Despite tough competition from China, India’s candle exports have been rising at a fast pace. The credit for this, to an extent, goes to high anti-dumping duties that have been imposed on China-made candles in US and EU. The Dollar Business explores the ways to catapult India into the big league of global candle trade by countering price wars and focussing on a diversified product basket.
Neha Dewan | May issue 2017 | The Dollar Buisness
Don’t be surprised if the next time you walk into a big branded home décor store in New York, pick up a designer candle placed on the shelf and find that it sports a ‘Made in India’ tag. While Chinese candles continue to flood markets across the western world, a good number of scented and decorative candles adorning homes and offices in US, UK and Australia are now increasingly being sourced from India.
Consider this: In FY2016, India exported $27.80 million worth of candles to US – a market where candles are used in 7 out of 10 households (as per the National Candle Association, USA).
Well, this was a 31.34% y-o-y jump. In the same year, India exported candles worth $9.96 and $2.89 million to UK and Australia reporting y-o-y increases of 22.81% and 47.44%, respectively. Ireland, Sweden and Italy were some of the other big markets where India’s exports of candles witnessed impressive growth in FY2016 over the previous year.
Unfortunately, despite such impressive growth numbers, candle exporters from India are still struggling to counter competition from Chinese exporters who continue to rule the roost as far as candle exports are concerned. Candle (HS Code: 340600) exports from China stood at $594.29 million in CY2016, surpassing the likes of Poland and US, while India’s exports during the same period stood at $50.53 million.
THE GREAT DIVIDE
What gives Chinese candles an advantage over India-made candles? “Low pricing and large volumes,” rue most exporters. Delhi-based Pallestra Home Décor and Lifestyle Products exports a variety of candles and home décor handicrafts across the world. Nitesh Sharma, Founder of Pallestra, says that China-made candles sell at very low prices that Indian manufacturers are unable to match. “While India supplies tealights for say Rs.2, China, on the other hand, ends up selling it for only 90 paise! Chinese candles are machine-made, while the ones from India are even today mostly the hand-poured varieties. So, competing when the price differential is so high gets extremely challenging,” he says.
However, despite competition from China, the business has proven to be profitable for Sharma, who is a first-generation entrepreneur. When he started his business of candle exports way back in 2009, his offerings got a modest response from overseas markets. His first export order of $500 was to Maldives where he shipped 50 pieces of hollow candles. “I targeted both small retailers and big hotels, and I succeeded in selling my products to them. The hotel which I supplied to in Maldives (my first export order), used to buy from Sri Lanka earlier. However, they liked my designs and I was able to deliver their order within a week’s time. Thereafter, things really picked up, and since that day, for my business, there has been no looking back,” fondly recalls Sharma.
While Indian candle exporters have managed to find their niche abroad, it is not just competition from China which is hurting their bottomlines. The manufacturing process itself comes with its fair share of challenges. The primary raw material used for making candles – paraffin wax – is not only expensive, but is also prone to severe price fluctuations. As this variety of wax is made from petroleum, its prices see an increase whenever there is a hike in petroleum prices. Adding to that are the challenges of managing and sourcing labour as well as maintaining consistency, since candle-making is a labour-intensive industry.
Differernt strokes
Even when an exporter is able to navigate his way through the manufacturing hurdles, he is faced with a new set of challenges when it comes to exports as he needs to be aware of the trends in his destination markets. Neha Sawant, Founder of Mumbai-based Resonance Candles, a company which caters to lifestyle products, says that the way candles are used in India is strikingly different from the way they are used abroad. This also means that the candles in demand are also different. While candles are seen more as a household décor and utility item in India, they are used not just for décor but also for stress relief, aromatherapy and relaxation in markets outside India. “The export market for candles is growing roughly at 30% year-on-year. Container candles, pillar candles and votive candles are quite popular abroad. There are also the tealights, in a variety of sizes, which sell a lot in these markets. Consumer preferences as well as quality benchmarks of candles is different in the domestic and international markets,” she highlights.
