Tuesday, November 13, 2007

Dabur forays hard surface cleaner mart

Consumer goods major Dabur India Limited Tuesday launched Dazzl, the company’s latest floor cleaner in South India, and signed actor Khusboo as its brand ambassador.
Two variants, Dazzl Antibacterial Kitchen Cleaner and Dazzl Disinfectant Floor Cleaner,were launched, aiming to tap the high growth opportunity in this category, a top official of the company said.
Girish Kumar, senior general manager, Home Care, Dabur, said a new product was being launched by the company after a gap of 10 years.
“It is a well-researched product and the respective variants are made using unique formulae like SQL Activ and Dirt Trap Technology, respectively,” he said.
Dazzl will be initially introduced in Tamil Nadu and Karnataka by the Rs 2234 crore worth Dabur,which forayed into the home care market in 2004 with brands like Odonil, Sanifresh, Odomos and Odopic, before acquiring Balsara.
Dabur’s home care portfolio registered a growth of 35% in 2006-07, a company press release said.

Sunday, November 11, 2007

Britannia cracks Chutkule to take on ITC, Pepsico

Britannia and ITC Foods are set for a battle cry in the snack food market now. Biscuit major Britannia is re-entering the snacks segment with a big nationwide push behind Chutkule brand. This will see the the Nusli Wadia-controlled company taking on the might of Pepsico’s Lay’s and Kurkure and ITC Bingo, launched early this year. Britannia, which made a rather tepid entry into snacks in the past, and ITC are already locked in a marketplace slugfest for dominance in biscuits. “The snacking space in India is huge and we will certainly focus on expanding our range here. But we will not replicate the products present here and are keen to enter the snacking market in our own distinctive way,” said Neeraj Chandra, VP (Marketing, Sales & Innovation), Britannia. Chutkule, launched into the market with one variant, is expanding the range in a bid to carve out a distinct space in the segment. “ This market it is all about variety, creating new sensations and being available at all locations. The market has both organised and unorganised players and finding the right flavours and differentiation is the current challenge,” he added. The company is likely to even look at bakery products that could be introduced in the snacks segment. Britannia had earlier ventured into the snacks market with its brand Snax, which was slowly phased out . The organised snacks market is around Rs 2,000 crore, growing at 15-20%. Frito Lay is the market leader with its Kurkure and Lay’s brand. But catching up is ITC’s Bingo, which aims at garnering 50% market share in the next two years. Britannia’s other focus in the market is the growing adult indulgence segment, which it has now entered with Pure Magic cookies and is going ahead with plans to expand this portfolio. “ We think its a segment that is showing very healthy growth and we expect to extend our portfolio in this segment. It also gives us a chance to upgrade our margins and improve realisations. We will look at rolling out Pure Magic cookies across other metros, we have so far restricted it to Delhi and Bangalore,” he added.

Amul in multinational arena with snack launch

Taking a cue from the success of ITC's Bingo, Gujarat Cooperative Milk Marketing Federation (GCMMF), universally known for its dairy products brand Amul, has decided to enter the branded snacks market with Munch Time, a salty snack much like Frito Lay’s Kurkure in taste.

The product is being test-marketed in Gujarat and is expected to be rolled out nationally in two months. Priced at Rs 5 a packet, the snack is targeted at teenagers and children.

The branded snacks segment has recently seen a surge in activity with the high-decibel entry of ITC’s Bingo, which has quickly grabbed 15 to 16 per cent share of the Rs 2,000 crore market from leader Frito Lay.

GCMMF first made Munch Time, which comes in masala, tomato and mint flavours, for the government’s mid-day meal programme. However, the cooperative has been quick to spot its potential in the fast-growing branded snacks segment.

“We had been thinking about launching this product for quite some time. We manufacture it at our facility in Gujarat. Based on the response to the test-marketing, we will consider a nation-wide launch,” said R S Sodhi, general manager, marketing, GCMMF.

The new snack has, however, already found its way into many stalls in neighbouring Maharashtra.

The launch of Munch Time is a significant departure for Amul, whose core business is milk and dairy products.

