The Journey of an Incense Stick: A Rural Success Story
Original Author:
Kiran Mahasuar, Branch Manager (Fevicol Division),Pidilite Industries Ltd, Odisha. He
was earlier associated with ORMAS – ITC Project for Agarbatti SBU of ITC Ltd,
Chennai. He is an alumnus of XIM, Bhubaneswar.
Introduction
The agarbatti industry in India today is worth Rs.3345 crore (appox. 105 billion sticks)
and growing at a CAGR of 15 per cent annually. The market is highly fragmented with
approximately 400 brands in circulation and 200 players. Not surprisingly, top five
price/pack combinations account for only 25 per cent of the industry and bulk of the
production and demand is concentrated in low value – low margin less than Rs.5/-
packs. The past decade has seen a lot of transition in market place and thanks to the
ever-declining information asymmetry and rising disposable income; the consumers
today have become brand conscious and shown a distinctive affinity towards value-
added/premium category products. This transition has benefitted the agarbatti industry
in more ways than one. Behemoths like ITC have entered this emerging business and
old stalwarts like NRR & Sons, Moksh, and Ambica etc have all ventured into new
territories from their tradition south India strongholds.
Traditionally, agarbatti making has been a labour intensive and women dominated
industry. This industry today is in the cusp of a new phase of growth aided by
significant government patronage in select states and is case-study on how to align the
business needs with social development. In the process, the business model for sourcing
of raw incense batti has been re-engineered and today is a source of sustainable
livelihood to thousands of women.
In the past, the business model revolved around middle-men and few traditional
agarbatti manufacturing clusters and the value proposition for a women beneficiary was
minimal or non-existent. Typically, the accredited vendor of an established player
would identify a traditional agarbatti cluster and approach the middlemen operating
there. The middlemen would mobilise the women and start the rolling of agarbatti in
the cluster by supplying raw materials sourced locally or from nearby towns. After a
fortnight or so they would collect the finished batti and pay a labour charge on the pre-
decided arrangement with vendor, they would dispatch the raw batti so collected for
perfuming and packaging in fancy decorative packs. However this sourcing model was
characterized by several structural flaws some of which are as detailed below:
Non- standardized procurement methods thereby resulting in varying quality of
produce being sourced and assembled in perfumery of vendor later
Low wages for the women beneficiary with acute disparity form region to region
Low quality of produce (B & C grade)
Low average yield on account of no incentive for additional production
Inconsistent supply owing to non-availability of raw material locally
High cost of procurement for vendor
No control on quality parameters of raw material or finished product
Non- standardized packing and dispatch methods leading to loss in transit
Recurring commercial issues pertaining to payments to middlemen and women
beneficiaries
The innovation: re-engineering the supply
The onset of globalization and information explosion propelled the demand for
premium category or value-added incense sticks to grow manifold. The agarbatti
behemoths felt a need to increase the supplies and ensure quality for the discerning
consumers for incense grew, so did demand for raw incense and the need to re-model
was felt in many quarters. What followed next was an innovation in business model
which created a win-win situation for all the stakeholders. Today, the industry norm is
a hub and spoke model wherein a centralized hub operated by the manufacturer or an
accredited vendor of the manufacturer caters to the need of several clusters which
operate like spokes.
The raw material movers from the central warehouse to hub locations and from the hub
there is an inward and outward flow of raw batti and raw materials to sub points
operated by SHGs/federations/NGOs. The central warehouse typically has five capacity
and a hub has 20 MT capacity. The capacity of sub operated by NGOs/SHGs/federations
varies from 2MT to 5 MT. SHG/NGO/federation operates as an individual profit center
and there is no element of subsidy or credit at any stage of the supply chain. The model
has benefitted significantly from government patronage wherein SHGs have been
generously funded by in the initial stages for working capital, training and
development, etc.
Conclusion
As the agarbatti industry moves into the next level of growth, the vital backward
linkages in supply-chain fostering an inclusive growth for all the stakeholders, shall be
a key enabling factor. The timely change in sourcing model for raw incense not only
ensures an abundant supply of the raw batti but also caters to the marginalized and
hitherto neglected rural women.
