The Unquenchable Thirst

Kent RO has managed to create a niche in the water purifier market, but can it get to the next level of growth? 

At his corporate office in Noida, Mahesh Gupta has visitors waiting for him — one of them happens to be someone who is going to help him expand his company, Kent RO Systems, to Turkey. While, Turkey has better living standards as compared with third world countries, it might seem slightly unrealistic, that they need ‘pure’ drinking water. However, Gupta strongly believes that there is potential for water purification. Turkey is only one of the many new markets Kent has its eyes set on. The company not only plans to take its flagship product overseas, but it has also moved into newer categories in the domestic market, with products such as air purifiers and kitchen appliances to sustain its growth momentum. Will its bet pay off? 

Modest beginnings
Kent’s journey began from Gupta’s garage in 1999 and ended up creating a niche for itself in reverse osmosis (RO) water purifier segment; emerging as a strong contender to the market leader, 32-year-old Eureka Forbes. In the 1990s, Eureka Forbes sold UV water purifiers. “I didn’t find that good enough then because UV technology fails to remove dissolved impurities in water,” recalls the 61-year-old Gupta. Both his children, Varun and Surbhi contracted jaundice in 1998, after drinking tap water. 

Gupta, an IIT Kanpur graduate, began assembling imported RO components to put together a water purifier in his garage. “RO can remove soluble impurities unlike UV purifiers, which were popular back then,” says Gupta. After an initial Rs.5 lakh investment, he built several pieces and, in 1999, managed to sell about 20 units in Delhi at Rs.20,000 a piece. “It was very tough initially since, water purifiers were sold at Rs.3,000 at that time. We used to test total dissolved solids content at a buyer’s place, and then offer them the water treated by RO. The change in taste of water, converted many initial customers,” recalls Gupta. 

Kent today dominates the RO space with 35% market share and, last year, it sold 1 million water purifiers, clocking a revenue of Rs.780 crore (FY17). The company is hoping to close the current financial year (FY18) with a revenue of Rs.950 crore, a 22% growth over the previous year. Even at Rs.14,000, the starting price of ROs today, Kent has managed to find increasing acceptance in smaller cities, leading to a country wide network. Although, Kent’s strength is RO-based water purifiers, it also offers gravity and UV-based water purifiers starting from Rs.1,500. “Given that the penetration of water purifiers is only around 2%, there is still a lot of room to grow. The penetration of automatic washing machines, which has a similar starting price point, is around 10%. That means I can still grow multiple times with RO. If the RO penetration grows up to 10%, it means market can grow 5x its current size,” says Gupta. He also expects volumes to move up as the firm brings down the price of water purfiers. “It is a constant endeavour for us to reduce costs.”

Kent’s managing director (MD) Varun Gupta, who joined the business in 2005, recounts what worked for them. “When Eureka Forbes launched purifiers in the ‘80s, it was good enough to remove microbial impurities. But as the surface water depleted in India, people switched to groundwater, which has a lot of dissolved impurities that the UV technology didn’t address,” he says. He feels that they successfully identified a huge gap in the market. “Our product immediately helped people to get over the khaara paani (hard water with dissolved impurities) issue.”

However, the inflection point for the company came in 2005-06. At that time, Gupta played his cards right; and Kent has been benefitting from that, till date. The disadvantage of RO is that during purification, it removes essential minerals from water. “So we launched a new product called mineral RO, which helped preserve the minerals. Once we had this product, we decided we would go all out,” recounts Gupta. As it grew in popularity, Kent roped in Hema Malini as its brand ambassador and launched its first TV commercial in 2006.

Gupta feels that having Hema Malini as the brand ambassador helped Kent create the right image for its customers. “It was difficult to convince her. But we knew she would have great appeal among housewives, who are the decision markers when it comes to purchasing household products,” says Gupta. Looking around Kent’s office, the brand ambassador’s presence is all-pervasive — the walls are filled with her posters. “Choosing Hema Malini over a young film star was a great decision because it is not a product that would attract the younger crowd,” says Prateek Srivastava, co-founder at ChapterFive Brand Solutions, a marketing consultancy.

Marketing has played a critical role in Kent’s success over the years and, even now, Gupta handles that department. With 12-14% of its turnover spent on advertisements, Kent has the highest marketing spend in the industry. While the ads gave Kent considerable brand recall, the company has also worked on improving its reach. “We went all out in building our distribution network. Whether it was a small retail shop, organised retail or direct marketing through franchising — we kept increasing our presence in all the channels,” says Gupta. Currently, Kent has around 12,000 retail outlets, 3,000 distributors and 500 direct marketing franchises across the country. The company, which is present in almost all 600 districts across the country, follows a strategy of building its distribution and servicing network before entering a new city or town.

 Kent is now also looking at avenues, other than advertising, to reach out to potential customers. “We started putting up community plants to give people an idea about how purified water would taste like,” says Varun. Kent has done this in 40-45 small towns such as Mathura, Uttar Pradesh and its surrounding towns at a cost of Rs.5 lakh. “We plan to continue doing this. It is not an easy to crack this market, but you have to reach the masses,” he says. Kent’s fiercest competitor, Eureka Forbes, though, has been ahead in making similar efforts. Eureka Forbes MD Marzin R Shroff claims, “We have 480 community plants, which supply water to approximately 15,000 people in each cluster and the customer pays 20 paise per litre.” 