But the company’s distribution muscle is expected to help the company reach out to a large number of outlets. ITC’s vast distribution is seen as the key to Bingo’s success. It enjoys an exclusive presence in some shops including big retail outlets.

The new edge of competition has led Frito Lay to undertake a massive brand-building exercise for its brands.

Sodhi said GCMMF’s main challenge will be brand building. The company has already begun working on a campaign for the new product through its advertising agency FCB. The company aims to highlight its “nutritional value”.

Sunday, November 4, 2007

M&A wave hits consumer goods space; Dabur, HLL, Marico on prowl

Merger and acquisitions is the toast of the season and a full platter of deals is expected to hit the table very soon in the consumer goods space involving leading players like HLL, Dabur, Marico and United Spirits.
A number of consumer goods firms have sounded out their advisors and investment bankers with takeover plans in both domestic and international markets, while the likes of Dabur, HLL and United Spirits are actively eyeing growth through inorganic route, merchant banking sources said.
FMCG and healthcare products maker Dabur is holding discussions on a number of potential acquisitions, including Singapore’s beauty products manufacturer Unza Holdings, although it has been deterred by the high valuations being demanded by its target companies, the sources said.
Dabur’s top management team told analysts at a conference organised by investment banking giant Citigroup earlier this month that the price asked by most targets was too high and the company would wait for the right opportunity.
However, Dabur conceded that it was actively looking for acquisitions in both domestic and overseas markets.
The analysts believe that Dabur’s successful experience with past acquisitions has further boosted its appetite and it could continue to adopt inorganic growth route for complementing its existing product portfolios and expansion into the new segments and markets.
The company had recently acquired Balsara Hygiene at an attractive valuation, which it turned around within six months, and also got access to fast growing home care segment besides expanding its oral care portfolio.

Sunday, October 21, 2007

Vishal Retail to open speciality store for FMCG & apparel

Delhi-based Vishal retail will soon set up a chain of speciality stores to retail its apparel and FMCG range across the country, as it firms up plans to introduce private labels for consumer durables and mobile phones. The company has also chalked out plans to launch quick service restaurants for which it is in talks with real estate developers to lease out space at prime locations including Delhi Metro stations. "We will introduce a range of private label consumer durable items and mobile phones at the stores in next 3-4 months, and the products will be sourced from China," Vishal Retail Ltd CMD Ram Chandra Agarwal said. He said the consumers will get a mix of both private labels and others brands at the stores. The company would also start retailing liquor at its stores before end of this year. On the company's foray into manufacturing mobile phones he said, "The pilot launch of the two models of our Z-line mobile phones has been successful, and since the response has been good, the mass launch will be at the stores in next 3-4 months." Vishal currently has around 65 stores across India, is focusing on developing speciality stores for apparel and FMCG items. The plan was to have a total of 90 stores March next year, of which the new ones will be a mix of both hypermarket and speciality formats.

Dabur: Adding Flavour

Dabur has a penchant for venturing into new spaces, whether it’s soaps or retailing of beauty products. The latest product from the Rs 2,172 crore firm is a malted beverage called “Chyawan Junior” positioned it as a chocolate -flavoured ayurvedic drink. Says K K Rajesh, executive vice-president, Dabur, “It contains herbs to improve the stamina and the chocolate flavour makes it more appealing to children.”

The positioning might well work but the brand is likely to remain a small one. Explains Aniruddha Joshi, analyst at Anand Rathi Securities, “There is a market for the traditional ‘chyawanprash” product so with a tastier option Dabur can perhaps create a niche. However, it’s share is unlikely to be more than 5-6 per cent.”

But Dabur’s not shying away from the competition. By pricing Chyawan Junior at Rs 120 for a 500 gm bottle, it has taken the market leader Glaxo SmithKline Consumer Healthcare’s, Horlicks, head on.

That would seem to be a bold move on the part of Daburgiven that GSK, which has four brands in Horlicks, Boost, Maltova and Viva commands a market share of over 70 per cent. The firm has only improved its share over the years.

