Climbing a slippery slope

Krishna Malhotra is 65 years old and hasn’t quite gotten around to appreciating a washing machine yet. She still likes to work her khaki-colored, cubical washing soap on her dirty laundry — hard. “My parents used to buy it. So like them, I started using Naulakha,” says the nostalgic senior citizen of the brand that’s almost synonymous with washing soap in low-income markets of northern India. “This must have been some time in the 1960s. Now, it’s a habit”

It all started when Dharam Chand Laddha Mal Jain, a resident of Lahore, started two small washing soap factories, one in Lahore and one outside it, where he stirred his soaps by hand in karhais (frying pans). The year was 1895, nine years after William Hesketh Lever and his brother James bought a small soap workshop in Warrington, outside Manchester, in 1886. One hundred and seventeen years later, Dharam Chand’s business is far from the massive FMCG empire that Unilever has become. But his cheap bars of washing soap (colloquially called chakki amongst Punjabis), which still displays his name proudly, has been used by generations of loyal North Indians to hand-wash clothes. As a result, Naulakha is now a Rs.100-crore company. 

Naulakha is a classic example of a business run by an HUF (Hindu Undivided Family). “Even two brothers find it hard to work together but we have had five families managing the business for decades,” says a proud Abhey Jain, partner, Naulakha Surfactants. His grandfather, Munilal Jain, had four brothers. “Naulakha is our gotra [clan],” laughs Jain, when asked about the origin of the washing soap’s unusual brand name. When the Partition of 1947 forced the Jains to relocate to Delhi and start all over again, Dharam Chand’s sons did it by spending Rs.3,000 on a 3-room factory and a wholesale-cum-retail outlet in Old Delhi’s famous Khari Baoli Market, which still stands. Delhi’s immigrant-refugee population readily recognised the brand. “This helped us,” Jain adds. 

Over the years, the Jains expanded their reach and business. Seven soap-making units sprang up in Delhi, another in Punjab’s Derra Bassi in 1986, in Rajasthan’s Bhiwadi in 1998 and, most recently, in Uttarakhand’s Roorkee, in 2007, which can collectively manufacture 200 tonnes of soap every day. Even today, the manufacturing process for the washing soap is largely manual. Workers toil over huge karhais, and the stench of inedible vegetable oil cooking stoutly stirred with caustic soda yields piles of uncut washing soap.

The number of outlets has also increased. Compared with 3-4 outlets in the 1950s there are now 50 Naulakha outlets, most of them in the NCR region, and some in tier 2 towns such as Ambala and Meerut. “We couldn’t afford intermediaries because of our thin margins,” says Jain of Naulakha’s small, no-frills retail-cum-wholesale outlets. In the complete absence of a dealership or distribution network, local vendors buy from these outlets to re-sell after adding a margin of Rs.2-3 per kg. The premises, which look like ration-shops, are rented in low income localities, mostly company-run, and they break even quickly with modest power bills, one or two employees, and Rs.1 lakh of the company’s own stock. 

Staying alive

The SME soap industry nearly skidded to a halt in the 1990s when liberalisation delivered a flood of MNC washing products. Competitors such as Bobby Sabun and Rakhwala Soap shut shop. Some of Naulakha’s customers did leave but to the rest, it clung on for its dear life. Its buyers are bottom-of-the-pyramid housewives and dhobis, and the brand has got its low cost-low price model right.

Costs are, in fact, tightly controlled. All transactions are cash on delivery. “It’s the only way to survive,” feels Jain, whose office is a simple factory cabin. “If we ape the MNCs and start giving credit and dealer margins, the capital requirement will shoot up. Then we will drown, like other small and medium players.”

They don’t advertise either. “We can’t afford it,” Jain says. Naulakha relies on word-of-mouth and brand equity whereas MNCs have an annual ad budget of Rs.200-300 crore. “That’s not even our turnover,” he adds. “We have survived the might of MNCs by controlling our costs.” The brand is so low-key that none of the market analysts Outlook Business approached for inputs are aware of it.

Naulakha’s washing soap costs Rs.54 a kg, whereas Rin Advanced detergent bar sells at Rs.15 per 250 gm cake (that is, Rs.60 a kg). Jain believes Naulakha benefited as other local brands, which persisted with the conventional model of a large distribution network and margin sharing, went under when MNCs blitzed the detergent market. A November 2010 report by the CMIE says the market for washing soaps is estimated at Rs.84.5 billion (compared with Rs.37 billion for detergent liquids and powders). 

Moreover, “We have diversified immensely during the last 15 years,” says Jain, who lines up his range of products: fabric stain remover, detergent powder, fabric whitener, dish wash bar and gel, liquid hand wash, toilet cleaner, body oil and herbal shampoo. These are sold under various brand names such as Condet (detergent powder), No 66 (washing powder), Oras (body oil) and so on — but, like the flagship chakki, they’re sold at company outlets. Although Jain credits his company’s survival to the expansion of his product range, it’s Naulakha that  continues to haul in 70% of his revenues, which stood at Rs.100 crore last year.

However, the promoters believe national expansion is illogical. “The economics is prohibitive for value products,” Jain points out. “The freight cost of Rs.6 per pack to send it to the south is unviable — it will make me costlier than the local manufacturers.” Going forward, Jain wants to grow not just the company’s products but also its contract manufacturing business. Last year, Naulakha started third-party manufacture of detergent and washing powder for domestic as well as export markets (mainly West Asia). Currently, this line accounts for only a minuscule part of total sales but Jain is confident of developing the business in the coming years. Meanwhile, he plans     to add three to four stores and one or two new products a year.

With rising disposable incomes, increasing number of working women, and washing machines, isn’t Naulakha nearly extinct? Krishna Malhotra’s daughter-in-law, Mala, agrees, “I have tried it  but I find detergents more convenient.” Naulakha’s survival appears fragile: it has one bar of soap and a few other products that aren’t exactly selling like hot cakes. “Not everyone has washing machines,” Jain defends. Other products have a local market, too. “There will always be takers for cheap products and hand-washed clothes.”

It would appear that Dharam Chand’s great-grandson is still fighting William’s and James’ great-grandsons. It’s not a battle he hopes to win, but he certainly expects to survive. As Jain puts it: “We can’t win on their turf, but they can’t win on ours either.”