine and rose fragrances, our sales went up to Rs 30 lakh (Rs 3 million) per month and
with actor Amala as our model, our sales rose to Rs 1 crore (Rs 10 million) a month! Each idea of ours was
rewarded by our customers. There has been no looking back since then.

Our market share increased and in 1992, we became the numero uno in South India. It took nine years for me to
overtake my brothers' business.

How Chik Shampoo conquered the rural market

Multinational companies sold products in big bottles and not in sachets and they sold only from fancy stores.
They did not look at the small kirana stores, nor did they look at the rural market.

We went to the rural areas of South India where people hardly used shampoo. We showed them how to use it.
We did live demonstration on a young boy. We asked those assembled to feel and smell his hair.

Next we planned Chik Shampoo-sponsored shows of Rajniknath's films. We showed our advertisements in
between, followed by live demonstrations. We also distributed free sachets among the audience after these
shows. This worked wonders in rural Tamil Nadu and Andhra Pradesh. After every show, our shampoo sales
went up three to four times.

Today, the Indian rural market is growing at a pace double than that of the urban market.

Launching Meera Herbal powder

We continued with Chik Shampoo for seven years before venturing into anything else.

Meera Herbal powder was actually not our idea. Shaw Wallace [ Get Quote ] already had a herbal product but it
was marketed very poorly. We felt there was a demand for herbal products and we made a good product. I felt
we should be the leader if ours was a good product. And guess what? In the third month itself, we topped the
market. In six months, we had 95 per cent market share, while Shaw Wallace had only 4-5 per cent.

How Beauty Cosmetics became CavinKare

As we planned to expand to new products, we thought the name Beauty Cosmetics would be restrictive. In 1998,
we ran a contest among our employees for a name and one of them suggested CavinKare; with C and K spelt in
capitals. CK, my father's initials. Cavin in Tamil means beauty and grace.

Perfumes for the poor

We wanted to cater to those who cannot afford (high priced) perfumes. Good perfumes came at a huge price --
they were beyond the means of ordinary people. We decided to come out with a Rs 10 pack Spinz. We were
successful in that too.

Shampoo market share

In the last two to three years, our market share has come down though we are growing. It is mainly because of
the anti-dandruff shampoos in the market. We do not have an anti-dandruff shampoo yet. From 0 per cent, the
anti-dandruff shampoos have taken over 25 per cent of the market.

Only 75 per cent of the market, therefore, constitutes ordinary shampoos. We hold 20 per cent of the market
share.

But we are the largest brand in rural Uttar Pradesh [ Images ], Andhra Pradesh, etc. and we are the number one
in many other states as well.

On the decision to launch a fairness cream

We decided to launch Fairever in 1997 as we saw a huge demand fairness cream. We are the second largest
player in the market in this.

Research states that when a product is good, consumers do not shift to a new brand. Our team told me not to
venture into the fairness cream market as the consumers were quite satisfied with the existing products. But we
went to launch our product containing saffron -- which is traditionally used to get a fair complexion. In six months,
our sales galloped.
This was followed by Indica hair dye.

Two and a half years ago, we launched Ruchi pickles in sachets and we became number one there too. We sell
close to 5,000 tonne of pickles per annum. We hope to double this in two to three years. Food is a huge market:
we have understood that.

Our target is to be a Rs 1,500 crore (Rs 15 billion) company in another three years.

Reasons behind his success

Teamwork is the main reason for our success. We have good professionals who work really hard. The second
reason of our success is innovation. We have executed innovative ideas as well.

CavinKare Ability Award

This month, we presented the 5th CavinKare Ability Foundation awards for physically disabled achievers.

I stayed as a tenant at Jayashree Ravindran's place (the woman who started the Ability Foundation). Once,
she said she wanted to start a magazine for the disabled. Though she did not ask for sponsorship, I gave her a
cheque of Rs 25,000. I also became one of the Foundation's founder members.

Once we came to know about the disabled who have climbed the ladder of success, we -- Ability Foundation and
CavinKare -- decided to institute an award for them.

I feel each of us has to give something back to the society. I have great admiration for those who fight against all
odds and attain success. When I started my career, I only faced shortage of funds but these people tide over
graver difficulties. We must applaud their fighting spirit.

C K Ranganathan, chairman and managing director of CavinKare.

CavinKare to take on fast food MNCs in India, abroad

Posted: Thu, Aug 13 2009. 11:33 PM IST

The menu for the chain in India will be a combination of Indian fare such as idlis,
dosas and sandwiches, and American favourites such as burgers and fries

Chennai: The Chennai-based company that was among the first to popularize the sale of shampoos in
sachets plans to take on fast food multinational corporations (MNCs) such as McDonald’s Corp. not just
in India, but also overseas with a multi-cuisine fast food restaurant format that it is currently testing.

Dishing it up: In July, CavinKare decided to study

the fast food business by opening its first outlet,
branded CK’s Foodstaurant, in Puducherry.

Considering most Indians spend far more on food

than on personal care, India has a potential for 500
restaurants, said C.K. Ranganathan, chairman and
managing director of CavinKare Pvt. Ltd.
While CavinKare invested nearly Rs75 lakh for the first restaurant it opened a month ago, the cost for
each additional restaurant is likely to come down to Rs60 lakh, he added. The restaurants are branded
CK’s Foodstaurant, like CavinKare, a play on the name of the founder.

