Plywood industry has entered into cut- throat competition mode. India has around 2800 operational wood panel processing factories practically that can be counted as plywood producing factories. Though in last two years alone, the production capacity has grown almost equal to 4000 units where as demand has remained same barring few months when it was a free orders flow. This analogy is not written statistically just because everyone in the trade can understand. The Ply Reporter thought to explain the changing dynamics of plywood industry & trade for its readers who look forward for some meaningful insight through this magazine as what is happening and what might be in store ahead.
Analysing the situation of different market segments, Ply Reporter team segregated the different price band and product categories operating in plywood industry. One may not agree or has all the freedom to disagree with the following definitions, but it is not an effort to define instead it is explained to establish what we at Ply Reporter wish every stake holder in wood panel category must be readily aware with. The present market space is occupied by Branded, Semi branded, Emerging Semi brands and non-branded plywood players. Each category is holding some large or small share. What we found realistic as definition worth reminding in present scenario mentioned as below.
BRANDED SEGMENT;
This segment is still in comfortable position with market conditions because they are managing to get orders and payments as well. It is still better and satisfied though not highly profitable at present but in better favourable condition than ever before.
PLUS- Brand image, Market Presence, Clear policy, Capital, Sales team, Able to dictate terms MINUS- Lack of connect, Driven by hierarchy, Higher overheads, Offers low margins for dealers
STATUS- Good, Growing, Expanding market share
SEMI BRANDED SEGMENT;
This category is making efforts to present themselves as second options if Branded ones are not yielding good margins to dealers. The semi branded segment is the hot category at present who are being wanted by dealers but it lacks clarity, branding spend, reach and right affordable positioning. They have good chances, if they can find their gaps and infuse more capital.
PLUS- Known Brand, Good quality, Capital, Able to convince new dealers, emotional connect
MINUS – No Clear policy, Convention spending approach, Not backed by research, ambiguity in pricing, Not able to make team, continuity
STATUS- Better, Trying to expand, Hopeful yet confused
EMERGING SEMI BRANDED;
The emerging semi branded category has plenty of new entries who are shifting upward from unbranded segment. They are the ones who have decided to choose their path but are struggling to cope up with all side attack. They have pressure yet are trying to create space genuinely with average quality, genuine price.
PLUS- Good quality, Affordable price, Flexible terms, Ready to trust and connect
MINUS- Lack of brand image, Lack of team, Dictated by markets, Thinks for short term, Inability of mass spend to support Branding, Fearful, Lack of policy & research based working
STATUS- Ready with bigger production capacity, Hopeful, Making efforts in marketing, Unprepared, Lack of enough capital, Hesitant in every step, Lack of policy, Lack of good team.
TIERED SEMI BRANED;
This segment is full off such players who have once enjoyed good margins, demand and reputation but do not know how to deal with so many odds. Dealers holding on payments, exit of good people, complaints and too much competition against too little room for margins is making this category exhausted and tiered. They have good factory but loosing grip and direction with each passing month. They have possibilities but they are reluctant and confused with steps ahead.
PLUS - Good Quality, Affordable price, Very Calculative
MINUS- Lack capital, Know too much, Unclear policy & terms, Fear to compete, Don’t have trust on people, lack Self Confidence, Too calculative
WE ALL KNOW NON-BRANDED!
Those factories who sell commodity and aim for a certain volume based price strategy, without caring much for its stamp, brand or name falls in non-branded category. The unbranded segment is more concern for net earnings instead of PAT and stay alert for day to day costing to compete on the basis of the lowest possible price. To sell its entire daily production, the player of unbranded segment often ignore cost sheet calculations and prefer to sell in hope of a margin and recovery of earning next day. This category may aim for any state or even a handful of distributors and operate on trust preference instead of policy base work culture.
This unbranded segment has been the single undisputed ruler in the plywood segment in India, where company owner decides all the company policies and change it on day to day ‘as per needs’. The unbranded segment is most loved by the traders and bulk buyers who have better paying capacity. The unbranded category takes no mention or tension of changing government policies until it reached on their door. The unbranded segment in plywood has long been undefeated, untamed and are those who have been a case study for branded, semi branded category players and marketing consultant always.