In fact, if one looks at data offered by National Candle Association (NCA), a trade association representing US candle manufacturers and their suppliers, it reveals an interesting habit of US consumers. Most US consumers start using candles within a week of buying them. This makes its demand a continuous one unlike in India where most of the times the candles are used only during festivals and on special occasions. Their research also indicates that 42% users in US light up candles in the living room, 18% in the kitchen and 13% in bedrooms. This makes fragrance and colour two crucial influencers among US buyers.
So, when it comes to exports its obvious why manufacturers in India lean towards decorative scented candles. Most of the exporters we spoke to feel there is a good demand for decorative vegetable wax candles abroad. On the other hand, in the Indian market, they say, it is the cheaper, non-scented, paraffin wax candles that sell more. “We get export orders for vegetable wax candles since they are more eco-friendly and non-toxic. The designer candles are also in high demand amongst overseas clients. In India, however, it is the paraffin wax candles that are bestsellers with their low entry price points,” says Amandeep Singh, Retail Brand Manager, Good Earth.
An ART and a Science
Incidentally, there is an assortment of waxes which are available when it comes to the making of candles. Paraffin wax, for instance, is by far the most commonly used – however its use has been considered hazardous and toxic owing to the soot emanated from it. Sawant says, “The wax in paraffin candles is filled with petrochemicals – it is like breathing exhaust from a car! It is not at all safe to inhale. Vegetable-based waxes are expensive but well worth the investment.”
Besides paraffin, there is soy wax, made from soya beans is known to burn cleaner with less soot being released. Most soy waxes are made from 100% soya bean oil, while some may also include other vegetable oils. Then there is gel wax, which is an amalgam of resin and mineral oil. It is often used to replicate water or liquids. The texture is clear and rubbery and gel wax boasts of staying alight for twice as long as paraffin, without the hazardous fumes associated with burning paraffin wax candles.
Another popular but slightly expensive variety is beeswax, a traditionally famous candle-making wax which is produced by bees during the honey-making process. This is more expensive owing to its natural and chemical free characteristics. Yet another environment-friendly but expensive wax is palm wax that is produced from hydrogenated palm oil. It is a firm wax that is perfect for pillar candles and votives. At times, it is also mixed with soy wax to strengthen its form further. While both are known for their environment-friendly components, their high cost adds to the overall pricing of a candle.
If one talks about bestsellers that hog the limelight, candle varieties such as tealights, pillar candles, container candles and votives find a robust demand abroad. One variety found in many homes outside India (with a growing domestic demand during festivals) is tealights, which are essentially candles enclosed in a metal or plastic cup, typically small in size, and burn for approximately 3-5 hours. Another type of candle which is a favoured option internationally are votive candles – these are small cylindrical candles that melt into oil once lit. Incidentally, both tealights and votives are low-cost options for home décor and an easy way to brighten up one’s home. Container candles, on the other hand, come in non-flammable containers full of wax and wick. Another category is the pillar candle, which is a sturdy candle and can either be short or tall or for that matter square or round – they are thick and wide which makes them burn for a longer duration, and are also used as decorative pieces. In fact, the width of a pillar candle is its defining feature as it can be cast in different shapes. And this is the variety of candle Indian exporters are focussing on as of now.
Bumps AND BENEFITS
The versatility of candles can hardly be questioned, especially with such a plethora of options that can notch up the aesthetics and appeal of any space, manifold. According to ‘Global Candle Market Research Report 2017’, the candle manufacturing industry is expected to continue to draw benefits from a buoyant demand, both domestically and abroad. This will be triggered by an increased spending power and an inclination towards candles as a source of fragrant and coloured add-ons to homes.
According to the same report, there is also expected to be an increasing inclination towards candles which are environment-friendly and stay clear of any health disadvantages. Interestingly, in India, candle manufacturers are already customising their offerings in step with this all significant and ‘healthy inhaling’ trend. Sawant of Resonance Candles, for instance, has a line-up of products that include pure vegetable wax candles and will soon be coming up with ‘ghee’ candles for the domestic market. The brand also uses indigenous ingredients such as lemongrass and sandalwood which are mixed with essential oils for a unique aroma. Next on agenda for the company are certified vegan products in home décor, a move towards more ‘responsible and healthy’ manufacturing.