Indeed as Nikhil Vora, partner, SSKI Securities observes, “Dabur may have wanted to redefine the pricing somewhat by opting for slightly lower margins but bigger volumes.”

After all, milk product companies such as Nestle and Amul have tried their luck with brands Milo and Nutramul respectively but in spite of having strong synergies and distribution set-ups, they haven’t really done too well.

As Arvind Mahajan, executive director, KPMG, points out, “It’s a relatively difficult market to crack. One reason for this is that because it’s a product for children, you need to get the taste right. It’s not enough if the product is nutritious. Also consumers seem to form a habit of drinking the same product so it takes time to break that habit.”

The malted beverages market, at around Rs1,540 crore (source: AC Nielsen), is crowded with half a dozen players. At around 8 per cent in value terms and less than 3.5 per cent in volumes, the growth has been modest. GSK’s Vice-President, Marketing, Shubhajit Sen, however, pegs the growth at 12-14 per cent in value and 7-9 per cent in volume terms.

The business can be a fairly profitable one though: GSK’s operating margins are in the region of 16.5-17 per cent and Horlicks and its variants are firmly entrenched with a market share of over 50 per cent.

Says Sen, “We have been able to keep the category relevant to customers. We have expanded the usage by associating with exam preparation and dampening the seasonality effect of summers by driving cold consumption with Chocolate Horlicks.”

Sen believes the growth has been driven by both new users as well as higher consumption by existing users. Adds Rajesh, “The introduction of new variants has also helped grow the market. Companies are abandoning the one-size-fits all positioning and generic selling points of the past in favour of targeted messaging based on health benefits. ” Rajesh believes the market can grow at 15 per cent in the future.

What Dabur has going for it is a strong distribution network since it already sells products such as honey and juices. Says SSKI’s Vora, “Dabur’s distribution is probably better than GSK’s and that should help it to do good volumes.”

However, as KPMG’s Mahajan points out, “Typically malted beverages have done better in the eastern and southern markets. So Dabur will need to ensure that it has a good reach in these parts of the country.”

Joshi, however believes that though the availability of milk has never been an issue in the north, Dabur might succeed with a differentiated product. Moreover, the “Chyawan” brand should come in handy though Dabur will need to spend heavily on advertising—typically GSK’s ad spends are about 12 per cent of sales. Rajesh hopes to ‘take a prominent position in the market’ in the next few years. For sure it won’t be easy but it’s well worth a try

Fruit Drinks: Pepsi Coke in new turf war

Coca-Cola and Pepsi, which have triggered books and case studies on the cola war, are ready to battle each other on a new turf in India: fruit drinks. Pepsi is said to be ready with Tropicana Twister, an orange drink, to take on Coca-Cola’s Minute Maid, which debuted in India in February and went national in May.

According to industry and trade sources, Twister will strike next month at the time of Diwali and the executive of one retail chain said the date had been fixed as November 9. The Indian arm of PepsiCo though is playing with its cards close to its chest. An email from its public relations agency said: “PepsiCo would be happy to share the details on Tropicana Twister close to the time of the launch.”

The launch of Twister, already successful in Vietnam, will do more than add another brand to the shelves. It will mark Pepsi’s entry into a segment in India that has opened up with the entry of Minute Maid, which, full of orange pulp, is neither pure juice like Tropicana nor plain fruit drink like Coke’s own mango drink Maaza.

There is immense opportunity to be tapped in the segment of juice and fruit drinks. Its size is estimated at Rs 5,000 crore, which is not much less than the Rs 6,000 crore that the carbonated drinks market – cola, lime and orange put together – is worth. What is more, brands account for less than a quarter of the juice and fruit drinks market, leaving the field open for the big boys to take some easy pickings at the expense of small companies.

In volume terms, the total juice market in India – juices, nectars and fruit drinks – is pegged at 500 million cases. Of this, only 10 per cent is accounted for by packaged products and the rest is sold loose. Within this 10 per cent – or, 50 million cases – 85 per cent is taken up by mango-based drinks, juices and nectars. Against this, trade sources say Minute Maid sold a million cases in the first month.

