Tikaram Jagannath became a Colgate Palmolive distributor way back in 1949. And for the next 55 years, the family continued its long association with FMCG distribution: adding Britannia, Reckitt and Colman, Ciba Geigy, Amul – and finally the icing on the cake, Hindustan Lever in 1996. In 2005, after having worked full time for 15 years in the distributorship, the third generation Tikaram – Rajeev Agarwal was worried. The family had been used to a comfortable business existence. The business was acclimatized to an era of shortages – where what was sent was sold. If you had good quality products, there are very few challenges. There was no push required. A threat of not supplying was the only stick that was needed to get recalcitrant retailers to pay up.
TJ and company used their wealth well. Were active in philanthropy. In the nineties, a school run by the Alegaonkar trust, approached TJ and Co to fund a college in their premises. At that time there were no colleges in Khadki. So TJ and Company financed the building of the college and the trust named the college in the name of the company founder. The college offers graduation degrees in Arts, Science and Commerce. They have almost 4,000 students today. Rajeev’s dad is a permanent trustee of the TJ College – although Rajeev himself is not too interested in education.
Things started changing from 1995 and liberalisation. Competition increased. And so did pressure from the companies. Sales targets were tougher, dumping was rampant. Companies were forcing distributors to computerize everything – and the tradition steeped TJ family resisted technology as much as they could. The family had already generated more than enough seed capital. They were probably making much more from their investments portfolio than the now low margin distribution business.
So one fine morning of 2005, Rajeev wrote to the Lever management – and announced the closure of the Tikaram distribution. Rajeev was clear – that the family was not going to get into another distribution business. (In hindsight, all the older distribution companies followed Rajeev’s footsteps – and none of them are in the distribution space any more. Also the life of the average distributorship has shrunk to 4-5 years, reflecting how important pull has become vis-a-vis push) So what does a 36 year old do, when he has all the time in hand – and no worries about following up with salesmen and drivers, no worries about rising diesel prices and soaring auto rickshaw maintenance.
Rajeev has always had a liking for glamour and stones – the harder, rarer variety. So he got himself a Deccan Queen AC season ticket. For the next 6 months, he did a daily up-down to Mumbai to attend a course in gemmology at Mumbai. TJ and company, in its new avatar, started a jewellery retail shop in Rasta Peth. Very soon realisation dawned that the real skill sets of the family were in wholesale. So the business was pivoted to wholesale soon.
In a few years time, Rajeev was a sight holder for de Beers. Those were the days, when this South African giant was the price setter for diamonds worldwide. They used to keep a strict control on supplies. And would invest in campaigns like ‘Diamonds are forever.’ A few individuals were invited to participate in de Beers auctions – and these were the sight holders. Rajeev rented a flat in Amsterdam – and he would make frequent visits to Amsterdam and Hongkong to do his shopping at the diamond mandis there. Made friends with a lot of Jews. This community dominates the higher carat diamond trade – and India is the boss for lower carats. The labour component is higher in lower carat diamonds – hence the higher Indian market share in that space.
We believe that technology is a disrupter in only businesses like banking and finance, but the diamond market also got impacted by technology. CVD – Chemical Vapour Deposition – allowed diamonds to be made in labs. CVD diamonds had the same physical characteristics as real diamonds. The initial cost of making a lab diamond was astronomical – but the earthward journey of artificial diamond prices started soon enough. Today, most of China’s jewellery market uses CBD diamonds. For the last 15 years, unlike gold, diamond prices have remained flat.
Covid has been a double whammy for Rajeev’s jewellery market. Gold is a public consumption good with most jewellery sales being driven by marriages. With few marriages happening and fewer people attending – Indians have temporarily lost interest in buying jewellery. Another thing about Gen Next is that they have a higher interest in garments, electronics and phones than cars and jewellery. Gold may not go out of fashion in India, but maybe the younger generation would start investing in gold biscuits instead of jewellery. No matter what happens to gold, natural diamonds are definitely on their way out.
Cut to 2010, the next generation of the TJ family joined the business. 5 years into business, Annu, Rajeev’s son, started asking the same questions that his dad asked his grandfather, a few years ago. Should we continue to be in a shrinking margin business? Some of his jewellery friends had diversified into making confectioneries. They were looking for suppliers of plastic enclosures – the catch was that the unit was in Hyderabad, so they would want the vendor to be located in the same city. Young Annu was more than happy to shift. His in-laws stayed in Hyderabad – and his wife was elated by the move. In Jun 2020, Rajeev’s mom insisted that the rest of the family move to be with their only grandson.
The TJ family is driven by ambition. Rajeev jokes that if diamond mining on the moon is an opportunity in the far future, rest assured you will find a future TJ clan member shifting to a lunar base to exploit it. The move to Hyderabad helped Rajeev, who was already supplying to a lot of jewellery retailers in the South. Rajeev is reminded of 1940’s when his grandfather made the shift from a small village in Haryana to then small town Poona. He likes telling his friends: We are all nomads, some stay longer, but eventually we all move on.