So, despite the challenges, when it comes to the future of the candle industry, there is light ahead – no pun intended! And one major reason for cheer for Indian manufacturers is that in US there is zero duty on candle imports from India as against an overwhelming up to 108% anti-dumping duty on candles import from China! This duty has robbed Chinese manufacturers of their low-cost advantage and has helped Indian exporters get a toe-hold in the low-end mass market, which was earlier dominated by Chinese products. “This has been a big attraction for importer of candles from India into US or EU. India is now a good source for mass-market, low-end varieties of candles,” reveals Sankar Mathur, Managing Director at Welburn Candles, a manufacturer and bulk exporter of decorative candles to US and EU.
Support from the government too has come in handy when it comes to fighting a price war in global markets. Currently candle exporters receive a 2% incentive under MEIS, and if the candles are classified as handicraft products they are eligible for 5% incentives under MEIS.
Light ahead
What does the industry then need to do to reach its potential? Many exporters feel that there remains a need to bring together all stakeholders under a common umbrella. Initiatives from the government to bring members from different parts of the manufacturer-exporter-distributor chain together and offer an avenue to access raw materials at a low cost sure will help. What would also help is a concerted effort of marketing Indian candles abroad. “There are not enough portals to promote us across international markets. For instance, there are websites like Alibaba that promote Chinese products in a big way. We also should have something similar where our products can be showcased to represent what India offers. More exhibitions and marketing efforts should be there to build awareness about candles that are sourced from India,” asserts Sharma.
Exporters also believe that access to low-cost credit will help them make the required investments in machinery and equipment that they need to keep abreast of the competition. From the exporters’ side, more innovative offerings, customisation and leveraging India’s strengths in handicrafts can aid in creating a differentiation in the minds of the overseas clientele. As Sharma says candidly, “We make better quality products than China. It is just that their throwaway prices makes them quite appealing for high volume orders. However, if we do more value additions and keep innovating, I am sure clients will not mind shelling out a little more for the quality that comes to them.”
Well, it’s time to take cue from Sharma and make the most of this lucrative opportunity. Are exporters listening?
Jar candles, filled with coloured wax and wick, being mass produced in a candle factory. Exporters also add different fragrances to the candles, keeping with the demands of importers. The jars are made from non-inflammable materials.
TDB: What is the size of India’s candle exports industry? How has it evolved over the last few years?
Sankar Mathur (SM): While authentic data on candle exports from India is not always available, one could hazard a guess that India’s candle exports would be approximately Rs.300 crore. India has primarily been a source of mass-market, low-cost candles for US, EU and the Far East, especially where there is a levy of anti-dumping duty on candle imports from China. High-end candles are now also gaining market share, but we are still exporting smaller volumes.
TDB: What are the top markets for you as an exporter? Are you exploring any new market as well?
SM: Our biggest export markets are US and UK and we have been receiving a good response for our products from these markets. We are now expanding and will be foraying into Caribbean and Central American markets soon.
TDB: How lucrative is candle exports as a business?
SM: Margins in this line of business are pretty thin. The recent currency fluctuations have made matters even worse. Especially, the significant devaluation of sterling pound, post-Brexit, and to some extent the euro have impacted business volumes as well as had an adverse effect on margins. Having said that, to some extent, this has been compensated by the strengthening of the dollar.
TDB: What can the government do to help boost candle exports?
SM: It would bode well for candle manufacturers to first come together like their counterparts in the west – such as National Candle Association (NCA), The Latin American Candle Manufacturers Association (ALAFAVE), etc. – and form a body to collectively represent themselves before the government. This can be the first step for things to start moving in a more organised manner.
TDB: What is the driving force behind the growth of Indian candle exports industry in recent years?