In anticipation of Pepsi’s imminent challenge, Coca-Cola is not sitting quiet. It is test marketing Maaza Aam Panna, a spicy, tangy mango drink, in 1,000 stores in Agra, Bareilly and Lucknow. It is being bottled in Bhopal and sold in 200 ml tetra packs priced at Rs 12.

“In Maaza, Coca-Cola India already has the country’s number one juice drink brand. Now with the national launch of Minute Maid Pulpy Orange, we believe this would further extend Coca-Cola India’s leadership in the juice drink segment,” said Venkatesh Kini, vice-president, marketing, Coca-Cola India.

Coca-Cola and Pepsi squaring up in the fruit drink segment shows the shape of things to come as the two companies have been increasingly looking for revenue streams other than those of carbonated soft drinks. Besides, say experts, fruit beverages overcome the price barrier that the pricier pure juice brands have not.


Battleground

Pepsi to launch Tropicana Twister, an orange drink, during Diwali to take on Coca-Cola’s Minute Maid
The segment of juice and fruit drinks in India is estimated to be Rs 5,000 cr
In volume terms, the total juice market in India - juices, nectars and fruit drinks - is pegged at 500 million cases. Of this, only 10 per cent is accounted for by packaged products and the rest is sold loose

Thursday, October 11, 2007

Great news for FMCG companies

The strong volume growth in the FMCG sector continued throughout 2006. Rising income, demographics and rising aspirational levels led to rise in sales both in urban and rural area. Value added and higher margin products too witnessed an increase in demand. The year was also witness to heightened consolidation activity in the sector, as companies acquired to spread their reach across the globe. However, on the margins front, they faced pressure due to higher input costs and inflationary pressure. Budget Measures

Farm sector has been given the top priority. Agriculture investments to go upto 2% of GDP.

Duty on edible oil has been reduced.

Customs duty on food processing machinery and their parts is being reduced from 7.5% to 5%

Excise duty has been fully exempted on biscuits of per kilogram retail sale price equivalent of Rs 50 or less.

Excise duty on food mixes, including instant food mixes, has been reduced from 16% or 8% to Nil.

Free samples and displays are exempt form the purview of FBT.

Venture capital investing in dairy industry will get a pass through status.

Better rural infrastructure development to be an area of focus.

Increase in dividend distribution tax from 12.5% to 15%.

1% higher education cess to charged.

The dividend distribution tax on dividends paid by money market mutual funds and liquid mutual funds increased to 25 % for all investors.
Budget Impact

Duty reduction on edible is a positive for companies like Marico.

Exemption of excise on biscuits is positive for Britannia, ITC and Parle.

Reduction of excise on food mixes is beneficial to ITC, as this segment is a new growth area.

With increase on focus on agriculture, the rural income is likely to go up. This will be beneficial to the FMCG companies, as rural areas are a big market for them.

FMCG companies spend a lot of money on advertising and brand building. Exclusion of samples and displays from FBT will help them in promoting their products

Better infrastructure will help better access and more distribution network to the FMCG companies. It will help them improve the supply chain.

Companies have huge investments in the liquid funds, the higher tax on dividend distribution will reduce their other income.

The impact of higher tax (cess) on the industry is likely to lower net margins, albeit marginally.
Sector Outlook

With 12.2% of the world population living in the villages of India, the Indian rural FMCG market is something no one can overlook. More focus on farm sector will boost the rural income thus providing better growth prospects to the FMCG companies. Better infrastructure facilities will improve their supply chain. Also, with rising income and growing consumerism, FMCG sectors are likely to benefit. Growth potential for all the FMCG companies is huge as the per capita consumption of almost all products in the country is amongst the lowest in the world. Further, if these companies can change consumer's mindset and offer new generation products, they would be able to generate higher growth in the future.
Company impact

Britannia and ITC are l likely to benefit due to reduction in excise on biscuits.

ITC will also benefit from the reduction of excise duty on instant mixes.

