After four years of slowing sales and degrowth, a resurgent Skipper Pipes is now in an envious position. Growth is back with a bang and the brand enjoys a high trust quotient within the trade.
In a conversation with the company’s director Siddharth Bansal, I discovered how Skipper has transformed its pipes business.
SKIPPER LTD, a Kolkata-based operator in the transmission and telecom tower business since 1981, had diversified into PVC pipe manufacturing in 2009. The move was considered synergistic since power and water were seen as long horizon businesses. As Skipper was traditionally a B2B player, in pipes too it had preferred to do business with wholesalers rather than going into the market directly.
In 2015-16 Skipper’s pipes BU achieved a high of Rs 168 crore in turnover, registering an impressive 68 percent growth. Around this time according to Bansal, realisation set in that the business was overly dependent on a set of wholesalers. “We had appointed distributors for entire states, who operated more like wholesalers. We had started facing issues of large outstanding and stuck inventories. Besides, our presence in the markets was dependent on which retailers the distributors preferred to sell to.”
The pitfalls of the wholesale-centric approach started showing when growth slowed down to 27 percent in 2016-17, and one percent in 2017-18. The longtail effect continued for another two years till 2019-20, with sales plummeting to Rs 136 crore.
Bansal, who spearheads that polymers BU, said that management was quick to see the flaw in the business model but needed expert advice to shape and implement an optimum strategy shift. They roped in Vector Consulting Group, who identified the challenge as ‘unavailability of the product at the point of sale’. The consultant said it was time to apply the Theory of Constraints (ToC).
ToC is a methodology for identifying the most important constraint, or bottleneck, that impedes the achievement of a goal. The theory advocates systematic improvement till the constraint is no longer a limiting factor. Articulated by physicist turned consultant Eliyahu Goldratt in his 1984 novel ‘The Goal: A Process of Ongoing Improvement’, this management philosophy has been applied globally to turnaround businesses and overcome growth challenges.
IN 2017 A DECISION WAS TAKEN to apply ToC. Since then implementing the following changes is how Skipper has transformed its pipes business:
#1 From wholesale to retail
Bansal largely attributes the slowdown in growth of the polymer business to over-dependence on wholesalers. Since setting up the business in 2009, Skipper had preferred to work with wholesalers who operated as distributors in their respective territories. With PVC pipes being a generic product, the sales are largely based on bulk rates and subject to distributors’ negotiation ability. Price realisations were low and the company had little control over where and which retailers would be the customer touch point.
Following the application of ToC, Skipper decided to junk the wholesale business model. It would no longer sell in bulk. Further, it would no longer wait for distributors to send in fresh orders. Instead, its sales team would visit markets and connect directly with building material retailers. They would appoint dealers, collect orders irrespective of size, and hand over to the local distributor for servicing. The company would monitor and replenish distributors’ stocks to ensure there were no stock outs. The distributor would henceforth be a service partner.
Going direct enabled Skipper to build a rapport with retailers, and also build a qualitative database of active dealers and those who had never been approached. The dealers were encouraged to maintain only the required inventory and conserve their capital.
The point of sale became the new marketing territory that was hitherto ignored. Retailers were supported with brochures, POP branding material, and local activations such as display on wheels and plumber meets. As the retail footprint grew, so did sales. Bansal says that the focus on secondary sales has led to reduced fluctuations, better realisations, and improved cash flow. The company now has the pulse of the market and a capability to predict demand realistically.
“We are maintaining price parity among our retailers and this has curtailed unhealthy competition. What we bring to the table is a level of service to the retailer that is not seen elsewhere in the industry. On the whole our policies help in building trust in the brand.”
The company has 120 distributors in various states, through which it is servicing over 7,000 regular dealers and another 15,000 who order intermittently. It is planning to appoint 80 more distributors in the current fiscal. Besides the east it has presence in the northeast, north, centre and some southern states. Bansal says the aim is to eventually have 45,000 touchpoints where Skipper would be sold.