Connector Notes, 17-Jan
Rajeev Agarwal is a school buddy. He shifted base to Hyderabad a couple of years ago. Here is a background note about our friend. https://peepaltreeschool.org/parent/success-stories/kirana-se-sona/
His son, Anurag, set up a factory in Hyderabad to cater to the requirements of the FMCG sector. They have 4 injection molding machines, with tonnages ranging from 150 to 220 t. They have 6 customers – all from Hyderabad, and all in the confectionery space. Some of them have their own branded products, some are contractors for brands like Cadbury’s. Anurag makes lollipop sticks, lids and has off late ventured into 1, 2 and 5 liter plastic jars. One innovation that he has done is to get into specialised moulds where the label can be an insert before plastic is injected into the mold. The molds for this are quite expensive – and the current one is being imported from Taiwan for about 0.5 cr. He is also buying a special attachment – a robotic arm that places the label at the right place inside the mold.
The father son duo are now looking at scaling up this business. They are looking at what other lines they can look at in the plastics space. I had suggested that they can look at connectors which are used in wiring harnesses. Rajeev and Anurag drove down from Hyderabad to have some conversations with people who are ‘connect’ed with the industry.
Effingut, Baner Road, was the first port of call. Over 3 liters of draft beer, Vijay Chheda tried to explore what kind of diversifications would work best for Anurag. VIjay felt that overall margins would be healthier if Anurag could enter the B2C space. They already have made an entry into jars, which have a retail demand from the equivalents of Pune’s Tulsi Baugs in every city. His suggestion was that we need to have a differentiation in design. You can get away from commodity pricing only when your products stand out from the rest. I added that they will also need to work on branding. In today’s world that would mean two things – YouTube and AdWords. It would also mean hiring some feets on the street. A team that can reach out to dealers and retailers,
Jars, as a category, are very difficult to transport – and even stock on shelves. One idea would be to have a design where jars can be stacked into each other with a kind of mildly conical shape. Some thinking will have to go into the lid design too. I remember talking to the Pepsi team many decades ago when they had a requirement of garlic paste for export. Their drums had this design, so that empty ones can be sent in with better packing density. If Anurag and company can make this design work, then they can look at supplying to the entire country from their Hyderabad location.
The next port of call was meeting with Neerav Jhamtani at Elcab. Neerav is almost the same age as Anurag. Both of them have similar tastes in bikes and 4 wheelers. Anurag is older – and has an older version of the Mahindra Thar; Neerav has the newer version. Anurag has grown out of his Harley Davidson – Neerav still continues to do rides on his Suzuki 500 cc bike. Neerav is in the process of pivoting Anil’s copper cables business to harnesses. The advantage of youth is optimism. So Neerav felt that connectors are a good category to get into. He dumped a few samples onto Anurag. His caveat was that if you are looking at supplying to auto industry, then the challenge would be to get approval for your connectors from OEMs first.
In an industry dominated by Fortune 500 companies like Tyco and Molex, this is a big ask. There are hardly a handful of Indian companies in the connector space: One is Chennai based, a Noida based company that used to be Motherson’s main supplier till the time that Motherson got into connector manufacturing itself, and finally Mumbai based https://terminaltechnology.net/
A google search also listed out these companies in the connector space:https://ultrawiring.com
Neerav’s advice to Anurag was to dip his toes into the water by getting into simpler off patent connectors. Stuff that goes into the auto aftermarket.
Third port of call was EV office of Chheda. We met with Abhay Patwardhan. Age and pessimism go together. So Abhay’s advice was the same as Vijay. If you want to sell your family jewels (Read Rajeev’s jewellery business) and spend the next 10 years on a steep learning curve, get into this. Else go for something less challenging. Vijay was also present. The discussion veered towards switches. Abhay suggested that Anurag can make sockets where the USB port is built into the socket itself. (This kind of product is already available at Amazon and retails for Rs. 400) One idea is to test the waters by importing one lot from China and checking out distributor’s feedback.
Another idea that Vijay came up with is to concentrate on large parts which require bigger presses. There are fewer players in that space – hence less pressure on pricing. Anurag can even go to Italy and pick up a few second hand molds to get into this space. Exhibitions are an important learning ground – and it is unfortunate that our young friend has yet to visit any. Quite unlike Rajeev, who has been a regular until the time Covid happened. Another idea was to look at medical plastics. This will require operator hygience checks, clean rooms, and FDA approvals. But then these products will definitely have better margins. Anurag has tried making venturi tubes for ventilators – but was not too satisifed with the experience.
Last port of call was Starbucks Cafe at Kothrud, near Karishma. Vijay had introduced us to Sandeep Patki of EssEmm Harnesses. Sandeep was quite blunt – he advised Anurag to stay away from the connectors business. Sandeep had burnt his fingers by spending some money on developing two connectors, which became obsolete almost as soon as the development was done. One idea that sounded interesting was – to use Sandeep lingo – convert the Hyderabad factory to a studio. What he meant was to beautify and introduce changes which will meet autmotive and ISO standards. This is what he himself had done during his early days – and this will get you the factory approval from the OEM. It would still be a long journey to get the commercial and technical approvals, but still this is a good first step, as this is in the control of the entrepreneur.
Rajeev and Anurag had an appointment with a lawyer – and had to leave around 1930 hrs. I stayed on to chat with Sandeep for some more time. Have promised him an introduction at B Gauss. Akshay to help with that. Rajeev has done some innovative work in the connector testing space. He is open to sharing his learning with others on a SAS (service) model. Sandeep knows Anil and was happy to note that Neerav has got into harnesses. He has invited us to visit his Chakan factory to understand his wirless testing equipment. Neerav can be a guinea pig for Sandeep’s SAS model.
As we left Starbucks, he also had one advice for Vijay – work on inventory management. And beef up the purchase team.