HLL, Marico, Dabur, ITC amongst another FMCG companies will benefit from the free sample removal from FBT purview as they can now increase their advertising. Also all the FMCG companies will benefit from the infrastructure development and boost to rural income.
Industry Wish List

Give infrastructure status to agri processing industry. Give tax breaks and incentives to the food processing industry. Consider a uniform VAT of 4% on all basic processed foods, nil or low excise duty on food grains, condiments and spices, fruits and vegetables along with strong fiscal support for research and development (R&D) in the food-processing sector.


Measures to boost farm & rural incomes through employment generation measures and increase in infrastructure spending


Exemption of sales promotion expenses and free samples from the purview of FBT (fringe benefit tax)


Reduction in import duty on Palm Oil to curb inflation


Quality check on imported FMCG products and effective enforcement of copyright laws. This would go a long way in filtering out import of sub-quality and discarded products, benefiting both the manufacturers and the consumers. Also, there should be a comprehensive policy to hit out at contraband imports.


More focus towards networking the food supply chain, which will enable free flow of food related products across the country to the benefit of both manufacturers and consumers. For the government, it will mean effective utilisation of food stocks.


As per CII, excise duty difference between 'branded' and 'unbranded' food products existing at present should be removed to encourage consumers to move from unhygienic unbranded foods to hygienically packaged processed foods
Budget over the years
Budget 2004-05
Budget 2005-06
Budget 2006-07




Excise on biscuits reduced to 8% from 16%. Excise on soft drinks and sugar boiled confectionery also reduced All states to switch to VAT in FY04 (deadline now has been extended till end FY05) Loans to agriculture and to small-scale sector will now be available at maximum 2% above prime lending rate (PLR) Development plans for roads, ports, railways and airports Customs duty on alcoholic beverages reduced
Increase in customs duty of refined palm oil to 75% Excise duty on dairy machinery hived off from 16%. Implementation of VAT across all states Concessional rate of 5% custom duty on tea and coffee machinery Excise duty on preparations of meat, poultry and fish halved to 8% Excise duty on food grade hexane (used in the edible oil industry) halved to 16%
Excise duty on Condensed milk abolished (16% earlier). Excise duty on Pectines and Pectates, used as a gelling agent in Jams and Jellies abolished (16% earlier). Excise duty on unbranded edible preparations of oil increased from nil to 8%. Excise on biscuits manufactured without aid of power will now attract a duty of 8% (nil earlier). Excise duty on Pasta reduced from 16% to nil. Excise duty on ice-creams exempted Excise on ready to eat packaged food reduced from 16% to 8% Excise on instant food mixes exempted Excise on soaps manufactured without power will now attract 16% duty Excise duty on processed meat, fish and poultry products reduced from 8% to nil. Excise duty on yeast exempted

]

Key Positives


Growth potential: Rural penetration levels are still low. Also, according to estimates, only about 7% to 8% of the total food production (US$ 75 bn) is consumed in processed form. This speaks for itself, highlighting the scope for growth. The planned development of roads, ports, railways and airports, will increase FMCG penetration in the long term.

Increasing focus: Companies are increasingly focusing on key products and brands, cost efficiencies and rural markets to grow. This is a sign of market sophistication, both from the manufacturer's point of view as well as the consumer's point of view.

The India advantage: Owing to India's cost advantage, many MNC companies have started using their Indian operations as their manufacturing base. Alternatively, some Indian companies have tested foreign shores like Bangladesh, Sri Lanka, the Middle East and Pakistan among others.

Favourable tax structure: The introduction of VAT at the start of FY06 is a long term positive for the FMCG sector. This had been a long pending demand of the FMCG sector. Post this, the tax ambiguity will get reduced, benefiting the sector.

Modern trade growth robust: Modern retailing stores are the future and are growing at exponential rates. With the modernisation of the retail sector, rapid growth in sales of supermarkets, department stores and hypermarkets is inevitable due to the growing preference of the affluent and upper middle classes for shopping at these types of retail stores. Since FMCG companies have tied up with these retailers, growth for FMCG companies will also be faster.

