Sunday, May 9, 2010

ITC tries to find its feet in personal care


Cigarettes to hotel major ITC entered the consumer products business in 2007. In three years, it has managed to corner a two per cent market share.
ITCBut ITC feels that's no mean achievement for a late entrant. The consumer and personal care products market is highly competitive, dominated by well-entrenched brands from companies such as Hindustan Unilever (HUL), Procter and Gamble, L’Oreal India, Dabur India and Cavinkare. The lion's share is with HUL, whose brands — Lux, Dove, Sunsilk and Clinic Plus — have about half the market.
Some analysts agree with ITC’s view. Anand Shah of Angel Broking, says it takes about five years for a brand to break even. If ITC gains 5 to 10 per cent market share in 10 years, that should start earning the company profits, Shah adds.
In absolute terms, two per cent of the personal care market is not a small share. According to Nielsen, the personal care market between March 2009 and February 2010 touched Rs 16,313 crore, which is a growth of 10 per cent over the same period in the previous year. While the men’s personal care market is estimated at Rs 1,429 crore and growing at 10 per cent, that for women is worth Rs 6,678 crore and growing at nearly 21 per cent.
ITC knows it’s a tough fight and is willing to give time. Innovation and extensive marketing are the company’s mantra to strengthen its footprint in the personal care domain.
“We intend to build on innovations to find a foothold in the already cluttered personal care market,” says Sandeep Kaul, chief executive of ITC’s personal care business. The Fiama Di Wills transparent gel bathing bar is an example of product innovation which is developed with liquid crystal freezing technology that intends to combine a shower gel in a bathing bar format. ITC’s current personal-care portfolio includes soaps, shampoos and fragrances. These products are marketed under the Fiama Di Wills, Superia and Vivel brands. Superia caters to the mass consumer segment, Vivel targets the premium and Fiama the so-called super-premium market.
According to Kaul, the personal care sector holds immense appeal for ITC due to the category’s size and growth potential.
But the personal care segment in India is immensely competitive. Anand Ramanathan, analyst with KPMG, says, “In categories like soaps, the competition is quite intense. But ITC is likely to combat it with its distribution muscle. However, because of intense competition, ITC would be under margin pressure and so the personal care business for the company would not be as profitable as its other businesses.”
“ITC, however, can recover from the margin pressure to some extent with the help of premium products in niche categories,” Ramanathan points out.
Devangshu Dutta, chief executive of specialist management consultancy firm, Third Eyesight, feels that market leaders like HUL still feels it reaches only 60 per cent of the market. So, even a new entrant like ITC can find potential in the personal care segment.
“ITC has diversified over the last 10 years as part of its strategy to expand into non-cigarette categories. The real challenge will be effective communication and marketing”,Dutta adds.
Ramanujam Sridhar, CEO, Brand-Comm, says: “There is a reasonable amount of loyalty among consumers for personal care products, especially in skincare, which can pose a challenge for any new entrant, including ITC.
However, ITC enjoys a strong brand recall and its strongest qualifier is its distribution muscle, which should help the company establish itself in newer categories as well.”

Fast-moving food business

In August 2001, ITC made a modest entry into the food business with its Kitchens of India ready-to-eat preparations. The company ran popular restaurants, Bukhara and Dum Pukht, in its hotels. These restaurants, the company felt, were successful because it understood the Indian palate well. Hence, the new line of business. A more serious effort was made a year later when ITC launched its flour under the Aashirvaad brand. This was followed by candies, biscuits, snacks, salt, pasta and spices. The size of the food market was just too tempting. Within fast-moving consumer goods, food has always been the largest category. A large part of that is still sold loose; so the upside for packaged foods remains sizeable.
The news is that ITC has crossed the first hump in terms of volume, market share and profits. Its food business is over Rs 2,500 crore in size. If beverages are excluded, investment analysts reckon, this should put ITC amongst the top three food companies in the country after Nestlé and Hindustan Unilever. ITC Foods Chief Executive Chitranjan Dar runs 40 food factories across the country and a product development centre in Bangalore. It is the market leader in one category — flour —, and is second in confectionery, salt and packaged snack, and third in biscuits. It has in its portfolio six brands (Aashirvaad, Sunfeast, Bingo, Kitchens of India, Minto and Candyman).
And it has turned profitable. Till recently, profitability of this division was a huge concern for ITC. Not any longer. Investment analysts say the profit margins are below 5 per cent, and the company’s next task should be to raise it to the industry norm of 5 to 10 per cent.
ITC’s competitive advantage from day one has been procurement of commodities. The agri-business division of ITC connects with 5 million farmers in 170 districts of 16 states. The company leverages this to good advantage for all the commodities it requires for the food business: Wheat, sugar, edible oil, potatoes et al. Such commodities account for almost 60 per cent of the costs of the business. This is the reason why Dar is not too bothered about the private food labels of large retailers. Most of them buy commodities from the spot market. So, when prices rise, like wheat from September to December, they find themselves in a jam. “The sharbati variety of wheat this year is not available. It’s fully sold out. That’s where our strength lies,” says Dar. ITC uses sharbati wheat for its premium flour called Aashirvaad Select. The other advantage has been ITC’s retail network for cigarettes. About a third of the company’s food products apart from flour (snacks, biscuits and candies) are retailed through these shops.
Local preferences
The company was also quick to realise that the foods business in India requires sound knowledge of local tastes and preferences. Food habits in the country change after every hundred miles. So, this is a business in which local companies stand a better chance of success. It is an entry barrier for multinational corporations, though the two largest food companies in the country are foreign-owned. “Food is a very personalised category. It’s not like soap. You can get some space if you can create differentiation,” says Dar, a veteran of 25 years at ITC. “Brands will need to be fragmented to cater to local tastes and preferences. So there can be no omnibus product which can be a national hit.”
ITC’s biggest brand is Sunfeast — biscuits and now pasta. In biscuits, ITC is ranked third after Britannia and Parle. (See table.) The journey so far may have been easy because ITC has grown at the cost of local brands. The days ahead could be tough. “In biscuits,” says Dar, “you can take on formidable rivals with formidable products. The most successful products are 30 to 40 years old. Cookies or glucose biscuits belong to the 1980s and before.” In the mid to premium category, Dar feels there are several taste buckets and categories available on the health & nutrition, indulgence and convenience platforms. “In these three platforms there is still a lot to be exploited. It is possible to innovate around that. One who does it the best will walk away with the market.”
Some time back, ITC came out with Sunfeast pasta. This remains a small category. Market estimates suggest that it was till six months ago just 2.5 per cent of the Rs 1,100-crore market for instant noodles, which may have doubled with Nestlé’s entry into the segment. This has fuelled the buzz that the next stop for Sunfeast will be instant noodles. Dar denies there’s any plan for instant noodles, “at least not in the next quarter”. The problem here will be to create a product that stands out from Nestlé’s Maggi. Over the years, Nestlé has come out with so many variants of the product that there isn’t much left to add. Dar admits that ITC’s product development team has worked on instant noodles but could not come out with a killer recipe. There has also been speculation that ITC will take Sunfeast to newer categories like packaged water, tea and bread. Dar denies all such talk.
Flourishing with flour
Aashirvaad is ITC’s brand for staples. Branded flour sales in the country are around Rs 4,000 crore, which is just 4 per cent of the market — rest is all sold loose. (Conversion to packaged flour is happening at about 8 per cent per annum.) Out of this, national brands like Aashirvaad, Shaktibhog, Annapurna and Pilsbury sell around Rs 1,700 crore. Aashirvaad’s share of the market is above 50 per cent, market analysts say. This perhaps is the reason why the brand is not heavily advertised in mass media. “Somebody has to pay for it. In the South we do advertise, because it a nascent concept there. In the North, we work at the points of purchase,” says Dar. Aashirvaad is available in outlets that sell 80 per cent of the packaged flour in the country. The product is tweaked, claims Dar, for different markets. The one sold in Delhi, for instance, is a blend of four flours. The mix is changed right through the year to give the same quality to consumers, says he.
ITC first extended the brand to salt. Its market share is 10 per cent, next only to Tata Chemicals’ Tata Salt (over 30 per cent). Here, ITC’s focus is on the rural markets. Unlike flour, rural households have converted swiftly to packaged salt. So, its retail network is not the same as packaged flour. ITC, says Dar, has therefore appointed a whole army of traditional wholesalers to reach these remote markets. Since this market is not scientifically tracked, Dar says he doesn’t know how deep he has penetrated.
Next was the turn of Aashirvaad spices. This industry has a handful of national bands like Ashok, MDH and Everest which are personally driven by their promoters. This makes them formidable opponents. ITC’s strategy here has been to go for blends, so that the brand can charge a premium over others. The problem is that all rivals have come out with various blends. To create a differentiation, ITC will have to come out with something really new and different. That’s the challenge that the company’s researchers in Bangalore face. To begin with, ITC has decided to sell in the South where consumers are a little particular about the spices they buy. The northern markets will come later.
Would ITC like to come out with other staples under the brand, like rice and sugar? Dar rules out the possibility. For rice, he says that ITC does not have a procurement infrastructure in place. Basmati rice, that is what Aashrivaad could look at, is grown in Punjab, Haryana, Jammu and parts of Uttarakhand — not ITC’s stronghold. “As and when our agri-business division begins to export basmati rice, we will also start to sell in the local market,” says he. Sugar too doesn’t excite him because there is no opportunity to create differentiation.
Bang on with Bingo
ITC’s most audacious move in foods so far has been Bingo, its ready-to-eat snack, which took on the might of Frito Lays (market share: 60 per cent; brands: Lays, Kurkure, Aliva and Uncle Chipps.) Bingo has grown through some innovative products and kickass promotion. Its share of the Rs 3,000-crore market is 10 to 12 per cent. Frito Lays has hit back with its new range of Indian snacks. Parle too has entered the market with aggression. Sector experts point out another challenge: Bingo’s positioning is such that it needs to come out with new flavours and advertisements all the time. “It’s a dangerous game,” says a Mumbai-based analyst. “Customers can lose interest if we do not innovate continuously,” Dar admits, “So you need to look at new textures, flavours and shapes regularly. In terms of flavours, our target is one or two launches a year. In texture and shape, there should be one new product in two years. There are eight to ten flavours always in the pipeline in various stages of development.”
In confectionery, ITC lags behind Perfetti because it doesn’t have a chewing gum in its portfolio, though it has candies, éclairs, toffees, chews, lacto and so on. “There is a lot of proprietory work in gums that needs to be done. You need to develop the gum base, for instance. We don’t want to outstretch our limited means,” says Dar. That leaves in Dar’s portfolio Kitchens of India, which is small. That category may not be more than Rs 30 crore. In fact, export of the brand could be five times more than domestic sale. But the North American markets, which ITC has in its crosshairs, could be tough because of the inability to export meats there. Dar says the company could look at local production to get over the problem. But that can wait: Dar’s hands are full with other brands now.

