Business - India;Whirlpool;Out of the Whirl

Bindu D. Menon

Tough times never last, but tough people do. Or shall we say tough brands do. For Shantanu Das Gupta, Vice-President (Marketing), Whirlpool of India Ltd (WoIL), this could well be more than an adage. He recollects a time in early 2005 when dealers would advise the company officials to come up with new products.

“We were besieged by our dealers, some of whom had a long association with us, to introduce new products. They were right in advising us as they had seen the glory of our brand and also the times when the company started ‘seeing red’ in 2005.”

For Whirlpool, that was a defining moment as the company had to convince its dealers to retain their support while it undertook some strategic decisions to save the company from a downturn.

“We had seen the brand grow and did not want to sink like many other brands. We told ourselves that we would fix it and fix it at places where we were strong and not blindly ape the market by introducing new products. The temptation was huge, but we stuck to our ground and managed a financial turnaround for the company,” says Das Gupta.

Turning a new leaf


Circa 2008, durables brand Whirlpool of India is tasting success in the Indian market after being in the red. The financial turnaround that the company has recorded is being attributed to its steely resolve to manage its problems creatively and constructively.

Whirlpool believes its mantras of staying focused and developing innovative and consumer-centric products will see the company through any crisis situations in the future.

The wholly-owned subsidiary of US major Whirlpool Corp, the Indian arm was formed in 1996 with the merger of Whirlpool Washing Machines and Kelvinator India. Whirlpool Corp holds an 85 per cent stake in the company. The company broke even this year after being in red for nearly three years.

According to Arvind Uppal, Region Head, Asia Pacific (excluding greater China), Whirlpool Corporation, “Whirlpool of India posted its first full year profit after tax at Rs 32.32 crore in 2007-08 and we posted a profit at Rs 45 crore in the first quarter ended June 2008, which represents an increase of almost 38 per cent over our full year profit for 2007-08.”

“We had a plan in place and we all worked towards it. We focused on innovation that appealed to our target audience — women. It’s more to do with evolution — something that women — our target consumers relate to well,” adds Uppal.

So, what went wrong and how did the company pull up its socks to gear up for the changing market trends?

A facelift


“For any company to come out of the doldrums and make a turnaround is an extremely difficult proposition,” points out Francis Xavier, Managing Director of market research company Francis Kanoi Marketing Planning Services Pvt Ltd. He explains that several wrong moves by the company had eroded its market share. “The entry of the Korean durable companies into the Indian market had given consumers a choice. However, instead of taking competition head-on, Whirlpool reacted differently and made several wrong strategic moves. Competitors started targeting Whirlpool’s distributors and even the product quality became inconsistent. Whirlpool’s leadership in refrigerators and washing machines started taking a beating with the arrival of new entrants. Besides, being an American company, the top management was paid much more than what was considered industry standards. Therefore, the employee cost was amongst the highest in the industry. All this, in my assumption, started moving the company towards red,” says Xavier.

Says Das Gupta of Whirlpool, “Whirlpool has weathered the thick and thin of the pre- and post-liberalisation era. And now in this decade, we have seen it all and survived. In my opinion, the strength of the brand has helped the financial turnaround in a big way. Some of the reasons for our turnaround, I would say, is that we have been a trustworthy brand. Not every consumer who goes to the shop sees the profits of the company or the management team, but looks at the product and sees value for money,” he adds.

“We had seen the company go down and we knew what went wrong and in retrospect, perhaps, we should not have done what we did. If you see something going from good to bad and if you are focused, you can fix it. Let me not carry the baggage of the past, let me listen to my people who have been around and add my own insights and fix it,” was the mantra that the company followed, says Das Gupta.

Market research agency Crisil has assigned its bank loan rating of ‘A+/Stable’ to the cash credit facilities of Whirlpool of India Ltd (WoIL) and reaffirmed its ‘P1+’ for its short-term debt programme, following its turnaround.WoIL remains the second largest player in the domestic refrigerator segment, and is among the top four players in the washing machine segment. These rating strengths are, however, partially offset by WoIL’s moderate financial risk profile and the stiff competition it faces across product categories, says Crisil.

