The Power of I 2014

Spreading its fragrance

Mysore Scents has done well over the decades to emerge as a successful agarbatti exporter

The only connection with Mysore now remains in the name. Mysore Scents is headquartered at Mumbai’s Nariman Point, its plant is in Kandla, Gujarat, and its customers are all over the world. “There is strong brand equity for a fragrance company named Mysore. It doesn’t really matter that we have nothing to do with the city,” grins Anil Ahuja. Not anymore, certainly. But Mysore Scents Co can trace its origins to Karnataka’s city of palaces, when Ahuja’s father set up Mysore Fine Agarbatti in 1958 with a local partner. 

Madhavdas Ahuja moved to Mumbai during Partition and, as a teenager, sold agarbatti on a bicycle. Having heard of Mysore’s famous perfumes and fragrances business, he tied up with a partner in Karnataka to manufacture agarbatti for the regional market. In the early 1980s, the partnership broke up and the Ahujas decided to set up in business on their own. Anil joined the company around the time, the plant at Kandla (India’s first special economic zone) came up and the focus turned to creating a branded product, but the Mysore association was retained. “There are at least 200 companies with the Mysore name today. But not all of them are based in the city,” says Ahuja, chairman, Mysore Scents.

His claim about branding power has been borne out. Mysore Scents now produces over 1 billion incense sticks every year that are exported to over 40 countries and sold in India under the Aroma India brand. Its products are available at 13,000 outlets in the US and over 1,500 outlets each in Europe and Japan. With Anil’s son, 29-year-old Sanjay, also joining the business, the company now has an active third generation management and clocked a turnover of ₹31 crore in FY13, up 10% from FY12. The Kandla factory has grown three times from its initial 25,000 sq ft, has a capacity to manufacture 1 billion sticks a year and employs over 200 people. The target going forward: 40% increase in capacity over the next five years and at least 15% increase in turnover each year.  

Agarbatti vs incense

Anil Ahuja’s first trip overseas is a vivid memory. He travelled to picturesque Mauritius in 1985 to meet potential customers for the newly-launched Mysore Scents. But not too surprisingly, the highlight of the visit wasn’t the white sand beaches, water sports or underwater adventures; it was the many meetings with the customer, which helped the company gain a foothold in the export business. The meetings started as a trade enquiry but Ahuja says the quality of his products and manufacturing facility impressed the Mauritius team enough to convert it into an export order of ₹10 lakh. He credits the order to switching to the Kandla factory, which used more modern processes and more efficient systems. “Building a factory in the Kandla SEZ was really a turning point for us and that was also when we realised how big the export market was. Till then, we were a company focused completely on the domestic market,” says Ahuja. 

Certainly, the domestic market is several times larger than the export one, which explains why companies make a beeline for it. The agarbatti market in India is worth around ₹5,000 crore, estimates Ahuja, and is growing at over 10% a year. “Exports, though, account for only around $75 million (₹457 crore). The scope for increasing this figure is immense,” he adds. In India, agarbatti is primarily used for religious purposes, which is the case in several other cultures as well, in Africa and parts of Asia, especially. “Here we light about two sticks at a time, while folks in Nigeria light about 10 altogether,” says Sanjay Ahuja, managing director, Mysore Scents. While purely religious use would naturally restrict the market for agarbatti, what’s making the market smell sweet is the current craze in Western markets for burning incense as part of aromatherapy and home décor. Arjun Ranga, partner at Mysore-based NR Group, offers another reason for the increasing market size. “Due to the increase in focus on spirituality, incense sticks are used during meditation and yoga, which is helping the market share grow.” The ₹450-crore NR Group is a large player in the domestic agarbatti market with its Cycle brand; exports account for 10% of the company’s production. 

Essentially, what differentiates traditional incense from its more modern counterpart is appearance and the choice of fragrance: in India, Africa and West Asia, the agarbatti sold are black sticks, since they are coated with charcoal. In other countries, charcoal is banned, so different materials such as jigat powder (made from bark) are used and the incense is also available in various colours and shapes (usually cones). That’s where product innovation comes in, and where Mysore Scents stands out. “At the end of the day, we manufacture a very simple product and look for innovative ways to do that,” quips Sanjay.  

Spoilt for choice

Mysore Scents started expanding its portfolio around 2000, when it ventured into the US market. “It is a tough market since our customers negotiate hard, but one needs to be there just for its size. Today, it accounts for 40% of our turnover,” says Sanjay. This includes big-name retailers such as Dollar Tree, Target, Big Lots, Walmart and Family Dollar. In 2002, the European foray took place with an entry into the Netherlands and then Spain. Now, the company has an export showroom in Delhi, where its portfolio of over 200 products is on display and where potential customers can interact with a company representative.

New products and variants are the result of not just market intelligence garnered from trade shows and industry trends, but often because of customer requests and enquires. Some time in 2002, for instance, a customer from the US asked for a 19” incense stick. “We were a bit surprised since the standard size is 10”. Later, we realised this was to be used as a party stick at a barbeque,” says Sanjay. Against a one-hour burning time for the standard stick, the longer version holds out for almost three hours. But it is also priced higher, retailing at $9.99 for a pack of five, versus $1-2 for a pack of 40 standard sticks, which is one reason the company didn’t anticipate demand for more than 200,000 sticks. Eventually, though, it sold twice that amount.