Wednesday, February 17, 2010

Blog Hack

Dear Readers,

It has been observed in past few weeks that spam matter is being posted anonymously which are nowhere related to FMCG. Kindly note it seems the blog is being hacked & is being accessed by certain unwanted users.

We will try to fix the problem as soon as possible. As a last measure to solution to this problem, we might have to create a new blog.

This is to bring to your notice!!!

Best Regards,

IndiaFMCG

Thursday, January 21, 2010

Game for more

T his new year began with Marico Ltd, the mid-sized fast moving consumer goods company, announcing a major acquisition. This time it was the hair care brand Code 10 of Malaysia. The trend of smaller FMCG companies such as Wipro, Godrej and Marico steadily building their portfolio of international brands continues, but whether such brands have been adequately leveraged remains an open question. However, it is the ‘healthy balance sheet' of such FMCG majors which makes it possible for them to graduate from organic to inorganic growth.

“Smaller FMCG companies such as Godrej and Marico have had excellent organic growth. But considering the paucity of good-quality Indian brands and their disproportionate brand values, they are unrealistic buys. However, there are international companies with high equity brands available at a good price and there is bound to be more of such cherry picking for international brands among Indian FMCG companies,'' observes M. Unni Krishnan, Country Manager of brand valuation firm Brand Finance.

Last month FMCG major Godrej Consumer Products Ltd (GCPL) decided to raise funds up to a limit of Rs 3,000 crore through a combination of debt and equity instruments to buy out smaller companies. Announcing the decision, Dalip Sehgal, Managing Director, GCPL, said, “The equity dilution would be limited and it would be more of debt which would be raised for onshore and offshore acquisitions.'' Considering there is a possibility of buying out the balance 51 per cent equity in the Godrej Sara Lee joint venture, the funds would also be utilised towards this purpose. As Sehgal said, “We would need upto Rs 800 crore to buy the remaining stake of Sara Lee in the joint venture company. Besides, the rest of the funds would be used for acquisitions in categories such as household insecticides, hair colours and personal wash. We would be acquiring brands in categories in which we already exist and those that are adjacent to it.'' In the past GCPL has acquired hair care brands such as Kinky and Rapidol in South Africa and Keyline Brands in the UK.

Today there is no stopping the owner of brands such as Cinthol and Colour Soft – there are unconfirmed reports suggesting that it is close to acquiring an Indonesian household company (Megasari) next, apart from bidding for the global pesticides business of joint venture partner Sara Lee.

GCPL's management's outlook is positive towards the acquisitions strategy. “Aside from organic growth, acquisitions both in India and globally of brands and businesses that GCPL believes have the potential to deliver EVA (economic value added) positive returns in the medium term will continue to be a growth strategy for the company in its endeavour to enhance its competitive position, drive profitable growth and enhance shareholder value,'' states a report published on the eve of its analyst and investor meet last year.

In fact, the smaller FMCG companies have been becoming more confident making such deals over the years. “Companies such as Godrej and Marico have gone through the value chain and learning curve and now have developed a certain level of comfort. They have now developed enough systems and processes to derive value from some of these undervalued brands,'' says Unni Krishnan.

But there are also risks associated with such acquisitions and FMCG companies do realise that reaping profits may take a while. Commenting on the dangers that go with inorganic growth, a management analysis made by Marico states: “FMCG companies have identified inorganic growth as one of the avenues for growth. They may make acquisitions and enter into strategic relationships in the future as part of their strategy in India and overseas. However, it might be difficult to identify or conclude appropriate or viable acquisitions in a timely manner. Further, the acquisitions may not necessarily contribute to profitability in the short run and divert management attention or require the company to assume a high level of debt or contingent liabilities. In addition, they may experience difficulty in integrating operations and harmonising cultures leading to a non-realisation of anticipated synergies or efficiencies from such acquisitions.''

However, this has not stopped Marico from announcing yet another acquisition this month. After bringing in Egyptian hair care brands such as Fiancée and Hair Code, it decided to add to its international hair care portfolio by buying out P&G-owned hair care brand Code 10 in Malaysia for an estimated Rs 28 crore. With rights to the brand in Malaysia, Singapore and Brunei, Marico is already hoping to bag a 10 per cent share in the Rs 200-crore hair care category in these markets.

Says Vijay Subramaniam, CEO, International Operations, Marico, “This is our fourth acquisition in the past three years. We have identified the emerging markets of Asia and Africa as the growth avenues. We expect our international operations to grow in excess of 20 per cent in the next three years.'' Marico has also got some niche hair brands in South Africa and a couple of soap brands in Bangladesh.

