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Excerpts from IIFL’s interview
with the founders of Emami, RS Agarwal and RS
Goenka
We met the co-founders of Emami in Kolkata. They discussed
the beginnings of Emami and how the company has used
product differentiation as the central pillar of their strategy.
They also outlined their approach towards organisation
building and implementing systems and processes as the
company looks to transform to a much larger scale.
Tell us about the beginnings of Emami.
RS Agarwal: We used to study in the same school and became very
close friends. After graduation, we used to meet almost every day
and started thinking about what we could do together, and decided
to start a small business together. That is how the journey started.
With an initial investment of Rs20,000, we started our business from
a 60-sq-ft space in the godown. Our first big success came in 1974,
we launched the Emami brand name and launched talcum powders
and vanishing creams under the brand name. Both products were
hugely successful—so much so that in talcum powder, we became
the second-largest player in the country and in vanishing cream, we
actually became the market leader, beating established MNC brands.
How did you go about the key marketing tasks—branding,
product design, etc?
RS Agarwal: Right from the start, our mantra has been
distinctiveness, differentiation and innovation. We studied the gaps
in portfolios of the top FMCG companies, and we tried to use these
gaps to position our brands. When all other established brands were
selling skin creams in tin containers, Emami was the first to come up
with plastic packaging, which was a refreshing change and looked
significantly better. While all established brands were using cheaper
perfume, we came with French perfume in our talcum powder and
creams. If you ask consumers who bought these products around
the 1970s, they still remember the perfume of Emami talcum
powder—it was so distinctive. We have followed the same mantra of
distinctiveness, differentiation and innovation in creating Boro Plus,
Navratna Oil and Fair & Handsome. Ours is the first company to have
come up with advertising in Hindi movies, a medium that was
probably the only form of entertainment for most people in the
1970s. So there was distinctiveness even in our style of advertising.
Were there failures in new products?
RS Goenka: Whenever the company faced any difficulty in any new
product launch, we were very fast to take decisions and withdraw
before any major loss was incurred. Our feedback mechanism and
MIS has been very strong from the very beginning, and this has
been the biggest reason we have managed to avoid major failures.
What has been your approach towards systems & processes?
RS Goenka: Our experience of having worked in the corporate world
stood us in good stead. For instance, from the very beginning, we
put in place a strong MIS for all parts of our business, be it sales,
purchase, manufacturing or supply chain. As early as 2003, we
introduced ERP in our company, when even many of the large MNC
FMCG companies in India were operating on far inferior IT systems.
We have a large internal audit team with over 60 persons who
constantly audit operations, including forensic audit. Beyond this,
whenever we need to look at improvements in our operations, we
appoint best-in-class consultants to give us the advice.
Emami group has very large businesses outside of FMCG.
RS Goenka: We are today one of the largest business groups in
eastern India. We are the India’s largest player in newsprint. In
hospitals, we are the biggest private sector player in the eastern
zone. We have a pharmacy chain, which is the biggest in the eastern
zone, and probably the biggest in the country after Apollo. In real
estate, what we have built in Bengal would be a matter of pride for
anyone.
There is a perception that Emami is a family-run business and
hence professionals do not work in the senior.
RS Agarwal: There is a big difference between owners running a
company and professional owners managing a company. We are
professional owners. Both Goenkaji and I have strong higher
education backgrounds and we have worked in the corporate world
in important positions. If I am a chartered accountant, MCom, LLB,
FCS, am I not a professional myself? Today, we have around 140
MBAs and around 100 CAs working in our group.
Emami has a diverse set of business and a number of family
members are involved in running the businesses. What are
the key aspects of managing such a structure?
RS Agarwal: To begin with, each of the companies in our group is a
completely separate entity. None of our companies can fund another
within the group. In each company, one member of the second
generation from each of the two families is involved. Either Goenkaji
or I is chairman of each company. We have very well-defined and
documented rules for all family members. The rules cover a large
number of aspects—owning fixed assets, making investments,
personal expenses, and so on. Independent directors on our board
include the former chairman of Ernst & Young India, Mr K N Memani;
former governor of West Bengal Mr Viren J Shah; and eminent
lawyer Mr Y P Trivedi.
How do you evaluate acquisitions?
RS Goenka: Way back in 1982, we took over Himani, which was a
sick business in Kolkata. We launched Boro Plus cream in 1983 and
followed it up with Navratna oil under the Himani brand name. We
acquired Zandu for a price that many analysts then thought was too
high, but it was based on a very thorough and highly detailed
internal analysis of potential returns. We were clear that Zandu was
a valuable franchise, and would generate very high returns after cost
rationalisation. Sure enough, profits multiplied 4x within 1-2 years
after we took over the company. The Zandu brand’s revenues, which
were growing at less than 10% annually, are today growing higher
than 30%, thanks to our innovative marketing strategy. The same
rigorous process of evaluation was done for Paras Pharmaceuticals
when we bid for the company. The evaluation was done for every
product in the Paras portfolio, looking at possible synergies and
opportunities for growth. We know the value of money as we started
very small and are very careful when we use our resources.