If the US is all about bigger and brighter, Japan is at the other end of the extreme. The Ahujas point out that getting it right in Japan means getting a market for life. “If the Japanese like your product, they can be very loyal customers,” says Ahuja. That means not only ensuring that products destined for this market meet the highest quality standards, they also have to cater to the Japanese preference for smaller sizes. Soon after Mysore Scents started exporting to Japan in 1995, it came up with a 5” variant — now, Japan accounts for 10% of the company’s exports.

Innovation at Mysore Scents isn’t only in terms of product size and incense cones vs stick agarbatti. The company also plays around with fragrances and packaging to ensure that it reaches out to the widest possible audience. While vanilla continues to be the largest selling ‘flavour’ globally, fragrances such as green tea in the US, lavender and rose in the UK and baby powder in Japan are very popular. According to Sanjay, tastes in the US change almost every quarter in line with festive seasons such as Halloween or Christmas. “The US is also very big on Indian concepts such as yoga, spa, ayurveda and neem,” he says.

Mysore Scents has two freelance perfumers that have contributed to the development of the company’s 250-odd variants and introduce two new ones every month. These perfumers work on a retainer basis and help Mysore Scents come up with new scents, but are not involved in the manufacturing process for confidentiality purposes. They take anywhere from a week to 10 days to come up with their ideas, which the company combines with market trends to create the final fragrance at its factory.  

The choice of fragrance and binding material may make a difference to the base price of incense, but what determines the final rate is the packaging. The choice of packaging is decided by the client and the Ahujas point out that while Europeans don’t mind paying extra for quality, in the US, the price is given in advance and the company needs to work backward from that. “Most European customers prefer a contemporary look while in the US, there is a marked preference for anything that is eco-friendly and can be recycled,” explains Sanjay.  That means increased use of aluminium cans, recycled paper and material for the US market, while European products could include more sophisticated and expensive materials such as wood or stone, diffusers and incense burners. 

Mysore Scents has a three-member team that creates artwork and packaging options based on client requirements. The team also travels overseas with Ahuja and Sanjay to trade shows to understand what clicks in a certain market. “That is the only way to be in touch with what is going on,” says Sanjay. The attention to packaging and design is evident from the fact that of the company’s 200-strong workforce, as much as 60% is involved in the packaging department. The Ahujas say their attention to the look of their product is a definite plus when it comes to gaining clients. And in a crowded market, every edge counts.

Holding back

Although agarbattis may seem like a particularly Indian product, there is huge competition from manufacturers in Thailand and Sri Lanka. Consequently, says Ahuja, margins are barely 5-6%. That’s one reason why the company has forayed into ancillary products such as scented candles (2002) and potpourri (2008). Even so, 80% of business comes from agarbatti and will remain the focus area “for a very long time”, says Sanjay. Domestic business, too, isn’t a priority — it accounts for less than 5% of revenue. That’s because the Indian market, though huge, is very price-sensitive and hugely fragmented. A pack of 18 sticks in India may be priced as low as ₹10, whereas, says Sanjay, in the US, prices start at $1 for a pack of 40 and at €2.50 in Europe. 

As with other products, there’s been a Chinese invasion in this business as well. Predictably, Chinese exporters took the price route when they entered this business in 2005-06 and shook the dynamics of the market. “It worked for a while and that was challenging for us. But most of the customers in this category are extremely quality-conscious and today, the China factor is not such a key concern,” says Sanjay. The bigger worry is to squeeze higher margins from price-sensitive markets such as the US. “It is too big to ignore and we are up against much bigger players,” he says.

Still, the Chinese influx contributed to Mysore Scents’ woes during the 2008 crisis. Volumes dropped and customers began to downscale. “It affected the premium segment in particular since customers were using cheaper options,” Sanjay recalls. Which meant a Bed Bath & Beyond shopper, for instance, started shopping at Target, while those shopping at Target settled for the cheaper Dollar Store. The silver lining was that budget stores increased their volumes. But that wasn’t enough to compensate and Mysore Scents saw a 15% drop in turnover. Credit cycles, too, got pushed and from its earlier upfront payment system, money took 60 days and more to come, even in markets such as the US. The recovery didn’t happen till FY11.

The current economic climate, too, has its challenges. Ranga of NR Group, though, points out that the agarbatti markets in erstwhile ‘good’ markets such as Iraq, Egypt and Libya have collapsed completely due to the social unrest there. Then, there’s the problem of rising raw material costs, although Sanjay says buyers are willing to absorb costs in most cases. Another worry right now is the way the rupee is moving. “On the face of it, people may think it benefits exporters but that is only partly true,” he maintains. “Buyers are aware of how much we are making and they start to negotiate very hard for each order. That puts a lot of pressure on us.” Ranga seconds that thought. “Currently, the rupee is weak and thus favourable but three years ago, when it was at 42, it was affecting business tremendously. But pricing has to be always competitive — one cannot raise or lower prices drastically during economic fluctuations,” he says.

Over the next five years, Mysore Scents wants to spread its reach to at least 10 more countries. “This will include Russia, Turkey, Malaysia, Singapore and Indonesia. We also want to launch new products and new concepts such as diffusers, which we are working on,” says Sanjay. Ahuja quickly jumps in with a caveat. “We started off as an agarbatti company and we will always remain one.” When the agarbatti business smells as good as this one, why not indeed.