Wednesday, October 10, 2007

Big retail still gung-ho on expansion

Even in the face of protests from trade groups, escalating real estate costs and pressure on margins, the march of domestic retail chains continues unabated.

Led by Reliance Retail, Pantaloon, Subhiksha and Spencer’s, these retail businesses are going ahead with their plans to set up about 2,500 stores, which, according to Technopak Advisors, will entail an investment of Rs 20,000 crore by December next year.

Organised retail in the country is growing at 30-40 per cent a year, according to management consultancy firm PricewaterhouseCoopers, fuelled by robust 9 per cent economic growth that is putting more disposable money in consumers’ pockets.
ORDER OF BUSINESS
Company New
stores
Investment
Rs crore
Pantaloon 150 1,350
Subhiksha 600 800
Reliance 205 15,000
Spencer’s 500 500

However, investor buoyancy is getting increasingly laced with scepticism in the face of growing backlash among those who fear that small shopkeepers will get wiped out. This backlash is slated to reach a crescendo tomorrow as tens of thousands are expected to gather in Mumbai’s Azad Maidan for the biggest rally yet against organised retail.

One of the targets of the protesters is Mukesh Ambani’s Reliance Retail, which has borne the brunt of recent protests in Uttar Pradesh, Orissa, West Bengal and Kerala.

The company is going ahead with plans that entail investments worth Rs 15,000 crore in setting up 205 stores, many of which will sell items not sold now, such as footwear. A part of this money will be spent on setting up distribution centres, according to a company executive.

It will take the number of Reliance Fresh stores to 500 from 347 in one year and increase the number of Reliance Digital stores, its consumer durables and information technology chain, to 14 from just one. The company will also set up 13 new Reliancemarts, its hypermarket chain, six Reliance Apparel stores, 21 Reliance Health and Wellness stores and seven Reliance Lifestyle stores.

Kishore Biyani’s Pantaloon Retail (PRIL) plans to increase the retail space to 10 million square feet by the end of 2008 from 6 million sq feet in 45 cities now. The company is planning a capital expenditure of Rs 650 crore and an investment of Rs 700 crore for maintaining inventory and working capital for new stores.

Pantaloon will set up 60 Big Bazaars, 15 Pantaloon stores, 100 Food Bazaars, 5 Brand Factory outlets, 7 more Central malls, 25 Depots (books and music chain), 6 Fit & Active gyms (JV with Talwarkar’s), 7 Collection-I (lifestyle furniture stores), 20 more E-zones (electronic stores) by June 2008.

Interestingly, the opening of PRIL’s major formats such as Big Bazaar and Pantaloons accounts for 85 per cent of the rollout plan. The group is also setting up 1,000 KB’s Fair Price Stores in 18 months.

“The company is targeting a turnover of Rs Rs 6,500 crore for the current financial year with 35 per cent of the turnover to be generated from the opening of new stores across different formats and concepts at locations all over the country,” said Rakesh Biyani, CEO, retail, PRIL.

Amid all the ambitious plans and looming protests by trade groups, Technopak Chairman Arvind Singhal said that though most of the players would go ahead with their plans and succeed with the change, they would now make less noise about their plans.

“Though there is no evidence at the ground level to show that retailers are less excited about the future than they were six months ago, the major factor I see going ahead is that the high-profile players will be circumspect and understand that retailing is not about investing crores of rupees, but setting up a single shop,” Singhal says.

But AT Kearney’s Hemant Kalbag believes that retailers may not be able to achieve the desired bottom lines in the next 2-3 years since realty and labour costs are going up continuously, putting pressure on margins.

“The next one year is critical for achieving as much footprint as possible and establishing itself as a strong player for all retailers,” he said.

The 300-store-strong Spencer’s is also planning to set up 500 more stores by June 2008 with an investment of nearly Rs 500 crore. The RPG Group-promoted company is expecting revenues of Rs 2,000 crore from its operations by June 2008.