SM: The candle export industry in India has pretty much been unstructured, until recently. The primary attraction to import candles from India into United States or European Union has been the incidence of ‘zero’ duty compared to anti-dumping duties of 54-108% on imports of candles from China. The candle industry in US alone is close to $5 billion. While US manufacturers continue to dominate the medium to high-end segment, candles imported from low-cost sources like India get a share in the mass-market segment. However, over the last few years, new entrants in the medium scale manufacturing category have attracted significant attention among major western retailers and importers, which possibly explains the recent increase in exports from India.
TDB: How do you deal with the seasonality of the sales cycle?
SM: Like most other products in this category, candles too are a seasonal buy with more than two-thirds of the sales happening in the last two quarters of the calendar year. In India too, Q2 and Q3 can be considered as the primary season for candle sales. This need not be a disadvantage. Instead, it calls for better production planning and cash flow management to avoid supply chain bottlenecks during peak season.
TDB: As an exporter, how do you plan to innovate to stay ahead of the curve?
SM: We, like most of our competitors, are diversifying into other fragrance-delivery products apart from candles, like aerosols, diffusers, plug-ins, electronic fragrance sachets and similar products. While candles will remain our core focus, we will look at other product categories as well to further strengthen our portfolio. It is important to keep innovating and expanding product portfolio to stay relevant in the marketplace.
TDB: Over the last few years, the growth rate of candle exports has not been consistent. Why?
Nitesh Sharma (NS): There are various factors that have contributed to this scenario. First of all, China sells at a very low price and they have invested a large amount in infrastructure. While most of their candles are machine made, in India most are hand poured. Secondly, the raw material, which is wax, also ends up being costlier. And since wax is a by-product of petrol, an increase in the price of petrol also leads to a consequent increase in wax prices. Moreover, the quality standards required for export are quite stringent and high – so at times, if the quality is not up to the mark, the product doesn’t make it to the export markets. That said, Chinese products are more popular because overseas buyers prefer bulk shipments at lower prices.
TDB: As an exporter, what support do you expect from the government?
NS: The price of raw material needs to be slashed – that will of great help. Besides this, the process of setting up factories needs to be made easier. International buyers ask for many certifications which have to be taken from different departments. There should be an easier way to get such certifications for the benefit of all concerned in the business.
TDB: Candle exports, in a sense, is a seasonal business with the product’s demand being more at the time of festivals or special occasions. Does this seasonality affect the business?
NS: It is not a disadvantage in exports market as our products are such that they are used all year round in homes across overseas markets. So, it is not seasonal in that sense. Our candles are commonly used in homes and places of worship to create an aesthetic and fragrant ambience. In fact, the seasonality is more at play in Indian market.
TDB: What margins can one expect in this business? How much investment is required to step up a production unit?
NS: The margins are quite decent – one can look at a 20-30% margin even in the low-end mass market. The way it works is that there are big margins if one exports to a small buyer or retailer and relatively lesser margins if you are exporting to a renowned one. But, it is surely a profitable business if you have a good network abroad. However, one has to invest once in good machinery used for jar candles and tea lights, which are hot selling products abroad. Investment in these machines can make quite a difference to productivity and profitability.
TDB: Where does India’s strength lie in this business? How can we maximise our strengths?
NS: Indian exporters should look at segments where they can hope to gain a definite advantage over China. For instance, we can look at designer candles – these are not made in bulk and hence China doesn’t have an advantage in this category as Chinese manufacturers produce in bulk. Moreover, despite the cost advantage that China offers, some clients want to work with Indian manufacturers instead. I have clients who say that Indians are more honest and trustworthy. So, there are certain cultural dynamics that work well for Indians.
TDB: How do you plan to expand your global footprint in the coming days?
NS: Maldives is a top market for us and will continue to be. I have targeted small retailers as well as big hotel chains in Maldives in the past. Besides this, we have also exported to Singapore, Indonesia and Thailand. Going forward, we will continue to innovate in different categories of candles which will work well for overseas markets. We also plan to diversify into home décor as a business and include other lifestyle products in our overall range.
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