According to Deepti Singh, Research Analyst at Fortune Financial Services India, “During the past few years, some companies in the sector have used the inorganic route to grow at a faster pace. They expect to derive the key benefits of a diversified portfolio – impressive growth rates, larger customer base, to mention a few – and transform themselves from Indian majors to global conglomerates.”

At the same time, most of the international FMCG companies are going through a rough patch given the current economic scenario in some of their respective countries. As Brand Finance's Unni Krishnan says, “FMCG companies in developed countries are facing a tough time in their markets. Given that scenario, it may not be surprising if more targets appear on the horizon for Indian FMCG companies.''

But on the face of it Indian FMCG companies' acquisition spree has not been adequately leveraged. “Indian companies have a tendency to leave the acquisitions alone and do not believe in changing the management team. While they may not want to radically alter the brand they must do specific things in marketing as the optimal value of the brand is not being leveraged, ‘'observes Unni Krishnan. Take the case of Tata's acquisition of the Tetley brand in the UK, where it has almost taken a decade for the Tatas to get some value out of the brand. Considering that the Indian Managing Director of Tata Tea, Percy Siganporia, recently re-located to London to take charge of the Tetley operations, this in itself has set the ball rolling for the Tetley brand, believes Unni Krishnan. “Indian companies are generally risk-averse and thereby lose out on significant opportunities to grow the value of the brand. While none of the acquisitions have been a disaster, neither of them have delivered full value for such brands,'' he adds.

However, now the ‘full value' of such acquisitions will soon get reflected on the balance sheets of companies with the implementation of the IFRS (International Financial Reporting Standards) Act. “IFRS 3, which will become mandatory in all M&A transactions, requires brand and identifiable intangible assets to be recognised on the balance sheet of the acquiring entity. All companies are being called upon to shine a light onto goodwill - the raison d'etre of future economic value which will provide managements a better and more objective understanding of value of these precious intangible assets, which are often least understood in deal-making,'' explains Unni Krishnan.

As the overseas brand acquisition spree continues, both big and small FMCG companies hopefully will now be in a position to leverage the intrinsic value of the acquired brands.

Saturday, November 28, 2009

Crossover Merchandising


In times like these when consumers don’t come easy and loss of revenue is easier done than said, some Indian retailers have been smart enough to deploy a strategy that allows them to manoeuvre shoppers’ impulses even as customers undertake pre-planned shopping trips.

If one thought that the key to success for any retail business in India lay in inflating the number of stores, better supply chain management, technology deployment and such incomprehensible jargons, there is something more subtle that has been evident all across, yet has evaded our eyes because we never realised our shopping may have been manipulated by the retailer.

Cross merchandising is a practice that works on the principle that there is an element of lateral thinking and logic in a consumer’s purchase, and thus this technique can be made use of not only to make shopping more convenient for the existing customer base, but also to poach a new set of consumers. While to a retailer, such a practice leads to incremental sales, for the consumer it is shopping assistance without much cognitive effort. Sample the instance of cross-selling, (which though differing from cross merchandising follows the same marketing principle) at McDonald’s, when consumers are unfailingly asked if they want French Fries and a beverage to go along with their order.

Deploying lateral thinking, cross merchandising is thus based on the concept of lateral marketing, which is a work process which, when applied to existing products or services, produces innovative new products and services that cater to new needs and situations and hence, offers a high chance of creating new categories or markets.

Defining cross merchandising from a retailer’s perspective, Samar Singh Sheikhawat, VP, marketing of Spencer’s Retail says, “Typically complementary products that make up similar buying behaviours for the consumers are defined as cross merchandising. It could straddle displaying and selling a product, promoting a basket of goods and visual merchandising as well.”

An extremely interesting characteristic of this practice is that it is intricately related to studying shopping behaviour and adapting merchandising of retail stores as per demands of the catchments. However, the technique also works backwards in that a retailer can educate his consumer as to what all additional products can go along with his usual basket of goods. Viney Singh, MD of Max hypermarkets explains: “Cross merchandising is the practice of displaying products from different categories together, which is aimed at improving the overall customer experience. Hence, we provide such opportunities to the customer to primarily facilitate convenience while shopping. It also generates additional revenue or incremental purchase.”

“A customer may not always remember every item on her shopping list and so a little prompting always helps. Hence, cross-merchandise is a very important aspect of retail, both from the customer journey experience as well as from the retailer’s financial viability. It creates a win-win situation for both the retailer and the customer.”

Thomas Varghese, CEO of Aditya Birla Retail Limited corroborates, “Cross merchandising is the setting up of displays of complementary merchandise so that they are placed near each other. Therefore, the customer shopping for one item gets tempted to ‘cross-over’ to other related product placed near it. It is definitely a powerful medium to boost sales, if deployed correctly.”

Having said that, cross merchandising is a tool that works across categories, but in the process of execution, not every category turns out to be so convenient to cross-present. For instance, in the frozen foods category, there are operational issues that factor in because this segment is highly ‘equipment-dependent’ and this is compounded by the space constraints that many modern food retailers face. Singh states that in this category (frozen foods) it becomes difficult to display the frozen foods’ complementarities along with the refrigeration units where these foods are stored.

While there is substantial unanimity in retailers’ views on the frozen foods segment, there is also subjectivity in the way a retailer perceives the difficulties in cross-presenting different categories.
Cross-aisle merchandising – placing related items on facing shelves – is an offshoot of conventional cross merchandising thinking.

Sheikhawat says that largely all categories are feasible for this practice; however, it is the staples section that is a mite tricky to display in a visually attractive manner. “It is very difficult to bring in the elements of aesthetics and glamour, for instance, in a rice shelf. At best, there is a possibility of putting it together with certain utensils like a rice plate or a storage container, but that still does not really prevent it from looking drab,” he says.

“All categories generally offer some promise to cross merchandise. It is most often the extent that varies,” says Singh. “For instance, in the range of utensils, most SKUs can be cross merchandised, but the same cannot be said for luggage, which is a difficult category in which to do this. Most foods are crossed with general merchandise but due to space constraints, it becomes physically impossible to display the merchandise properly.”

Varghese informs that for him, health and baby food supplements are most difficult to cross-merchandise. “In ‘planned-shopping’ categories like fruits and vegetables and staples etc, it gets tough to cross-present as the customers who come to shop for these categories have a pre-set shopping plan and a budget that has limited flexibility. This concept does really well in impulse purchase items,” he notes.

Impulse planning

While it is largely considered that cross merchandising is more effective in triggering impulse purchases, there are varying opinions on the same. Worldwide, and as Sheikhawat also mentioned earlier, this practice is an integral part of in-store merchandising since it is proven to be a tool for boosting incremental sales. The technique has been a rage among all the retail stores in the west as the motive has been to maximise the gross profit per shopper.

“Cross merchandising is fundamental to retail, and boosts incremental sales and impulse purchases. However, one should be careful to the extent and the way in which it needs to be done. This is very important as consumers may get confused if it is overdone,” Singh says. “Cross merchandising is not limited to tapping impulse purchases only – it helps to give ideas to consumers. They are then free to choose from a range of products that the cross merchandise represents.”

Singh informs that the kitchen linen category at Spar recorded a 22 per cent increase in sales owing to it being cross-presented with kitchen utensils. “This is a form of ‘suggestive selling’ and often it creates a thought process that may not have existed in the customer’s mind previously. This often then translates into planned purchases,” Singh states.

Elaborating on the practice at More stores, Varghese says, “We use different permutations and combinations of presenting snacks and beverages, sweeteners with tea and coffee, noodles with soups, oils with wheat flour, rice with flour, sugar with rice and, oils with fruits and vegetables, etc.”

“Broadly, the categories we do this (cross-merchandise) in at Spar are utensils, kitchen linen, travel, toys, stationery, small appliances and in a more limited way in food and grocery,” Singh elaborates.

