Moat: this four-letter word has had all enthusiasts of value investing obsessed. The term economic moat, coined and popularised by the Oracle of Omaha, 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 may sound fancy and exciting in theory, but the company and its brands are a textbook definition of the term
Bharat Puri, the MD of Pidilite, is a raconteur par excellence with rather interesting stories to share from his vast experience at not just Pidilite, but also at Asian Paints and Cadbury.
However, getting back to the 'moat' bit, Pidilite has a multi-level defence system from competitors!
#1: Brands, Brands and 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 and 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 and 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 one doesn'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 and 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 and 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 connected over a 1 lakh 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 facts: Pidilite has actually revolutionised 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 and 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 representative, 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 and constant innovation keeps the company far, far ahead of all competition. Bharat also mentioned about how loyal the distributors and carpenters were to Pidilite products for generations. This is seriously strong Moat.
Whenever, wherever and however two things need to be stuck, sealed or waterproofed, Pidilite is there. The company's obsession with innovation is very Steve Jobs' Apple-like. So much so, that they have two Sales teams, one focuses on dealers and distributors (the regular stuff), while the other focuses on users, their needs and 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 and 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!. 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 and gentlemen, is a
If the pieces come off because I used a cheaper alternative, I lose my reputation." .