In today's Finshots we see if Asian Paints is abusing its market dominance

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The Story

Asian Paints is a behemoth. In the decorative paints segment, they have a market share of 50%. That is insane.

But of late, many companies have tried to slowly chip away at its dominance. Most notably JSW Paints — who’ve been trying to make inroads in this market since 2019. For the uninitiated, JSW Paints is part of the $13 billion JSW Group. They made their money in steel and they’ve been foraying into other domains in a bid to diversify away from steel. But when they tried dabbling with paints a few years ago, they hit a roadblock — Asian Paints.

They alleged that the company was trying to stall its growth and lodged a formal complaint with the Competition Commission of India (CCI).

But wait…what exactly did Asian Paints do?

Well, let’s start from the top.

The year is 2019. 3 years after announcing its intention to sell paints in India, JSW Group sets aside ₹600 crores to formally begin its expansion. It reaches out to paint dealers in Bengaluru and Hubli (a city in Karnataka). It sends its sales reps to explain the business — the special features, the incentives and all that.

They even offer a very Unique Selling Proposition (USP).

Something called “Any Colour, One Price”.

Okay, so imagine going to a dealer and choosing a shade of paint. You’ll see thousands of options and hundreds of different quotes. It can all get very confusing, very quickly. And since we’re all value-conscious, we’ll probably pick the cheaper alternative.

Even if we don’t like the colour.

And JSW Paints wanted to change that. They wanted to offer the same price for all 1800 shades. It even called the differential pricing strategy (a tactic employed by other paint companies, primarily Asian Paints) an “injustice”!!!

Anyway, the dealers were convinced. JSW Paints began accepting advance payments from these dealers and promised to supply the paint soon enough.

Now here’s the thing — The dealers were crucial to its success. They’re the ones selling paint to end consumers. But when JSW Paints tried fostering a relationship with some of these dealers, it seems that they were met with resistance. Some even paid the advance and backed out of the agreement later.

And this is when JSW Paints made the most extraordinary allegations.

Allegation 1: Asian Paints arm-twisted dealers

Asian Paints does have the most extensive dealer network - over 70,000 to be precise. And in theory, they could force their dealer network to act in a manner that excludes competition. And JSW alleged that the company did just that. They said Asian Paints stopped extending discounts, curbed “loyalty” trips and delayed supplies to dealers who were willing to work with JSW.

Allegation 2: They kicked you out if you didn’t comply

JSW alleges that a dealer had their dealership ID revoked out of the blue since they were willing to partner with JSW Paints. In fact, they also contended that the dealer was asked to make a written submission to Asian Paints stating that they wouldn’t deal with JSW Paints in the future. Only then, did the supplies resume.

Allegation 3: They even targeted warehouse operators

When a company signed an agreement with JSW Paints to operate a warehouse and stock their paints, Asian Paints allegedly stepped in to scuttle the deal. The company was asked to pick between Asian Paints and JSW and it was alleged that the promoter eventually decided to walk out of the deal altogether. JSW believed that this little scuffle delayed their entry into Hubli.

Allegation 4: The Balaji Traders' Charge

A Tamil Nadu based dealer Sri Balaji Traders alleged that Asian Paints removed essential tinting software that enabled the company to create critical shades of paint. They also argued that they were demoted from being a “Critical Partner.”

And on the face of it, all this looks pretty bad for Asian Paints, no?

I mean, they’re a market leader and they’re seemingly preventing competition from establishing their foothold. This could have a detrimental impact on consumers who may never have the option of buying JSW Paints.

So the Competition Commission of India had to intervene and investigate the matter.

But what they found, may surprise you.

  1. The Director General found that JSW Paints was dealing with about 1591 dealers. And 86% of these dealers also worked with Asian Paints. So if it were a systemic issue, shouldn’t more dealers have stopped working with Asian Paints?
  2. They also found that Asian Paints, the market leader, was able to add (net) 1217 dealers during 2020 and 2021. But JSW managed to add 1591 dealers during the same period. So the exclusionary tactics didn't seem to have had a massive impact on JSW’s expansion plans
  3. Also, a higher percentage of dealers discontinued their relationship with Asian Paints when compared to JSW in relation to the net additions they made. Hmmmm…
  4. Only 15 dealers, out of 1378 allegedly common dealers came forward and levelled allegations against Asian Paints. And none of them could substantiate their claims by offering evidence. Meanwhile, Asian Paints seemed to have offered considerable evidentiary support to explain their decisions — including the alleged “mistreatment”
  5. And the warehouse problem in Hubli? Well, it seems that there were other logistical disputes between the warehouse owner and JSW Paints.
  6. And Balaji Traders? Well, their ‘Critical Retailer’ status was downgraded in April 2021 and not February 2021 as claimed.
  7. Finally, the Commission also noted that JSW Paints may have coerced some of the dealers to include written statements about Asian Paints’ exclusionary tactics

So yeah, while it’s entirely possible that sales folks within Asian Paints’ rank and file may have acted improperly in some cases, the CCI did not find convincing evidence of any wrongdoing at a systemic level. In fact, they offered Asian Paints a clean chit.

But JSW Paints doesn’t seem to be in any mood to relent.

Even though the CCI didn’t find any evidence of wrongdoing they did concede that Asian Paints was a dominant player. So JSW believes that dealers don’t want to speak up, since it could invite swift retribution from the “dominant” player. They may even be looking to take the matter to the National Company Law Appellate Tribunal (NCLAT).

So yeah, we’ll just have to wait and watch how this battle turns out.

Until then…

You let us know what you think about the matter.

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