CavinKare, maker of shampoos, fairness creams as well as pickles and juices, started life as Beauty
Cosmetics. Ranganathan’s brother C.K. Rajkumar is known as the man who launched the sachet
revolution in India when he started selling a brand of shampoo, Velvette, in sachets. Ranganathan
followed suit with his own shampoo-in-sachet offering, Chik.

The menu for the chain in India will be a combination of Indian fare such as idlis, dosas and sandwiches,
and American favourites such as burgers and fries, but the restaurants will take on a slightly different
avatar overseas. “In Italy, we could be selling a combination of pasta and burgers, while in Taiwan the
restaurant menu will feature noodles, dumplings as well as fries and burgers,” said Ranganathan.

In July, the Chennai-based company decided to study the fast food business by opening its first
restaurant in Puducherry (formerly Pondicherry).

“Food is very localized and something that works in Chennai may not work in Mumbai or Delhi,” said
Anand Shah, a research analyst with Angel Broking Ltd.

Delhi-based fast food chain Nirula’s planned to go national with its restaurants two years ago, but is yet
to be successful, Shah said. “So, it is very easy to say (you want to build a national or international
chain), but it is actually very difficult to implement and expand.”

The family-owned CavinKarelogged sales of Rs700 crore in 2008-09 and expects to nearly double
its sales to Rs1,500 crore in 2009-10, excluding the expected sales from the restaurant
business. Ranganathan declined to give any sales forecast for the fast food business, but said
that a chain spread over a state such as Tamil Nadu could yield Rs1,000 crore in annual
revenue. More financial details of the privately held company weren’t available.

Through the 1990s and 2000s, CavinKare has held its own—and even won some skirmishes—with
Hindustan Unilever Ltd (HUL), India’s largest consumer goods company. HUL posted a net profit of
Rs2,115 crore on sales of Rs16,476 crore for the year ended March 2009.

“You need to be right on two counts to unsettle a leader—product innovation and pricing. CavinKare
worked well to get both of them right,” said Nikhil Vora, an analyst with IDFC-SSKI Securities Ltd.

Still, that may not work in the fast food business.

“CavinKare’s expertise is in consumer goods, so I don’t understand the logic of them moving into the
fast food outlets,” Angel Broking’s Shah said.

CavinKare eyes bigger share of foods pie

20 Aug 2009, 0324 hrs IST, Sarah Jacob & Ratna Bhushan, ET Bureau

BANGALORE I NEW DELHI: FMCG major CavinKare is taking a bigger bite into the
branded food segment by affecting a majority stake buyout of traditional snacks
marketer, Garden Hygienic Snacks. CavinKare is poised to acquire the Mumbai-based
company for Rs 55 crore, said sources familiar with the development.

The move will help the Rs 700-crore CavinKare ramp up its food division, launched nearly
two years ago. The 25-year old acquisition target — a marketer of namkeens, farsans and
wafers under the ‘Garden’ brand — operates in the organised snack food market estimated at a
little over Rs 2,000 crore growing at 7-8% annually.

This is one of the few M&A actions in the snacks food business where the biggies like Frito-
Lay and ITC Foods have been aggressively chasing the market share. This is also possibly the
first corporate buyout of a traditional snacks firm, if Frito Lay’s acquisition of Uncle Chipps,
which was essentially in the western snacks space, is excluded.

When contacted, CavinKare MD CK Ranganathan declined to comment on the potential

transaction. While the promoters of Garden had appointed E&Y to explore a stake sale,
another investment bank Mape Advisory is advising on the transaction with CavinKare.

“It is not an outright acquisition, but we are looking at a potential joint venture (JV) with
CavinKare,” a senior executive at Garden Hygienic Snacks, who is aware of the
development, said. Garden’s promoter family may hold on to some stake, if the deal with
CavinKare goes through.

“The traditional snacks food category is very lucrative, going by the experience of companies
such as Haldiram’s. There is great scope for branded players in this segment as several
companies have leveraged the penetration of modern retail formats in the past few years,”
Aashish Upganlawar, FMCG analyst with Sharekhan, said.

While Haldiram’s and Bikanervala have spearheaded the traditional namkeen and farsan
segment, they have been staving off competition from Frito Lay’s Lehar Namkeen, Lehar
Kurkure and western potato chips offerings such as Lay’s as well as ITC’s Bingo. New
entrant, Parle Product’s Musst Chips and Stix, could further intensify competition in a market
that is increasingly skewed towards Indian-flavoured snacks in the branded chips segment
and is witnessing extensions into baked snacks as well.

CavinKare, which effectively used miniature packs or sachets for peddling personal care
products to the semi-urban and rural folk, has turned bullish on food business in the recent
years. CavinKare estimated that foods division would deliver 75-80% of their turnover in the
medium term, Mr Ranganathan had said recently.

Last year, CavinKare forayed into branded south Indian snacks market through sourcing tie-
up with a Coimbatore-based manufacturer. It also acquired a fruit drink brand Maa for Rs 28
crore in early 2008 and extended its presence into liquid milk segment — branded Cavin’s —
by acquiring a plant at Kancheepuram in Tamil Nadu.