“We are opening 30 stores every month. By the end of June 2008, we will do business of Rs 150 crore to Rs 160 crore per month. Our top lines are always improving,’’ said Sumantra Banerjee, CEO, RPG Retail.

South-based retail chain Subhiksha, which has nearly 910 stores, is opening nearly 600 stores in the next one year with an investment of Rs 800 crore.

Male grooming gets a cosmetic touch

Finally, the trend of the rising male vanity is spilling out of glossy city supplements and into balance sheets. The metrosexual man, believed to have been around for a while, is being re-discovered by marketers.

The market is still small, worth only Rs 400 crore a year. But its growth — the segment is expected to double every year in the next few years — has attracted some usual suspects, such as a bevy of cosmetics makers and, at least, one unusual one.

An added attraction is that, unlike the highly competitive segment of female grooming, male grooming is a relatively virgin territory and available for plunder.Emami was an early bird, which swooped down with its Fair & Handsome fairness cream in a market full of skin-whitening products for women. It soon had company in Marico, Elder Pharma and VLCC. The most recent entrant is also the most unexpected one — Mysore-based NR Group, which makes the Cycle brand of incense sticks.

Going by the indications, this is just the beginning. “We will introduce complete toiletries for men including creams, after-shave lotions and creams, soaps, deodorants and shampoos in a year,” says Aditya Agarwal, director, Emami, which has also launched Mr Black, a hair dye for men. The company is staying away from introducing the same range for women.

Says Anuj Saxena, managing director of Elder Healthcare, the personal care arm of the Elder group, “Over the next two years, we plan to increase our product portfolio in skin care, hair care and oral care. In personal care, we plan to launch 17 more products in the next two years, of which, close to 30 per cent would focus on men.”

Elder Healthcare already has seven products including fairness creams for men, lip balm, soaps, mouthwash, etc.

Emami’s launch of Fair & Handsome was driven by a study, which said 30 per cent users of skin care products were men. Within a year of its launch, Fair & Handsome registered sales worth Rs 50 crore.

Marico’s Kaya Skin Clinic has seen the share of men among its clientele increasing three-fold to 25 per cent in two years. In south India, it is 35 per cent.

Direct seller Oriflame, which sells talcum powder, after-shaves, sprays and deodorants for men, has reported 20 per cent growth in the number of male products being bought.

Says Fredrick Widell, managing director of Oriflame India, “We have more than 40 products for men right now and are looking at introducing some more in India. These would include tailor-made products for men to enhance stomach muscles and anti-ageing products.”

VLCC is also said to be launching several new products for male consumers. Says Yogesh Sethi, its CEO, “We launched Fuel brand of moisturisers, creams, etc, for men last year. We are now looking at strengthening the brand with several new launches. In the next few years, we plan a chunk of our FMCG expansion around male consumers.”

The NR Group is planning a range of products targeted at the upmarket, metrosexual male, beginning with after-shave lotions, shaving creams and fairness creams. Says Arjun Ranga, the company’s CEO, “After our entry into the personal care space, the next logical extension is into the male grooming category.”

Sorce-Business Standard 10/10/07

UJALA-Brand Story (Safedi Ka Naya Rang)


Any keen follower of the Indian corporate scene will soon realise that many Indian brands have been successful in not only standing up to the competition from MNCs, but have beaten them hollow. Nirma might have the first recall. But another equally high recall Indian brand is Ujala. Read the following article to have a better understanding of the brand.

With its catchy ‘Aaya naya U j a l a . . c h a a r boondon wala’ ad jingle, the product created such a rage in the late nineties, that even today, seven years after its national launch (in October 1997), Ujala is able to whitewash the sheen off other brands in the whitener segment. Ujala’s success is a story of smart marketing and pricing coupled with a prudent understanding of the market. Its success has helped the relatively small Jyothy Laboratories to effectively create a category for a liquid fabric whitener and successfully pull customers away from bigger competitors. Ujala has not only stood up to multinational market leader Robin Blue, but has in fact changed the colour of white!