“We are currently applying the practice by cross merchandising between and within various non-food categories like utensils with kitchen Linen or Irons with Ironing Boards, cookers and non stick with grinders and mixies, buckets with detergents, cartoon mugs with children’s gifts, lunch bags with lunch boxes /water bottles, note pads with telephones and bath towels and bath salts/oils,” he adds.

“The direction will be to smartly cross merchandise between food and non-food categories, something we have begun to do. For instance, apples and pairing knives, toys and batteries, wines with glasses, cheese with cheese boards and knives, peppermills with peppercorns, and so on.” Some more examples in the food & grocery categories are sauces, mustards and spices being merchandised at Spar delicatessen counters, syrups, toppings, masalas in the frozen foods segment, the pet food category placed next to garden plants, snacks & cold beverages in the liquor section, wine glasses in the wine section, and masalas and dry fish in the fresh fish & meat counters, according to Singh.

What’s the right cross?

After seeing the differences in the extent of cross merchandising at India’s leading retail stores, the next issue that comes to mind is how two merchandise categories are aligned together so that they make for a perfect cross-merchandise display. This is, in fact, the point that Sheikhawat contends is that the biggest challenge in cross merchandising – to understand which category goes well with which one. Thus, while a particular retailer may present cheese with a cheese grater, another might display cheese with wine or olives or even bread, depending on the demands of the respective catchment. Sheikhawat suggests that in a cosmopolitan location, one could probably do an Italian book with olive oil, or an Italian music CD, but in a tier II town one would need to be more grounded in basics – with presentations such as a cola with a pack of chips, and so on. However, Sheikhawat specifies that consumer receptiveness for cross-presented merchandise remains the same across all catchments. Singh agrees. “Products may vary across different catchments, but the concept remains constant as customer behaviour is much the same in all locations,” he points out.

“To be effective, cross-presented merchandise must relate in a logical way. For example, coordinating items that would be used together, such as pasta sauces, pasta cookware and pasta cookbooks; items that are colourcoordinated, a range of products that offer customers choice within a particular category such as cappuccino or espresso coffee-makers and plain or patterned dinnerware that can be mixed and matched, products that offer themed ideas such as baby gifts, stocking stuffers or a fondue story,” he adds.

Sheikhawat believes that cross merchandising, from the display point of view, is more of an art than a science. However, even as an art, the cross merchandising technique has more to do with the category management philosophy, he adds.

The next level

The practice is certainly no cakewalk and there are numerous operational hurdles to it. Singh elaborates that primarily space constraints, assortment issues and certain operational implementation issues have been
deterrents to this practice being embraced in India to its fullest potential. Varghese reiterates this when he says, “There are a number of implementation issues at the store level.”

Elaborating on the assortment issues, Singh says that at times it becomes difficult to cross merchandise the complete assortment of a particular product. For instance, there may be an excellent range of cheese knives available with a store, but at the cross-merchandised point it becomes hard to decide which one to cross present, even as the whole assortment deserves an exposure at such location.

Sheikhawat holds that it is also difficult to templatise the results of cross merchandising, from the viewpoint of indicating its impact on sales, footfalls and such other aspects.

That being said, if the practice in more developed markets is anything to go by, cross merchandising has been used as an extremely flexible tool, which incorporates crossselling, cross-promotions, crosssampling and even cross-presenting non-complementary categories.

Cross-aisle merchandising, which includes placing related items on facing shelves, is another offshoot of the same. This perhaps, could prove useful when presenting the whole assortment becomes important, something that Singh spoke about earlier.

Further, while convenience is the driving factor behind cross merchandising, it cannot be denied that it is also a potent tool to alter shoppers’ preferences and behaviour inside the store. Thus, while the loyalty of a shopper may rise with greater convenience of shopping, a new set of consumers may be created by exposing them to all that the store has to offer. The aspect of loyalty however, can only be better gauged if a retailer has a successful loyalty programme by which one can evaluate a consumer’s basket and then make efforts to expand it through better cross merchandising.

Moreover, the ‘suggestive’ characteristic of cross merchandising has been aggressively utilised by retailers in the west to build traffic and to cater to the existing customer base in a better manner. Many western retailers have been experimenting with ‘category destination programmes’ by re-routing shoppers from high-traffic zones to lowtraffic areas in order to boost the turnover of the low-traffic categories. Thus, shoppers at the relatively high-traffic baby diapers section can be routed to a laundry baskets’ department, for instance, while at the same time being supported with an appropriate advertising display and promotion.

Saumil Thanawala, director, marketing of Amalgam Speciality Foods, however, expresses caution when cross merchandising is being used to promote a relatively weaker brand or category. “Cross merchandising should be done in the right light so that it helps the retailer build consumer loyalty and preserve the brand image as well,” he cautions.

The end result

There indeed is a long way for a niche practice as cross merchandising to evolve in India. There is perhaps, also a need to expand the scope of this exercise, to include superior exposure to a large number of brands, as brand loyalty in India is still low in many categories and there is a huge opportunity for every new brand to leave a mark.

However, before that is achieved, retailers need to put in place more efficient Market Basket Analysis (MBA) methods which, among other things, would help them gauge a shopper’s price point sensitivity; a consumer’s likelihood to substitute items due to cross-promotions, out-of-stocks or item deletions; customer base for different brands and, consumer segment purchase preferences and traffic analysis. This would not only help in better management of categories, but also in building ‘consumer-centric merchandising.’

Last but not the least, the concept of collaboration with brands will need to transcend the battles of margins and slotting allowances. Cross merchandising is more about creating a consumer base for posterity.

Since there are no statutes to dictate and oversee the implementation of cross merchandising, there is always a room to tailor the practice if the retailer is benefiting from it. Sheikhawat and Singh admit that brands and manufacturers are quite receptive to this practice. “Some manufacturers who have been in business for long enough and who understand modern retailing would understand the concept and benefits of cross merchandising,” Varghese concurs.

Having said that, it is equally important to know what the brand manufacturers think. Thanawala contends that cross merchandising is largely made use of by strong brands. “Weaker brands do not feature in this practice, as they are perceived in as slow movers, and hence, are kept away from promotions.”

“Getting across to a retailer with a cross-merchandise idea is usually time consuming; I would rather work with the brand manager I want to partner with, to get the promotion going. This way I can measure the effectiveness and also tweak the promotion based on consumer responses,” he comments.

“Many manufacturers appreciate the concept of cross merchandising,” says Singh. “But, as a whole, its implementation is left more to the retailer’s discretion at this stage. Cross merchandising is very likely to be a win-win gameplan if it is a collaborative effort.”

Cold Wave

One of the pre-requisites of best-in-class food & grocery retail is a state-of-the-art supply chain and cold storage infrastructure. India’s largest cold chain company, Snowman Frozen Foods Ltd, realises this all too well, and is set to leverage the rapid spread of modern retail and cash-and-carry formats in the next few years across India.

Snowman Frozen Foods Ltd., is a joint venture between Gateway Distriparks Limited, Singapore and Mitsubishi Corporation, Mitsubishi Logistics Corporation and Nichieri Logistics Group Inc. of Japan. In India, Snowman happens to be the only cold chain logistics company to receive ISO 22000 certification from TUV, Germany.

With its current network of 16 cold storages and over 100 reefer trucks of different capacities, the company’s focus is to improve efficiency of distribution processes by proving cost-effective and high- tech logistic solutions to various clients across food sectors.

The company provides total integrated end-to-end supply chain solutions from source-to-store, taking care of transportation/storage, handling, and retail distribution of frozen and chilled foods across 20 locations within the country including Delhi, Chennai, Cochin, Hyderabad, Kolkata, Goa and Nagpur.

The wide range of products handled by Snowman include ice creams, poultry, dairy products, fruits and vegetables, meat products, and healthcare and pharmaceutical products. Snowman puts into use a customised fleet management software to monitor and control the cargo as well as the entire fleet (all the software is located at a central server in Bangalore), while a tailored Tally 9 package is used for superior control and checks on all financial transactions.