#2 Consolidation of production capacity
Skipper had steadily increased production capacity of PVC pipes and fittings, taking it from 5,000 tpa to 51,000 tpa during 2010-17. The company had set up regional production hubs through an asset light model, which entailed taking land and building on long lease. The objective was to rapidly enter new markets while conserving capital. By 2016 it had facilities at Ahmedabad (10,000 tpa), Sikandrabad, UP (6,000 tpa), Guwahati (11,000 tpa), Uluberia near Kolkata (15,000 tpa), and the Hyderabad plant (9,000 tpa) was underway.
In line with ToC, Skipper discovered that its regional plant locations were a constraint rather than advantage. While their small capacities worsened unit economics, their underutilisation reduced profitability.
SKIPPER HAS TRANSFORMED ITS PIPES BUSINESS: Consolidating production capacity at Uluberia and Guwahati is among the steps taken.
In 2018 Skipper shut down the Ahmedabad, Sikandrabad and Hyderabad plants and transferred the equipment to Uluberia and Guwahati, thus consolidating the 51,000 tpa capacity at two locations. It got its entire capex back in operation within the year, and emerged as the largest manufacturer of PVC pipes in the eastern region. Consolidation brought improved efficiencies in logistics and faster replenishment in its core markets of West Bengal, Assam and other eastern states.
According to Bansal, “ToC enabled us to prioritise the identified bottlenecks and resolve them to streamline the production and supply. By taking responsibility of the sale to dealers and limiting distributor’s role to stocking and servicing, we can now visualise the entire supply chain. We produce what we sell. This enables us to maintain just-in-time inventory. This has led to reduction in inventory levels along the supply chain, and release of capital blocked in raw material and finished material stocks.”
#3 Shift to value-added categories
It was evident that offering generic products at competitive rates could not be a sustainable growth strategy. So, Skipper went in for rapid category expansion into complimentary and higher-realisation products. In 2017 it added the Flow brand of PTMT bath fittings and Marina storage water tanks; in 2019 it launched plastic cisterns and seat covers under the Bravo brand; and in 2020 it came out with six ranges of chrome plated brass faucets and other bath fittings under the Skipper brand. Two more CP fitting ranges will be introduced in 2022. Storage water tanks, which are currently being supplied in the Bengal market, will soon if offered in the western region.
This furious expansion of portfolio worked two-fold. First it accorded Skipper more shelf space at the outlets of its pipe dealers. Second, it gave the company a foothold in the yet unexplored bathroom retail network, where it was able to leverage its brand and grab a share of the value segment.
Plumbing is a brand-oriented business, says Bansal. “Today we have three strong brands in the market, each with a respectable standing. Our thinking now is to be a complete plumbing solutions provider to our customers.”
#4 Loyalty programs for retailers & plumbers
With the launch of app-based loyalty programs for retailers (Unnati, 2019) and plumbers (Skipper Saathi, 2020), Skipper completely digitalised its engagement with the industry’s two most important influencers. And by digitally tagging the plumbers to its dealers, the company completed the loop and reinforced the demand pull for Skipper brands. Nearly 25,000 plumbers are registered in the loyalty program.
Bansal says that Skipper’s loyalty programs are being acknowledged as among the best in the trade. The members are feted with liberal reward points, the redemption policies are non-restrictive, and the gifts are attractive. The turnaround time for redemption has been kept short, to facilitate quick gratification and thereby increase loyalty.
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IT TOOK NEARLY FOUR YEARS for Skipper Pipes to get its mojo back. In 2020-21, the year that’ll be remembered for the Covid-19 pandemic, polymer sales rose to Rs 216 crore. In 2021-22 the figure was Rs 320 crore (48 percent growth over previous year), with a market split of 70:30 between plumbing and agriculture. The BU’s contribution to Skipper Ltd’s total revenues had risen to 19%, the highest since 2009.
Bansal agreed when I observed that how Skipper has transformed its pipes business is possibly a textbook case of business turnarounds. “Theory of Constraints implementation has ensured that our brands are present across the maximum number of retail points in the market where we are present. We are now available where the customer is. By matching our portfolio with what the customer wants, we are able to increase our revenues and margins. And through our close monitoring of the supply, we are ensuring that our dealers enjoy a healthy return on their investment. We are making dealing in Skipper a win-win proposition for our channel partners.”