Looking out
Apart from expanding its presence in India, Kent has managed to establish its foothold in neighbouring countries such as Nepal, Bangladesh, and Sri Lanka with exports contributing 10% to its revenue now. “Southeast Asia is a high potential market for us, since countries such as Indonesia, Vietnam have bad water quality and they have a large population that we can cater to,” says Gupta. 

It has taken two decades to reach this level in India, so won’t Kent face competition there? Gupta explains, “The concept of purified water does not exist; we are trying to create that concept. Everyone wants to have bottled water. We are trying to get customers to do away with bottled water and switch to purified water.” 

The company also entered the Middle East in July 2017 with a tie-up with Lulu hypermarkets and UAE-based distributor, Sands International. The water purifier market in the Middle East is estimated to touch $500 million by 2020. And Kent is hoping to capture a part of this market. The company has already started seeing initial traction from Kuwait, where it has been selling around 300 RO water purifiers every month. 

While Eureka Forbes agrees with Kent on the potential of the Southeast Asian and Middle Eastern markets, the company is taking a slightly different route. “So far, we have avoided exporting to distributors, though in certain parts of Africa we do that. In parts of Asia, where there was a market for our products we have taken the acquisition route and have a presence across the value chain. We are also testing waters in the UAE,” says Shroff. 

Ruling the market
While Eureka Forbes, claims to have over 60% share of the Rs.3,500 crore water purifiers market, Gupta claims that Kent is ahead in RO water purifiers, which is 42% of the overall market. The domestic market for water purifiers is growing at 15% each year. But given its low penetration levels, Kent is hopeful of growing faster than the industry on the back of its strong brand positioning. Also, Kent is doubling its capacity to 2 million units a year by building a new plant in Greater Noida, besides its three existing plants, in Roorkee, Uttarakhand. 

About a decade back several MNCs such as HUL, Panasonic, and domestic players such as Luminous, entered the RO space and were touted as a threat to Kent and Eureka Forbes. For instance, HUL entered the market in 2008 with two strategies where it positioned the entry-level product (storage purifier) in line with the government’s Swachh Bharat initiative, doing lot of activation in relevant areas. For the RO offering, HUL roped in Farhan Akhtar and Prachi Desai as brand ambassadors in 2011, in an attempt to replicate Kent’s strategy of roping in Hema Malini. While HUL’s Pureit and Tata Swach have been doing well in the lower-end of the water purifier segment, Gupta doesn’t feel threatened, because Kent is firmly entrenched as the market leader in the RO segment. Water purifiers are yet to be seen as essential household items and so the adaptation has been gradual, but Gupta is betting on things to eventually change as income levels improve.

Going beyond water
While the water purification business is taking its time to scale up, Gupta is looking beyond water purifiers to launch new products, using Kent’s existing distribution network. His main criteria, when it comes to adding a product category, is that it should be able to leverage the plank of purity that Kent has already created and it should have little or no competition. “We don’t want to add a ‘me too’ product. For example, we launched a fruit and vegetable cleaner addressing an India-specific problem of pesticides,” says Gupta. The company has entered categories such as air purifiers, kitchen appliances (vegetable and fruit cleaner, cold-press juicers, noodle and pasta maker, rice cooker etc) and vacuum cleaners over the past two to three years.

But some of the new segments are still in a nascent stage. For instance, air purifiers, where Kent managed to sell only 20,000 pieces last year, is only around Rs.100 crore. Even if the average price of an air purifier is taken at Rs.15,000 per piece, the revenue is not more than Rs.30 crore. Given the high level of pollution seen in Delhi in recent times, Gupta is confident the demand for his product and the size of the market will only increase in the coming years.  

Industry experts, too, believe that Kent is on the right track. “Having established oneself as a brand, gives you recognition and ample opportunity to move into newer product categories,” feels Srivastava. Although Gupta is not working on any set target for the products other than water purifiers, he would love to see it contribute about 10% in a year’s time. Right now, non-water purifiers contribute around 7% of overall revenue. To showcase its wide product range, Kent has set up its first experience centre in Noida’s DLF mall this year. “The centre will allow consumers to experience Kent’s products and its features through live demonstrations,” says Gupta. He still doesn’t know whether it will become economically viable to have exclusive stores, but he is not averse to such an idea in the future. “We are planning to open 10 more brand experience centres by the end of this year in Delhi-NCR.” Two centres have already been inaugurated, one in Noida and another in Lajpat Nagar.  

Given the segment that Kent operates in, it will continue to be a niche player but its strong brand recall will allow it to experiment and enter newer segments. Also the strategy of not entering the competitive mainstream segments will ensure its profitability as well. It has been nearly two decades since he built his first purifier in a garage. Gupta never thought that he would come this far. But now, there is no stopping him now, “I want to be an Indian MNC in the future,” he smiles.