Crisil believes WoIL will maintain its business risk profile over the medium term, backed by its strong market position in both the refrigerator and washing machine segments. It also believes WoIL will sustain the turnaround in its operations by adequately passing on the increase in raw material prices to its consumers.

The churn within


According to Das Gupta, the company adopted a certain strategy to grow the brand. The year 2005 was a crucial year with a slew of strategic decisions being put in place. The leadership changed and the new managing director, Arvind Uppal, who continues to be the Region Head for Asia Pacific, took over. Faced with high level of attrition at the top and mid-management levels, the company undertook intensive restructuring and people were brought in from across the functions.

“Uppal’s contribution has been tremendous and it must be placed on record that the stupendous turnaround would not have been possible without the employees rallying behind the company,” says Dasgupta.

On the product front, Whirlpool placed a lot of thrust on innovation and recreating the brand’s magic in the consumer’s mindscape.

“We did a lot of prioritisation. We were the number two company with marginal presence in air-conditioners and refrigerators. The Korean companies were putting a lot of effort in microwave ovens and ACs by moving the products away from the specialised sales and retail channel into the mainstream. The temptations were huge, but we did a conscious trade-off and decided to focus on the areas where we were strong. We focused on refrigerators and washers and within that more so on refrigerators,” he adds.

The year 2005 saw the birth of Genius in the direct cool refrigerator in the entry level, which was heavily advertised. “We did a tremendous launch for a company that was in the doldrums. We changed warranty terms and did everything to grow the brand. For every company there is a lifeline with that one flagship product and for us it was the direct cool refrigerator that was the selling point. And the success of direct cool in the market changed our lifeline,” says Das Gupta with a sense of relief.

Challenges from outside


The company was facing a wide variety of challenges: attrition, competition and dealers were difficult too.

Following the success of Genius, things changed for WoIL. A lot of other things worked well for the company. For example, the company’s brand ambassadors, Bollywood actors Ajay Devgan and Kajol, gave the brand recall value.

Notes Das Gupta, “The biggest challenge for us came from the front end of the business. You realise there is a problem when you see that your volumes are coming down at times when the market is growing. If you artificially stimulate sales by giving incentives to dealers that does not get translated into consumer offtake. A lot of offtake happens because of goodwill and image. There came a time when our inventories were moving up. Unlike in the other businesses such as FMCG or so, dealers are crucial in the durables industry.”

Das Gupta says convincing the dealers to stay with the brand was a major challenge. “Dealers were trying extract more and more. On the product front, we did a lot of restructuring to keep pace with changing technology. We had to build confidence in dealers; we renegotiated a lot of trading terms and told them that this is how we wanted to do the business. A number of people moved out and some chose to stay,” he added. Says B.A. Srinivasa, Director of durables retail chain, Viveks, “Whirlpool always had a strong positioning as a utility brand rather than an aspirational one and has come back well in the refrigerator and washing machines segment.”

Whirlpool too is gearing up by entering newer categories such as built-in kitchens, water purifiers and air-conditioners. “Though we have the lion’s share of the entry-level refrigerator market, we are upping the ante to capture the market in other verticals too. The objective is to turn the brand into the number one home appliances brand,” said Das Gupta.

The company has launched air-conditioners and microwave ovens too. For this year, it is focusing on water purifiers and built-in kitchens. While line extension schedules are more or less in place, expansion plans are all complete. “We will be investing about $10-15 million in research and development,” informs Das Gupta.

In the mass market, the demand is essentially for no-frills appliances. Currently, refrigerators contribute 70 per cent of the revenues. It also earns about Rs 100 crore annually by exporting products made in India. In the refrigerators and washing machine categories, about 65 per cent of the demand is for semi-automatic and twin-tub machines, and demand for direct cool refrigerators averages 82 per cent.

The emphasis on research, in fact, has existed from the beginning. Typically, Whirlpool’s positioning in India has been catering to the upper-middle class consumers, focusing on women, and centered around the ‘home-maker’ theme, said Das Gupta. Viveks’ Srinivasa says that the brand exudes solidity but that its approach to the home appliances business it has talked about should be watched closely as small appliances need a different focus and separate strategies. But for now the brand’s owners must be glad the brand has got out of a whirl