According to company officials, wherever one sees a temperature-controlled product in India, in all probability the logistics would have been handled by Snowman. Apart from offering cold storage solutions, the company also offers dry logistic solutions to select clients. It is also the only company in India to provide part load transportation for frozen cargo. The service runs on a fixed schedule covering around 100 cities across the country.

Up the ante

By December 2009, the company plans to make a new storage facility in Sriperumbudur near Chennai, in Tamil Nadu, functional. The Chennai warehouse is expected to be the largest multi-temperature storage facility of Snowman with a capacity of 3,000 pallets (one pallet = one tonne).

“Chennai is a major sea port in South India with high volumes of imports and exports of perishables. There is minimal or virtually no competition from any organised operator in the region. Competition, if any, emanates only from a few local operators. Chennai also has a good potential for food processors due to the large output of seasonal fruits,” explains Ravi Kannan, chief executive officer of Snowman Frozen Foods Limited, when asked why the capital of Tamil Nadu was chosen to set up the company’s largest warehouse facility.

“For importers, this new warehouse will serve as a single-door service option to de-stuff the containers, assist in in-transit storage location, thus facilitating de-stuffing, sorting, storing and effective distribution planning on a pan-India basis. For cut food-processors also this new storage facility will prove to be a huge help, as not only will it enable them to store semi-finished products during the volume produce of crop, but they will also be able to store in bulk and be able to meet the price and export demands,” he adds.

Snowman also appears to be preparing to extend its core competence to traditionally non-core areas. “So far, we have been involved in storage, primary transportation and last mile secondary distribution, essentially source-to-stores,” Kannan says. “But going forward, we will be getting into processing activity (F&V packaging, repacking, grading, kitting, bulk breaking etc., ripening chambers) mainly in fruits such as bananas, apples etc, blast freezing and dry warehousing (storage of any product at ambient temperature).”

The objective is to not just build critical mass for the business, but to also evolve into an end-to-end service provider in every sense of the expression. “It (the decision to backward integrate) follows from a customer requirement. All our clients want a single contact point; they do not want to deal with multiple vendors for their various requirements. So, since we are expanding now, we want to be able to provide some comprehensiveness and be a one-stop-solutions provider for our clients – a first again for any cold chain logistics company in India,” Kannan says.

“Our tie ups with the analytical labs is also a first-of-its-kind achievement for a company like ours in the country,” he adds. “Thanks to these alliances, we will be able to certify to our customers that all products stored in our warehouses are stored at the right temperature and hence safe for human consumption. We want to create benchmarks in the industry.”

In addition to this, Snowman is also shortly to synergise with the parent company, Gateway Distriparks, to simplify import clearance processess and avail of the bonded-warehouse facility. “All our clients — new and existing — will now be able to avail this service; the client will now not have to worry about imports and storage. Our role would begin as soon as a vessel pulls into the port and the containers are dropped off. We will inform Distriparks about the offload, they will go and pick up the container and take it to their bonded facility for storage. As and when the client requires the cargo it will be sent to our warehouse – thus offering one solution from end-to-end.”

As in all other Snowman storage facilities, the new Chennai unit will also feature all basic specifications in place, which includes maintaining the air temperature for storage at -20 degree centigrade in order to retain the temperature of product stored at -18 degree centigrade (international standard for frozen food). In order to offer optimum food safety standards, the freezer storages have been designed for operation at -25 degree centigrade with flexibility of incoming materials up to -15 degree centigrade.

All the company’s cold storages are made up of insulated sandwich panels made of polyurethane lined with metal skins on both sides having density of 37 kg/m3 square with thickness of 150 mm. Made from CFC-free polyurethane materials, the panels are supported with steel structural framework acting as building, which is covered up well with steel sheetings to protect it from the vagaries of nature.



Inside the cold storage sections, the temperatures are controlled by using an advanced refrigeration system (operates on CFC-free R404a gas manufactured by Dupont USA) using two-stage reciprocating compressors with suitable air handling units and evaporated condensers with proper control system.

The material storage arrangement is on standard two deep racking systems, which can store materials on Euro pallets of size 1000 x 1200 x 1500 mm with four-level vertical arrangements. Battery electric forklifts assist in the pallet movement. These forklifts are equipped for lifting material from the fourth level and second depth of the rack.

Dock levelers and dock shelters help in loading and unloading of materials from or into the refrigerated trucks. The dock shelters aid in air-locking the trucks into the cold storage area while the leveler matches the floor level of the truck with that of the cold storage.
With many national grocery chains having slowed the pace of store expansion in the first three quarters of the year, many support companies have taken a hit in topline growth. Did Snowman also feel the heat of this so-called slowdown in the food retail business?

Not really, says Kannan. “There has really been no impact as such of the slowdown; in reality, food imports are steady and have risen also to some extent. On the other hand, what did impact the topline was the H1N1 flu-virus outbreak and the multiplex closure to any new movie releases for approximately three months – foodservice brands felt the bite as consumers were not going to food courts, malls or restaurants to eat or hang out as much as earlier.”

Way forward

New cold storage facilities with features virtually similar to the ones in the Chennai warehouse are expected to come up in Bangalore by April 2010 and in Mumbai by July 2010. In the next two to three years, new storage facilities are expected to come up in eight more locations pan-India. With an existing Snowman cold storage capacity of 10,860 pallets, the company plans to add additional capacity for 8,440 pallets by September 2010.

The company is also contemplating getting into dry warehousing in a major way. According to Kannan future plans for providing dry warehousing facilities include offering two lakh square feet storage space in four locations, one in North (Delhi), one in South (Chennai), in West (Mumbai) and in the East (Kolkata).

Explaining further he notes, “From 1st of April 2010 the Goods and Services Tax (GST) is expected to come into place. With a uniform GST, all big companies would be in the process of closing and consolidating their small warehouses, which they will have across different states due to various tax issues. These four major distribution centres will feed all the smaller locations. Very soon we will be coming out with a retail strategy plan as well.”

Snowman is also looking at greenfield projects with large customers. Clients looking for Snowman warehouses in specific locations dedicated specifically for their use will also be serviced. According to Kannan, Snowman will build state-of-the-art warehouses for any such clients and manage the show for the specified period of time. Such an arrangement is already underway for one of Snowman’s clients in Pune, where an exclusive distribution centre is currently being built for the client.

Thursday, July 23, 2009

Mid-sized FMCG cos' big swipe at MNCs

Analysts say they have more product ideas, nimbler market responses than the giants.

Harsh Mariwala’s face lights up while recounting his favorite story. In the late 90s, Keki Dadiseth, the then Hindustan Lever (now Hindustan Unilever) chairman, wanted to buy his company, Marico. Many of his friends advised him to cash out when the going was good, but Mariwala dug in his heels. “Marico is a dream for me and I was in no mood to sell my dream,” he says. So, one of the high points in his life was when Marico bought the multinational giant’s hair oil brand, Nihar, for Rs 240 crore in 2006.

The dream run of Mariwala and his counterparts at other mid-sized FMCG companies is continuing, and much of the robust growth they are enjoying is at the expense of the FMCG behemoths. Companies such as Marico, Dabur and Godrej Consumer Products (GCPL) have been growing at a compounded annual growth rate of over 20 per cent over the past three years, compared to HUL’s 14 per cent. The respective sales volume growth are 10-15 per cent and 5 per cent.

Analysts say their relatively smaller size is one reason why the mid-tier companies found it easier to respond to the market. For example, towards the end of 2008, raw material and packaging material prices started sliding as oil prices dipped, and these companies were quick in passing on the benefit to consumers by paring product prices. HUL also cut prices but took its own time to do so. Result: HUL’s volumes dipped four per cent in the quarter ended March 2008-09, while the mid-sized FMCG firms clocked a volume growth of over 20 per cent in the same quarter.

