With more than two-and-a-half decades of experience, Giridhar Pai, Director at Giridhar Pai Associates LLP and PECOPP Pest Control Services Pvt. Ltd is a veteran of the Indian Pest Management Industry (PMI). He was a business head of services at PCI and established NBHC’s Pestinct business, leading it to become the third-largest Indian Pest Control Operator (PCO). He publishes the weekly PMI newsletter PCO Mentor.
In this far-ranging piece, he writes about the growth and degrowth of India’s PMI, the factors that contributed to them, what plagues this sector and how it can revive itself.
FMCGs, MNCs and JVs
Even before the pandemic, the eight or nine-decade-old Indian PMI was at a crossroads, with slowing growth and shrinking margins of PCOs. During the 21st century, it witnessed the advent of several new business models such as an FMCG-style PCO, with Godrej Hi-care (GHC) introducing the industry to mass advertising. This increased the market size by exposing the public to pests and pest treatments, starting in 2004.
Since then, GHC morphed to ISS Hi-care by merging with the Danish FM company ISS, before demerging in 2014 to become Hi-care. Currently, it is the second-largest Indian PCO by topline, present mostly in metro cities and focussing on the residential and commercial pest management segments.
We also witnessed the advent of several MNCs when Rentokil entered the market in 2008. Rentokil, which started its operations in southern India, grew inorganically by acquiring small PCOs with limited geographical reach. It then formed a joint venture (JV) with India’s largest PCO, PCI, in 2017. That JV is currently the only truly pan-Indian service provider in its segment.
Truly Nolen of the US followed Rentokil a year later, franchising its business to an Indian partner and has remained limited to the south and east of India. In 2011, the Indian SIS group partnered with Terminix of USA to start Terminix-SIS for offering pest management services to B2B customers of the SIS group and benefitted from the synergy of that group’s other service companies. Terminix SIS has grown steadily, and is currently among the top ten Indian pest management companies through 14 branches across the country.
The most recent MNC entrant to Indian PMI is Orkin of the US, which has franchised a local partner since 2015 that offers services in four Indian metro cities.
In 2006, the agri-commodity warehouse service provider, National Bulk Handling Corporation Pvt Ltd (NBHC) started its Pestinct business primarily to cater to in-house fumigation requirements. Soon, NBHC enhanced the reach and capability of Pestinct and grew it pan-India to make it the third-largest PCO. By this time, Rentokil-PCI had become the largest Indian PCO with a topline nearing INR 5,000 million.
Pre-pandemic growth and decline
After completing about fifty years, the Indian PMI saw rapid accretion in service providers, starting in the early 90s. The industry was always entrepreneurial, with proprietary companies being most common and a lone owner and family-run businesses dominating the industry’s landscape. One can trace almost every new PCO to another where the founder of the new PCO worked, with very few entrepreneurs starting a PCO as their first employment choice.
The low entry barriers in starting a new venture are a challenge for the PMI. Any individual who can invest in a pesticide spray pump assumes that he has all the means to offer pest treatments and run an enterprise with that ability. Sourcing pesticides for household treatments is very easy as they are widely available, spurring enthusiastic entrepreneurs to start PCOs.
In this period, numerous PCOs entered the fumigation market, presuming it to be very lucrative but unwittingly crowding it and leading to its collapse.
The non-fumigation segments of Indian PMI have mimicked the fumigation business. There are many small PCOs with few employees, a few companies that operate in one city, some that have multiple branches in a city, others whose business spans a few towns, and just one company that operates nationally. The absence of large players has led to one company monopolising pan-India contracts, which no others can manage.
The industry’s pricing power shrank with little that the customers can differentiate among PCOs.
Most PCOs remained content with offering a few services that customers sought. The India PMI was poor at marketing solutions for numerous pest issues that homes and businesses face. I estimate that the addressable market for Indian pest management could be 4-5X times the current market size of about INR 1800-2000 crores.
Several industry associations host only a part of the Indian PCOs. Even the largest, having about four hundred members, is not representative as Indian PCOs could easily be more than fifty thousand. In some Indian metro cities, you may find several thousand PCOs. The absence of significant membership to represent all-sized Indian PCOs and lack of a unifying umbrella body to coordinate the multiple associations is an infirmity hobbling the Indian PMI.
Pandemic boom and bust
Starting February 2020, many PCOs benefited from the high demand for sanitisation services, which continued till about June 2020. However, between April to June 2020, most PCOs had to forego a major portion of their revenue as homeowners would not let pest technicians visit them, and inessential businesses had shut to comply with lockdown restrictions.
Lulled by the spike in sanitisation, PCOs did not foresee the severe business downturn as lockdown curtailed major customer segments such as hospitality, IT offices, educational institutions, travel, entertainment and others. Most PCOs have two to three months of customers payments due, and with the pandemic affecting normal business, PCOs which could not handle financial liquidity crises shut down.
The pandemic severely affected the ability of PCOs to operate during lockdown movement restrictions, reduced business volumes, and customers’ payment delays and defaults. As a result, the industry’s revenue might have shrunk a fifth from INR 2,400 crores before the pandemic to INR 1,800 crores (my estimate from industry interactions).
Current business scenario
With most lockdown restrictions removed, Indian PCOs have resumed their services and regained business stability to reach their pre-2020 performance levels. However, the industry’s inherent weakness continues to limit it, though the country’s economic growth presents a good opportunity for rapid and multifold expansion.
The 4-D formula for revival
As a rookie in the industry, one of my first lessons in pest management was the 4-D formula (Deny Entry, Deny Food, Deny Shelter and Destroy Pests to manage them). I propose the 4-D formula of Decentralization, Digitisation, Differentiation and Discretion, which will unshackle Indian PMI from the limits it has imposed on itself and make it a leading sector of facility management.
Decentralization
The reigning model of the 20th century was the concentration of authority in a head office (HO) that dictated all aspects of a business. In the 21st century, a centralized structure compels branches to consult the head office in routine decision-making.
Business now happens on the fly, with customers wanting to conclude orders online in minutes, if not seconds; decentralization is a key business enabler in 2021 and beyond. In a multi-branch PCO, the HO should codify the broad policies and procedures to set operational business boundaries, and let the units operate efficiently.
Branches should freely choose their business segments, customer management and employee management practices to suit the local conditions, within the HO’s parameters. Speed is of great essence. Decentralization lets PCOs function faster and instills a sense of ownership among employees.
Digitisation
An important lesson from the lockdowns of 2020 and 2021 is that businesses can continue operations even with restrictions, if they have digital processes. India now has complete PCO digitisation solutions, enabling employees to run their business solely through computers and smartphones.
Digitisation replaces paper and enhances accuracy and business efficiency, leading to rapid growth without a PCO having to add employees in proportion to the business volume. With all service segments switching to digital mode of operations, customers now expect even PCOs to have digital processes and interactions.
Differentiation
This is the most important of the four Ds. There are numerous ways a PCO can stand out from the rest of the crowd, including fast response time, ease of communication, effective pest treatments, results guarantee, solutions to pest problems others can’t solve, money-back guarantees, customer loyalty programs and expansion in complete home care. A superior PCO can command a higher price and greater market share by capitalising on the absence of competition.
Discretion
The key weakness of most Indian PCOs is the unwillingness to accept poor pricing, and the willingness to continue services even when customers don’t pay them in time. The lack of discretion in choosing customers and limiting exposure to payment defaults results in negative margins and loss. When PCOs show courage to carefully select their customers and price offerings that allow for sustaining margins, the industry will benefit from profitable growth.