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      Champaklal, Asian Paints and a Supercomputer – 10X profits and 18% annual growth over 50 yrs!!

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      What does a commoditized product need to do in a price-sensitive market to create and maintain a 50-year+ double-digit growth trajectory? For Asian Paints, India’s largest paint brand, it was about using data science and investing in a supercomputer way back in 1970. Yes, in 1970!


      When it comes to data science, very few businesses today deny acknowledging its power. However, companies are still struggling to get the best outcomes for their business using the power of data. That just makes the Asian Paints story even more special. Let’s time travel back to 1970.


      1970.

      Independent India was just about 23 years old. The country had already faced a few wars and was gearing up for the next one. The economy was bruised and tainted. Jobs were scarce. The educated youth felt cheated by the system and were primed to go up in arms against the government. The world, too, was going through messy times. The cold war was at its peak. The civil war was in full swing in Vietnam. Dictators like Polpot were in their prime. The US was witnessing a cultural shift … I could go on. (Psst.. there was no internet, wifi and no mobile phones!)


      It is true that even during turbulent times, houses were being built in India, and houses needed paint. However, for paint companies, business was hard, and profits were wafer thin. The chemical mix isn’t exactly a secret; thus, there was not much that could be done to optimize costs. Charging a price premium was impossible. Growing margins required thinking beyond what was available within the standard business think tank in 1970.


      That’s when Champaklal Choksey, the dominant visionary founder of Asian Paints, came up with a master plan to transform the company into the most dominant force in the market for the next few decades. The master plan’s beauty was based entirely on answering a set of first-principle questions. 


      • If I can’t bring down manufacturing costs and I can’t raise prices – how can I grow margins? Is there a way to scale revenues without necessarily growing margins?
      • What do I need to do if I want to charge a premium over my competitors?

      Asian Paints managed to solve both. It’s evident from their growth story. Today, they are miles ahead  of their competition in terms of all important metrics – Revenue, Profit, ROCE, Assets, etc. Since its IPO in 1982, the stock has grown 1800X! It still continues to be a value investor’s favorite. 


      So what did they exactly do?


      When not much could be done about manufacturing cost or end price, you need to look at the leakages in between. In the paint market, the companies typically supply to distributors, the distributors then sell to the retailers. Customers buy from the retailer outlets. The distributor charged a margin of 15-20%. The retailer margin was about 3%. Interestingly, the numbers remain pretty much the same even today!


      Cutting off the distributor meant a direct saving of 15-20%. Sounds like a no-brainer, but a tactic that’s almost impossible to pull off. Selling directly to the retailer meant supplying 100X more touch-points which was a complicated problem. To top that, retailers lacked real estate or financial muscle power to stock inventory on the scales that distributors operators. It was impossible to negotiate with them to scale up (while not asking for more margins). 


      The problem thus translated to: Could Asian Paints accurately forecast and service demand at a retail level? 


      Next up was the problem of charging a premium. When it comes to paints, different customers have different choices. Customers might be willing to pay a premium if they get a shade, which is otherwise unavailable in the market. However, there could be 100s of such shades (if not more). How many such shades and how much of each could a company carry? Was it possible to forecast the shades the customers would want to buy and keep them ready?


      So, now, we have a multivariate problem: A company needs to supply accurate volumes of the precise number of SKUs to a maximum number of touchpoints.


      It all happened in 1970 – just a year after the moon landing. I don’t know whether the moon landing inspired Champaklal Choksey, but the company boldly invested in a supercomputer to solve the above problem. Asian Paints ended up paying $10.6 Million back in 1970 to buy India’s first ever supercomputer, before ISRO, IIT or BARC! It’s Similar to $81 Million in 2022. They also invested in the most robust ERP implementation India had ever seen, all the way from sourcing to manufacturing to distribution across hundreds of thousands of small retail stores in dusty towns and villages across India.


      What happened next? While competing paint brands stocked their distributors once in 2-3 days, Asian Paints stocked retailers 3-4 times daily with the exact volumes they needed. With time, all other paint companies embraced data sciences and technology. However, none of them have the power of 50 years of training data on granular demand at a color shade level. 


      Back to 2022. 

      Asian Paints is not just India’s leading Paint Company. It’s also one of India’s most valuable companies. In terms of revenue, it’s 4.5 times its nearest competitor and 10 times ahead in terms of profit. Isn’t it fascinating that it all started with asking the right questions, framing the right problem, and investing in the proper infrastructure? Today your mobile phone has more computing power than the supercomputer that Champaklal Choksey bought in 1970. ERP systems have become so much more advanced that even Champaklal would never have imagined. The likes of Amazon have captured Indian customers’ mindshare riding on the same strategies that Champaklal, in his timeless wisdom, had framed 50 years ago. Yet, why do Indian companies still hesitate to put technology at the forefront of their strategy?


      At Eunimart, we have been asking questions and framing problems on behalf of brands, retailers and supply chain companies. Our vision is to help companies not just grow revenue today but also plan for the future. We have built a full stack of AI tools to power revenue, supply chain, and distribution combined with an incredibly flexible and advanced open source platform to power the next generation of entrepreneurs who dare to dream like Champaklal. Long live Champaklal! 

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