PLUS- Calculative, No Burden, Slim & Small, Cheap, No overheads at all, Wanted by bulk buyers,
MINUS – Inconsistent quality, Don’t Know what to do now, GST
STATUS- Don’t know what to do, Looking for buyers, The plywood market is flooded with finished goods supply since a year and has now entered into a high competition phase. The rising cost is not being absorbed and included in selling price thus creating huge uneasiness among small and unbranded players.
For average quality, short core plywood producers the present scenario looks highly suffocating and loss making. GST has no big relation to this instead this situation is only led by huge capacity addition in plywood industry that has taken place in last two years.
The price increase push by manufacturers is needed but over supply is blocking the implementation. Sharp rise in poplar prices has forced cheap & All-Poplar ply manufacturers to losses whereas the branded and semi branded plywood manufacturers are operating on narrow margins. Hence the trade is beginning to compete fiercely by offering lower rate despite of unviable equation.
This is the time where reverse counting has started. WHO BLINK FIRST’ game has long begun. The ability to sail through the tough period of 2019 and 2020, the plywood units need to assess and take rational decision. It is true that, there is no fix parameter for success as it works differently for different players. But it is certain that “Plywood brands with good quality and genuine price will remain desired by retailers because they too have only few options if they wish to earn margins to bear the rising expenditure and present capital needs”. Following are few basic tips which may help the industries who have not yet found their direction.
GET READY WITH CAPITAL;
What ever you are operating with, double the Financial arrangements to build purchase power and material holding capability. What is imminent for semi branded or wish to be brands players is arrange twice the working capital on what one is operating.
MERGE COMPANIES OR GET PARTNERS:
If you are a mid-size or small company who is thinking to grow but running on old ways, its important to remain alive and running during next 2-3 years of roller coaster phase. Better is to find strong and smart companions, partners and sellers. Prepare your company jointly with like minded partners than losing the battle fighting alone.
CLEAR MARKETING PLAN IS MUST
If you have been selling without and marketing efforts until now, better make a plan now. A well thought marketing plan with clear target of region and pricing, capability and willingness to execute the plan, and an effective 6-7 people team to convert sales and bring Payment collection need to be done or strengthened.
FIND EFFECTIVE SALES PEOPLE:
If you are selling yourself along with taking care of manufacturing, then its time for finding right sales people who can work full time on sales and you can focus on quality and capital rotation. Effective sales people will be able to bring orders that will help you in thinking and planning a better sales plan in new areas.
NO POINT RUNNING IF YOU ARE NOT HAVING CASH FLOW;
Running a plywood industry need a daily cash flow for buying timber, veneer, paying wages, raw materials and other hundreds of expenditure heads. If an industry is facing fund crisis means somewhere the policy is faulty. Somewhere sales are not happening instead your industry is being taken for a ride. If payments are crossing 30-45 days tine means you are not wanted by the dealer, you are forcing yourself. Find your position and make it a priority to work with committed paying dealers or better to reduce production.
DO NOT HESITATE TO PRICE INCREASE:
There has been sharp rise in manufacturing cost of Plyboards hence a price increase is long anticipated. The price escalation in Eucalyptus, Poplar, Fuel, Chemicals and Labour wages have forced the plywood cost up by 8 to 10 %. The wise step is to pass the cost burden instead of weakening the company.
Margins and cash flow are much required for growth of any company, if it is not there, create more markets and widen your network. Revise you rate with updated cost sheet. The Mid Segment companies undoubtedly need banking support and they must work to align with new format. The scenario in coming months will be driven by capital rich players and times are very troublesome for weak ones. Its time for manufacturers to think, plan, implement wisely and not to follow other like sheeps.
The wood panel & surface material segment has sustained demand but Payments and need of Capital is alarmingly serious. The time for revised rates is here which will certainly be negotiated by cash rich buyers added by pressure due to oversupply of finished goods. But running the industry wisely is the need of the hour. Plywood market is getting slowly organised and now hold 20 % market share. Another 25 % belong to ‘Semi branded’ and Wish to be ‘Semi branded category’.
At Ply reporter, we estimate that Branded and Semi Branded segment will continue to expand and take over the unbranded share in next 5 years span. Rest shall be covered by new substitute products. The point one need to think over again is where do they belong.