Entrepreneurship is a numbers game in which businesses compete to open more stores, launch more products, enter many markets, and if they do it right, deliver record profits.
While that strategy often works, Tropical Heat, a fast-moving consumer goods (FMCG ) manufacturer, has preferred a different approach, one that has kept it on a sustainable growth path over the last 51 years.
Instead of chasing the biggest profit, Sawan Shah, Tropical Heat Group CEO says it's been about hitting the right numbers. Steady progress, quarter after quarter, year after year.
It all started as a cottage industry in 1973 in Thika town, Kiambu County. Initially known as Deepa Industries, Tropical Heat has over the years grown to have a presence in 30 countries around the world.
Like many business leaders in that era, Sawan says that his parents were utilising resources at their disposal to create value, and saw an opportunity in the seasonings, snacks and spices business.
“Unlike today when a company might use data and commission market studies before launching, they relied primarily on vision and instinct,” says Sawan.
Despite the firm’s evolution and leveraging on technology to build scale to meet market demands, Sawan says the company’s values and principles haven’t changed over the years.
Company philosophy
“Our philosophy around strategy is that controlled growth is preferred over chasing large numbers,” he says, adding that a degree of focus and attention to detail is key.
“We’ve generally seen double digits annually, though that’s not the main number that we track.”
Tropical Heat generally launches a few new products every year and ensures that they get time and resources to achieve their full potential.
On the flip side, they often conduct rationalisation exercises, Sawan says, in that they often look at their range and make decisions on which products to pull out, one of the most difficult decisions to make.
“In the FMCG game, channel partners such as supermarkets have limited space, hence we have to be proactive and ensure that we are always optimising our product range,” explains Sawan.
The former Deloitte executive notes that as a manufacturer, you may have a good idea and create a beautiful product which the target consumer will love, however, a channel partner may not have the same incentives to stock it.
“We have previously launched niche products that the target consumers loved, but our channel partners were looking for mass volumes with the aim of maximising revenue per square foot, which didn’t work for that particular range,” recalls Sawan.
“As we think about innovation, we need to evaluate all stakeholders in the chain to ensure the optimum route to market strategy and not just a beautiful product,” adds Sawan.
Growth strategy
Sawan says that Tropical Heat always places an emphasis on infrastructure and systems before chasing numbers and growth.
With regards to their growth strategies, the first consideration is to ensure that they leverage their existing markets, for example by ensuring that products are available country-wide.
“We dream that you will able to find a Tropical Heat product within 500 metres of reach for consumers across the country,” says Sawan.
The second consideration is geographical expansion and having reached a milestone of 30 countries over the last 10 years, Sawan says they are aiming at 50 countries in another 10 years’ time.
Thirdly, Tropical Heat focuses on product innovation to increase the range of options available to consumers.
Growth and expansion require heavy capital outlay but Sawan says that at Tropical Heat, they try to grow within their means by re-investing earnings.
“In general, we re-invest our earnings into projects and have a conservative strategy,” he says, adding that for some specific projects, they may work with a financial institution or partner, with a pre-determined payback period.
Tropical Heat Group CEO Sawan Shah during the interview on June 11, 2024, at his office in Red Hill, Kiambu County.
Photo credit: Billy Ogada | Nation Media Group
Sticking to the script
The current FMCG market is awash with many players fighting for limited space but Sawan says that most Kenyan consumers are loyal to brands they trust.
“During inflationary times, some consumers may be inclined to switch to a slightly cheaper alternative and yes, we have significant competition with new players entering the market offering low prices,” says Sawan.
He clarifies that at Tropical Heat, they try not to compete on price and even though they might lose some market share, they are fine with it as long as they never compromise on quality standards.
“We are fine losing some price-conscious consumers but we have to maintain our ethos of no compromise and no shortcuts,” says Sawan, adding that they try to compensate for this through operational efficiencies and economies of scale.
Conquering markets
Sawan says that both the product and the brand are of equal importance in FMCG to have a winning strategy.
“The FMCG space is about consumer awareness and being on top of mind,” explains Sawan.
“We try to create a unique identity, with creative communication and engaging marketing.”
He says that however, all this conscious communication effort will be worth nothing if the backbone, which is the product, is not world-class.
He adds that even though the spices market in Kenya is not as big as in other developed countries, he is optimistic that it will expand in the next few years.
“Love for spices is growing but overall margins are on the decline due to inflation, high cost of raw materials, intense competition and the high cost of distribution,” adds Sawan.
Leveraging on family strength
Sawan says the firm’s secret ‘spice’ is the cohesion and alignment of its leadership team and family.
“The four members actively involved in the business cut across two generations and they all bring different skills but share values and principles which is a good recipe for stability and success.”
Whereas many people in his position would view that as a challenge, it as an opportunity to combine the experience of the elder generation with the energy of his generation to create a powerful partnership.
Navigating Challenges
Despite a successful half-century of steady growth, Sawan says protecting their consumers from high inflation is posing a challenge to the business because they cannot keep hiking prices despite external inflationary pressure.
“We are taking a sacrifice on our margins to protect our consumers as much as we can,” claims Sawan.
However, Sawan points out that the biggest challenge is the supply chain, stressing that any investor thinking of setting up a shop in Kenya should take note of that.
“You may have a beautiful product idea and ready market but supply chain challenges are massive. At times, we have to import raw materials due to shortages and quality concerns.”
Investing in distribution
Sawan says that Tropical Heat Group’s distribution strategy is to have products available across a range of channels, including modern trade, general trade, institutions and exports.
“Multinational FMCGs were traditionally strong in the general trade, whilst we came a little bit late to the party. We have been investing in our product portfolio and distribution infrastructure to have the right product at the right size without compromising on the quality,” he adds.
Emerging stronger from Covid-19 and retail sector uncertainty
The entrepreneur says that Tropical Heat Group emerged much stronger from the pandemic and is now more robust having put in place contingency and risk mitigating measures in every project they embark on.
“It enhanced dual sourcing so that consumers don’t suffer in case of external factors or pandemic,” says Sawan.
And whilst the company has taken some hits including uncollected debts after the collapse of a few retail chains, Sawan says the group has improved its cash flow cycle, through strong systems and protocols regarding cash collection, as well as a conservative approach with regards to credit.
Purpose and values
Sawan mentions that he prefers to share experiences rather than give advice because every entrepreneur has a strategy that works for them.
“For us, what has worked is to lead with values, and principles and to always ‘play the long game’, which has led to a sustainable business.”
He concludes by saying, “We look at our organization as an ‘impact vehicle’, a way in which we can give back to the community. We categorize our impact efforts across 6 channels: Community, Education, Health, Sport, Wildlife and Environment,” and he concludes by saying that the overall Company Purpose is to “Inspire Passion”.
