#FMCGDiaries: The Pidilite Story - A Chat with Bharat Puri.

Yeh Fevicol Ka Moat Hai, Tootega Nahi!

Moat! This four-letter word has had all enthusiasts of value investing obsessed. The term economic moat, coined and popularized by the Oracle, Warren Buffett, refers to a business' ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms. Now, this sounds very fancy & exciting in theory. For me, the word was a source of insane intrigue and enigma until I entered the Pidilite office in Mumbai. This company & its brands are a textbook definition of the term Economic Moat. 

The few hours spent at their office was the most fun I've had at any interview, on & off air. All the credit for that goes to Mr. Bharat Puri, the MD of Pidilite. Bharat is a raconteur par excellence with rather interesting stories to share from his vast experience at not just Pidilite, but also at Asian Paints & Cadburys'. For an FMCG-Maniac like me, it was like a showreel of your favourite films being enacted right in front of you, by the lead cast, over and over again. In fact, Bharat Puri was responsible for getting Cadbury back on track after the worms controversy. That story is stuff of B-School Case Studies, imagine hearing it from the man himself!  

However, getting back to the Moat bit, Pidilite has this multi-level defence system from competitors! 

#1: Brands, Brands & Brands!

Now, adhesives, sealants, water proofing chemicals etc. aren't products that we should really be caring about, I mean, their excellence lies in being invisible and never reminding you of their presence after application. Despite that, Fevicol, Fevikwick, Fevi Stick, M Seal & Dr Fixit have become household brands. In fact, in all cases, the brand become the generic for the product. Picture a kid going to a stationery shop and asking for Fevicol? Never seen/heard anyone ask for Adhesive/Glue. This isn't a mean feat to achieve. Due credit to Ogilvy & Mather and Piyush Pande (The Ad Agency and the Creative Head) for conceptualising and producing some of the most memorable ads on Indian TV. There's hardly a Fevicol, Fevi Stick or Fevikwick commercial that you don't remember. On a side note, Bharat Puri has been quite fortunate to have been part of companies which O&M has had a huge role to play in growing: Asian Paints and Dairy Milk ads will definitely find spots in any Best Indian Ads list. 

#2: The Company Connects with both, Consumer & Carpenter:

Pidilite has the highest distribution reach in its category, in fact, among the highest, across all categories. Their products are available at all towns above 50000 population & the Company is targeting All towns above 10000 population now. Secondly, they connect with the user of the product: The Carpenter. The Fevicol Champions Club connects over a 100000 carpenters across the country in a manner that's like Facebook, before Facebook. The company works very closely with all participants at the ground level, educates them about things beyond their own products, hears their concerns and actually comes up with solutions to fix those problems, literally. Two instances really stand out:

 - Little known fact: Pidilite has actually revolutionized the Zardozi-work industry! Earlier, pieces of metal were sewn onto the fabric by hand and required painfully long hours. Now with the kind of product that Pidilite has developed through extensive research and on ground feedback, Fevicryl does this job easily for the artisans.

- Secondly, Pidilite has its own design division which is responsible for Packaging & Product Design, kudos to the foresight of Mr. Parekh (the founder). The reason why this keeps them seriously ahead of everyone is, they can immediately implement solutions for customer satisfaction. I spoke about the Zardozi bit in the previous point, now here's another addition to that. So, the women-folk using the existing Fevicryl packaging weren't very adept at adapting to the small plastic squeezies that the company used to sell. The sales rep, though, learnt that the women were also great Mehendi artists and were very comfortable with the Mehendi cone. This prompted Pidilite to take note of this immediately and design an SKU which was the exact same as a Mehendi Cone. This insane focus on the customer's needs & constant innovation keeps the company far, far ahead of all competition. Bharat also mentioned about how loyal the distributors & carpenters were to Pidilite products for generations. This is seriously strong Moat. 

#3: Innovation:

Whenever, wherever & however 2 things need to be stuck, sealed or waterproofed, Pidilite will be there. The Company's obsession with innovation is very Steve Jobs' Apple-like. So much so, that they have 2 Sales teams, one focuses on Dealers & Distributors (the regular stuff), while the other focuses on Users, their needs & and new markets that need to be tapped. Ear to the ground, is the Motto at Pidilite.

Add to all of this, the uniqueness of the Products, Minuscule share in the overall cost of the Job & Strong Brand Creates a rather unique Situation in a Customer's mind ahead of purchase, that goes like: "Ummm, I don't save much money by buying a cheaper alternative to Fevicol (given adhesives cost no more than 2% of overall furniture cost), however, the Risk of Not Buying Fevicol is much more than the money I'd save anyway!. If the wood comes off because I used a cheaper alternative, I lose my reputation." 

This makes him/her buy only Pidilite Products. So, the Company keeps competition at bay, protects its long term market share and profitability... and that, Ladies & Gentlemen... is Moat. 

Hope You enjoy the chat.

Keep The feedback Coming.

Much Love.

M

PS: Don't treat that as investment ideas; I personally Don't Invest/Trade.

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