Innovative strategies are another reason. For example, Marico’s mantra is to find niches where MNCs are not present, making it easier for the company to dominate that space. The leadership position in products like Saffola and Parachute (over 48 per cent marketshare) is evidence of that. Last year, Marico launched ‘hot oil’, which does away with the need to heat the oil. Likewise, it forayed into services with Kaya clinics (a space vacated by HUL). Kaya clocked close to 60 per cent growth year-on-year in the last financial year.

"We are continuously prototyping and at any given time, have at least five to six products in the test market," said Sameer Satpathy, chief marketing officer, Marico. In the last financial year, the company saw its revenues grow by 25 per cent, to Rs 2,388 crore.

Sunil Duggal, chief executive officer, Dabur, attributes the winning away of market share from established MNCs to the company’s new products and variant launches, and inorganic growth strategy (acquisition of Balsara and Fem). "We saw the fastest organic growth in a decade last year,” Duggal said.

A large part of this growth was volume-driven; Dabur had the highest volume growth in the FMCG industry. In the shampoo market, for instance, Vatika has been the fastest selling brand for three years in a row. Dabur Red Toothpaste has become a Rs 100-crore brand within just five years of its launch. Its skin care portfolio, with Dabur Gulabari, saw a 40 per cent growth in the last financial year.

So, too, for the Rs 1,450 crore GCPL, the soaps and hair colours major, which has been pursuing both organic and inorganic growth. Its international operations now account for Rs 300 crore of its overall revenues, post the acquisitions of Rapidol, Kinky and Keyline. Soaps account for Rs 800 crore of its Rs 1,150 crore domestic revenues. In the last financial year, Nielsen says the company saw its marketshare grow from 9.1 per cent to 9.9 per cent in this category.

Most agree that price is not the only reason why the mid-sized firms have gained marketshare. For example, GCPL Managing Director Deepak Sehgal says Godrej No 1 soap has been gaining marketshare in the downturn even though several rival brands like Breeze, Nirma and Diana were at lower price points. “Others such as Santoor, Rexona and Lux have also dropped their prices and are now in the same price band as us. But we are still gaining traction and are market leaders in five states, which shows there is a preference for the brand," Sehgal said.

Profits of mid-sized FMCG companies also grew at a faster clip than big competitors, due to their better rural focus. GCPL , for example, is planning to increase its marketshare in rural areas to 50 per cent from 38 per cent now, through better pricing and focus on regional advertising. "We have plans to increase our small-town distribution reach from 3,000 to 6,000 and village reach from 17,500 to 50,000 over the next two to three years,” Sehgal said.

Dabur, whose rural sales are now almost half of its overall sales, covers villages with a population of under 3,000 across seven states.

FMCG cos to see robust volume growth

Fast moving consumer goods (FMCG) companies, say analysts, may register a lower year-on-year (YoY) sales growth but higher volume growth for the quarter ending June 30. The full benefits of falling commodity prices and lower input costs should also increase the gross margins of these companies, they said.

A survey by five brokerage houses — SBICap Securities, Angel Broking, ICICI Securities, Motilal Oswal and HSBC Securities — reveals that after a volatile calendar year which saw input costs rise to record levels in the first half and then fall dramatically in the second half, FMCG companies will now see the benefit, as it usually takes a quarter for falling costs to show in the results.

“The FMCG universe is likely to register lower sales growth of 10.9 per cent year-on-year (y-o-y) due to muted sales growth in Hindustan Unilever (HUL) and ITC, and lower price growth for most other companies. However, volume growth is expected to be strong for most categories. Lower input costs and excise benefits will result in margin expansion and, hence, we expect operating profits for the sector to grow 21.5 per cent y-o-y,” say ICICI Securities’ analysts.

“The volume-led growth will be led by led by companies like GlaxoSmithKline Consumer Healthcare, Nestle and Dabur,” forecasts Anand Shah, FMCG sector analyst with Angel Broking, who expects the sector to record a 12 per cent net sales growth.

With most companies either effecting a direct rollback in prices (HUL, Marico) or offering various trade and consumer promotions, growth in sales will be mainly volume driven. “FMCG companies will post 8.7 per cent growth in sales, 15.2 per cent in Ebitda and 13.6 per cent in net profit. Excluding HUL, the growth would be much better at 15.4 per cent in sales, 20.2 per cent in Ebitda and 24.3 per cent in net profit,” says Pritee Panchal, FMCG sector analyst with SBICap Securities.

However, going ahead, while the makers of personal and packaged goods should benefit with no letdown in consumer demand, especially with the benefits of the National Rural Employment Gurantee Scheme and farm loan waivers causing rural demand to hold strong, weak macro-economic conditions, coupled with falling income levels, could lead to moderation in consumer spending in the ensuing quarters.

“If the monsoon is poor, it will affect consumer purchasing power. There could be a risk to revenues for the next three quarters, but this will be at least partially mitigated by social sector spending, as laid out in the Union Budget,” cautions an HSBC Securities results forecast.

ST-MOVER ADVANTAGE
CompanyNet Profit Range

Net Sales Range

HUL6.2-152.9-8.6
ITC14.7-23.93-8.7
Nestle9.5-30.712.5-18.8
Dabur8.6-29.118-20
Marico20.2-37.313.3-16
GCPL49.7-66.410-19.5
Britannia15.3-29.710-18
GSK Consumer14.4-31.722-27.5
(Figures in per cent) Source: Analyst reports

Horlicks stretches out

GlaxoSmithKline Consumer Healthcare is leveraging on Horlicks' brand equity to get into new categories. Will the move pay off? Walk in to any small eatery in the southern and eastern parts of the country and you will find it hard to miss the bottle of Horlicks at the cash counter. Horlicks is not a young brand — it has been around for decades. After imports were disallowed in 1955, Hindustan Milkfood Manufacturers started making the drink in the country in 1960 and now it’s owned by GlaxoSmithKline Consumer Healthcare. But there are no evident signs of ageing. Horlicks’ market share of the Rs 2,305-crore milk beverages market is above 50 per cent (source: The Nielsen Company). Rivals know beating Horlicks in the market place is a tough act. Nestlé has stopped making Milo and new entrant Dabur India has decided to stay clear of Horlicks and pitch its Chyawan Junior against GSK Consumer Healthcare’s other beverage brand, Boost.

It would be foolish not to leverage the equity of such a brand. Thus, GSK Consumer Healthcare has decided to use the brand to get into new categories. In the last few months, it has launched biscuits for children, a nutrition drink for women, an energy bar and chilled milk. More could follow in the days to come.

“Our business was doing well as was the economy. So both from our point of view as also from the consumers’ perspective, it was a good time to shift gears,” says GSK Consumer Healthcare Managing Director Zubair Ahmed. Ahmed believes the new products will make a meaningful contribution to the company’s top line in the next few years. “These categories are relevant and our research shows that consumers need these products. We are not creating needs, we’re simply fulfilling them.”

Those who know Ahmed well will hardly be surprised by the fast pace of product launches. As the chief executive of Gillette, his previous assignment, he tried to grow the business rapidly with a slew of new shaving products. He left the grooming products company two years ago after it was acquired by Procter & Gamble to run GSK Consumer Healthcare.

Something for everyone

Ahmed is aware that new products do sometimes end up as casualties but he has taken confidence from the strength of the Horlicks brand. “We’re riding the equity of Horlicks and supplementing it with consumer insights,” says he. Horlicks may be the country’s sixth most-trusted brand but GSK Consumer Healthcare is playing in a market where consumers can be demanding. And rival brands are no rabbits: Cadbury’s Bournvita and Heinz’s Complan each with a 15 per cent share.

So far though, GSK Consumer Healthcare has succeeded in segmenting the customer base by catering for specific needs of women at the same time cashing in on the increasing population of children with Horlicks. Ogilvy & Mather Country Head (planning) Madhukar Sabnavis feels “the brand today talks to every member of the family rather than the entire family.”

With Junior Horlicks, launched in 1995, GSK Consumer Healthcare had positioned a product exclusively for children between the ages of two and five. That, Anand Ramanathan, who advises companies in the FMCG space at consulting firm KPMG, points out is a crucial segment given that India is a young country — a clever ploy to engage consumers at a very young age. The Junior Horlicks brand has grown to become a Rs 150-crore brand now, says GSK Consumer Healthcare head of marketing Shubhajit Sen. Taking advantage, the company launched Junior Horlicks biscuits last month. Again, five years ago, GSK Consumer Healthcare had reached out to pregnant and lactating mothers with Mother’s Horlicks; last year it came up with Women’s Horlicks catering for women across age groups.

“The idea is to address all age groups. There’s Horlicks Lite for the elderly who often have a sugar problem and for the youth we have Horlicks Nutribar which we launched in February this year,” says Ahmed.

With Horlicks Nutribar, positioned on the twin planks of health and convenience, GSK Consumer Healthcare has leveraged the brand to venture into an entirely new product category — energy cereal bars. Says Ernst & Young Partner Ashish Nanda: “When you’ve created a strong brand, it opens up doors to new variants and even new categories. Unless you enter a completely unrelated area, there’s little risk in extending the brand to other products.”

While the company hopes that Horlicks Nutribar will chip in with about Rs 100-150 crore of revenues in five years, it hasn’t stopped there. In April this year, it invited consumers to taste its summer drink called Horlicks Chilled Doodh (milk), available in four flavours. Sen concedes that the product will be up against some keen competition in the Rs 45-crore chilled milk category from Amul Kool and strong regional players like MAFCO in Mumbai, but he hopes the brand can pull in revenues of Rs 50-100 crore in about five years — more than the current market size.

Of course, GSK Consumer Healthcare will promote other brands too — it does need to hedge its risks, after all. Thus, in April, Glaxo ActiGrow, a protein supplement for children, was unveiled. Ahmed explains that the company is cashing in on the brand equity that Glaxo still has with mothers and will leverage that for specialist products like ActiGrow. “We’re looking at new products across food and beverages, like healthy snack foods because the opportunities aren’t taken care of simply by Horlicks,” says Ahmed.

Full of beans
At the moment, Horlicks takes care of GSK Consumer Healthcare’s top line. The brand, which was worth around Rs 800 crore in the early parts of the decade, is today 50 per cent bigger at close to Rs 1,200 core, bringing in the bulk of the company’s annual turnover of Rs 1,580 crore.

If Indians drink more than five million cups of Horlicks everyday it’s because GSK Consumer Healthcare has worked on the product. At one time, in the late 1990s, market research showed that Horlicks was seen “as a nourishing, but boring drink” and was beginning to lose significance. What’s more, consumers were beginning to prefer flavours over nutrients.

So, in 2003, the brand was revamped: It was made tastier and launched in two new flavours — vanilla and honey. The company had earlier launched a chocolate version to try and win over consumers in the North and West who typically prefer chocolate-flavoured drinks. But the success was limited. Nearly half of its sales are still generated from the South, while 35 per cent come from East. But that doesn’t seem to bother investment analysts. IDFC SSKI Managing Director Nikhil Vora points out that GSK Consumer Healthcare has held on to its market share in a space that’s grown at around 20 per cent in the last couple of years. “As the market leader, the brand could yield some share but volumes have grown in double digits for five consecutive quarters.”

Not just higher tonnage, the company does succeed in extracting a price from consumers. In January this year, for instance, prices were upped by about 5 per cent. What has worked in the company’s favour, says KPMG’s Ramanathan, is Horlicks value-for-money positioning. “Horlicks may not be a cheap product but it’s been communicated as a value-for-money product. Parents today are willing to spend more on nutrition for their children and that has helped GSK Consumer Healthcare.”

To that extent, Horlicks may have gained over competitors such as Complan which are perceived to be more expensive, a perception that hasn’t changed over time. Says Ahmed: “Compared to competitors, Horlicks is the best money proposition and, moreover, the consumer gets value for the money spent.” For the new launches too, he has in mind a similar value proposition, though final prices will be fixed keeping in mind the target group. “Women’s Horlicks is far more expensive than the base Horlicks but that’s because the consumer is getting much more and there’s no other product available. Horlicks Nutribars will be primarily a metro phenomenon to start with, so the pricing has been decided accordingly.”

Nourishing the brand
Horlicks does not feel the need for a brand ambassador, though GSK Consumer Healthcare has engaged expensive celebrities like Kapil Dev, Sachin Tendulkar and Mahendra Singh Dhoni to endorse Boost. Still, the several new launches could push up the ad budget of one of the country’s top advertisers, most of which is spent on television. Sen believes that spends could inch up over the Rs 194 crore that GSK Consumer Healthcare spent on advertising and promotions last year. Typically, FMCG companies spent 12 to 13 per cent of their turnover on brand promotion.

The radio, through which Horlicks reached out to mothers even 40 years ago, is still an effective channel in states such as Bihar or Orissa where consumers don’t have access to television or where power cuts are frequent. In the early years, mothers were the sole target audience since the product catered to the entire family. However, once pester power became big in the 1990s, the Horlicks advertisements started talking to children too. The change worked because it was also the time when mothers’ mindset was changing — they had become more indulgent and let children drink what they liked, rather than imposing on them a drink of their own choice.

Today, JWT Client Service Director Debarpita Banerjee believes, the Internet can be a good way to connect with kids. So, there are tips posted on examinations on the website — “Exams ka bhoot bhagao” (Drive the exam demon away). Besides, the company has also reached out to children with Wizkids, a contact programme that provides a platform for schoolchildren across 25 cities to showcase their talent.

Adding rural reach
Under Ahmed, GSK Consumer Healthcare has upped the ante on distribution. In an aggressive ‘Go to Market’ approach earlier this year, it created a second layer of distributors in the smaller towns to supplement the existing chain of around 500 big distributors. Most of these 4,000 sub-distributors were appointed in the eastern and southern parts of the country. The idea, according to Vice-president (sales) Navneet Saluja, is to increase the retail reach by at least 30 per cent. “Right now we reach out to around 25 per cent of the rural market and we hope to extend this reach to about 40 per cent of the hinterland in a couple of years. We’re looking to have a presence in towns that have a population of 5,000 people.”

As for reaching out to customers in the urban markets, Sen has begun to work with retailers to create excitement and awareness. “In some outlets, we even created play areas for children,” he says. Although modern trade remains a relatively small channel currently, fetching just 4.5 per cent of the firm’s sales, Saluja’s aiming for higher shares. Ahmed’s not worried about the expense. “We’ll be leveraging the P&L (profit and loss account) for some time because we need to invest in the business and new products,” he says. Clearly, no effort is being spared to grow Horlicks.

Thursday, March 26, 2009

Mother of all rural marketing schemes

Khurrampur, Uttar Pradesh: What worries Gita Devi most about her business is not the economic slowdown but the tea that her neighbours are drinking. “They’re drinking City Gold and Tata Tea,” she tells Dharmender Mishra, her supervisor. “And they sing their praises. Why don’t they like Brooke Bond then?”“Maybe we should plan a tea party for them,” Mishra says.
“Maybe,” Gita Devi replies, looking uncertain.
“We’ll do the tea party—we’ll do some sampling and a demonstration,” Mishra says, reassuring her.
It’s important for Gita Devi that her neighbours drink Brooke Bond. Gita Devi is Hindustan Unilever Ltd’s (HUL’s) chief salesperson for her village of Khurrampur and the nearby village of Shalimarbad, and one of at least 45,000 village entrepreneurs enrolled in Project Shakti, the rural marketing initiative of the country’s biggest home products maker.
If the neighbours of all those entrepreneurs—or Shakti ammas (literally, “mother”, a respectful way to address women), as they’re called—drink Brooke Bond, bathe with Lifebuoy and plump for HUL’s other consumer goods, it will bear out Project Shakti’s promise: to cultivate the vast markets of rural India, sourcing saleswomen from the very villages that it hopes to tap.
Project Shakti was launched in Andhra Pradesh’s Nalgonda district in 2001, and it has swept the country with such success that Anglo-Dutch multinational firm Unilever is now customizing it to rural markets in Sri Lanka, Bangladesh and Vietnam. In 15 states, it has worked with self-help groups and non-governmental organizations to identify underprivileged women and train them to be saleswomen. Its timing has been fortunate: Its operational run has coincided almost exactly with a decade-long rise in rural India’s purchasing power, the last two years yielding a particularly rapid rate of growth.
Nurturing rural markets
Analysts agree that rural markets will prove more resilient to the simmering global economic trouble. “Compared to last year, rural FMCG sales have grown at 6-8% over the last couple of months, while urban sales have grown at 4%,” says Debashish Mukherjee, a principal at AT Kearney in New Delhi. “For many of these FMCG companies, rural markets contribute 40-50% of revenues, which is very impressive.”
HUL is one of the few companies that could have pulled off Project Shakti, says Pradeep Lokhande, founder of Rural Relations, a consumer relations firm. “It was possible because they have a basket of products to sell,” he says. “Another issue is cost—HUL has small packs, and they can push that so that the rural consumer can afford it.” (HUL says it does not track Project Shakti’s contribution to its profits, although a spokesperson says that it has “played an important role in growing rural markets for HUL”).On average, a Shakti amma records monthly sales of Rs10,000, on which she earns Rs600-800; those earnings come out of a 3% discount that HUL gives her on its products, as well as a trade margin of approximately 10%. A really outstanding Shakti amma—a Diamond Shakti amma—can even book Rs30,000-40,000 of sales every month, often turning her house into an HUL store.
The ideal Shakti amma candidate is probably Rojamma, the woman from an Andhra Pradesh village who stars in her own 6-minute film on the HUL website. Abandoned by her husband, and with two young daughters to raise, Rojamma was rescued from that cinematically dire life by Project Shakti. “Everybody knows me, I am someone now,” a voice-over says on her behalf, “And I can have big dreams.”
Gita Devi’s situation wasn’t quite as precarious when she became an ammathree years ago; her husband drives a tractor, and she joined to supplement that income and to better care for her five daughters and one son.
“I was able to pay for my daughter’s sewing classes,” she says, indicating a girl who, ill with typhoid and hooked up to an intravenous line, smiles feebly from a bed. “I also bought that television,” she adds, pointing to a set perched high in one corner, above a poster for the Mimoh Chakraborty filmHome-to-home
In a room at the back, next to portraits of assorted deities and another, smaller poster of Jimmy, is Gita Devi’s stock of HUL products: soaps, shampoos, washing powder, lotions and creams. “I sell regularly to 70 houses in this village, and 50 houses in the next, so I visit those home-to-home once a week,” she says. “Otherwise, I go out for an hour every morning to new houses...to convince them not to buy from anywhere else.”This routine would ordinarily be inefficient and time-consuming, but in a village where the Shakti amma knows everybody—knows what they can afford to buy and when they buy—and where everybody knows her, the inefficiencies fall away. “I can just go up on my roof and call out to Gita Devi, and she’ll come over and give me what I want,” says Krishna Sharma, a housewife next door.
Earlier, Sharma made the trek to Muradnagar, at least 12km away, to shop. “There were small kirana stores in this village, but they had no range,” she says. “They didn’t have this, for instance”—she pulls a Pears soap bar out of Gita Devi’s bag—“or this”—iodized salt.
Every 15 days, on such visits, Gita Devi is accompanied by Mishra, who as a Shakti trainer helps his wards pitch HUL to prospective customers. Mishra supervises 25 Shakti ammas, helping them keep records, listening to their problems, and liaising with rural distributors; he and 40-odd other trainers are managed, in turn, by one of Uttar Pradesh’s 14 rural sales officers. Gita Devi is thus FMCG’s equivalent of last-mile connectivity.
Mishra’s rural sales officer, P.K. Aggarwal, lives in Ghaziabad but makes village runs nearly every day, monitoring the network of Shakti trainers andammas under him. Earlier, he worked with Project Shakti in eastern and central Uttar Pradesh, and he calls the state’s western segment “far better off”.“The average income of a family in this belt is around Rs3,000 per month, and I’ve seen that rise by 6% or 7% in the last year and a half,” Aggarwal says, adding that four out of every five of the villages’ households are engaged in some way in wheat cultivation. Ghaziabad is one of the state’s most prosperous districts, a sign of which is that the number of households in the district demanding employment under the National Rural Employment Guarantee Act is one of the three lowest in Uttar Pradesh.
Not cheap
To do business in rural India is not a cheap alternative. Apart from orienting an urban-centric supply chain to access smaller villages, companies have to accept that rural consumers often have illogical or impenetrable loyalties. “Rural consumers are a more sensitive to getting value for their money, especially with consumer goods,” Lokhande says. “Now a secondary school student is an opinion leader. He knows what he wants, and his parents will listen to him.”
Show and tell: Roshni, a Shakti amma from Dhindaar village in Uttar Pradesh, says sales of Fair and Lovely improved after she conducted a seminar to show her customers the right way to apply the cream. Ramesh Pathania / Mint
Show and tell: Roshni, a Shakti amma from Dhindaar village in Uttar Pradesh, says sales of Fair and Lovely improved after she conducted a seminar to show her customers the right way to apply the cream. Ramesh Pathania / Mint
HUL learned very early that Shakti ammas should be encouraged to sell to retail shops as well as homes if they were to feel optimistic about their earning potential. “We also advise our Shakti ammas not to sell on credit,” says Prashant Jain, an area sales and customer manager for central Uttar Pradesh (rural) with HUL. “Recovery is sometimes difficult, because many of these customers are also relatives or known to her in the village, so they feel embarrassed to ask for money. So we advise them to sell (for) cash only.”
Another lesson rose out of Project Shakti’s logistics. Jain describes how HUL initially thought it viable to only target villages with a population of 2,000 or more, how market strategists sat down with census lists, and how ammaswere found in those selected villages and started off with a minimum of Rs10,000 worth of stock.
When HUL started delivering stock to these ammas twice a month, however, it realized that it was also in its best interests to cultivate Shakti ammas in the villages that lay along that route, however small they were. “Even if we are just dropping off stock worth Rs1,000 or Rs2,000 at these villages on the way, it makes economic sense,” Jain says.
Unorthodox solutions
Some of the ammas’ problems require unorthodox solutions. Last year, Roshni, a Shakti amma in a neighbouring village called Dhindaar, found that her customers were dissatisfied with the effects of the Fair & Lovely she sold them. So she organized a seminar devoted to showing the women the correct way to use Fair & Lovely—what her Shakti trainer, Jitendra Kumar, calls the “aath ka funda”, the method of daubing spots of the cream in a figure of eight on the face, and then massaging it in. “And now it sells much better,” Roshni says.
The Fair & Lovely seminar was similar to the tea party that Gita Devi and Mishra are planning for Khurrampur—a marketing event to help persuade their audience to buy Brooke Bond tea. It’s a sound idea, although Jain admits that to replicate such events across a state as large as Uttar Pradesh can prove costly, and the returns are not always commensurate with that expense.“But, more importantly, as a businesswoman, she needs marketing support. Having given her the business, it is my duty to give her the marketing support she needs as well,” Jain says. “The good thing is that she’s coming out and asking for it—she’s not passive, she wants to actively sell. That’s the most heartening part of it all."