Brand History
The origin of Jyothy Laboratories lies in a proprietary concern founded by the current Chairman and Managing Director- Mr.M.P.Ramachandran in 1983. Jyothy Laboratories has originally been engaged in the production and marketing of a liquid fabric whitener product called “Ujala” since 1983. Mr. Ramachandran, with an added interest in Chemistry was dissatisfied with the fabric whiteners available in the market then. Hence, he came up with the formula for Ujala as a fabric whitener to compete with the existing brands. He launched it first in Kerala in 1982 and then extended it to the national market.

Brand Positioning
As Arindam Dasgupta, Situations Advertising, Jyothy Labs’ ad agency expounds, “Ujala was positioned as the Value For Money liquid optical fabric whitener with Insta-Whitening System technology that makes everyday wear clothes spotlessly bright and the family happy and proud.” The company was very clear of its target consumer; the average homemaker with a monthly household income within the Rs. 1500 bracket. Elaborating target customer characteristics, Dasgupta adds, “ She is a small town dweller, homely, one who cares for her family. She washes the clothes at home and is thrifty with the household budget. Hence, value for money is paramount for her and since she buys in small quantities, per unit price also acquires significance. She considers her neighbours’ and the dealer’s recommendations vital and constantly seeks her husband’s appreciation which adds a fillip to her existence.” R. Ravi, Sr. Vice President, Marketing, Jyothy Laboratories adds, “ Economy of use was our platform and the conveniently packed product was available in different sizes ranging from 30 ml to 250 ml. As the jingle suggested, only four drops were required to whiten clothes post wash.”

Brand Prmotion Startegy
Dwelling on the strategies adopted to promote the brand, Dasgupta says, “ We wanted the brand differentiation to be based on function combined with a clear brand personality.” He adds “ We also had to devise a strategy that would break down the attitudinal barriers of going against trying a new brand. We decided to devise the communication around the family and also to give it an aspirational tinge. An integrated marketing communication strategy was followed to position the brand and create strong brand values.” 

Difficulties Faced
Before Ujala was launched, the common perception was, whiteners had to be blue in colour and powder in form. So, the challenge before JyothyLaboratories was to break this mindset, as Ujala was a purple liquid. The challenge was successfully surmounted through the tagline ‘Safedi ka naya rang.’ In order to drive home the message better to its target audience they used the mother-in-law in their ad as the symbol of a blocked mindset. The conversion of the mother –inlaw to Ujala was seen as the triumph of the modern over the traditional product. The value for money aspect, which was promoted as a brand differentiator, was also cleverly used throug the jingle ‘chaar boondon wala’. Dasgupta mentions about another misconception that had to be cleared, “ We had to circumvent the problem of the misconception that like neel, the colour purple too would remain on the clothes. We also had to establish the key benefit of the perceptible difference in whiteness due to the violet ‘magic’ formulation.” Therefore, the ads used a strategy of comparison to show the superiority of Ujala over other brands and demonstrate the use of the product and the quantity to be used. School going children were used to establish brand good will. Media mix included television, print media and outdoors. Press, for example, particularly the back covers of women’s magazines were used as a secondary medium. Radio is still being used as a reminder medium. These were supplemented with the use of dispensers, direct mailers, promo ads, outdoors - all carrying the basic four Violet drops, Insta- Whitening SystemTM , and slogan line.  

Convincing Results
To quote the Economic Times dt.30th Jan, 2001 “Ujala has cornered a whopping 60 percent market share while Reckitt is still struggling with a meagre 6 percent. Also Ujala is marching ahead despite selling 75 ml liquid packs at Rs.8, while Reckitt is pushing its stuff at Rs.7.” Jyothy Laboratories’ official website proudly asserts (see following figures), “Ever since its national launch in India in October 1997, the market share of Ujala has been consistently on the rise. According to AC Nielsen figures, Ujala’s share in the overall fabric whitener market has gone up from 26.6 percent in September 1998 to over 65 percent in February 2001 onwards.”

Did You Know?
Ujala was ranked 55th in the Economic Times Most Trusted Brands Survey, 2004.

Expansion Startegies
Jyothy Laboratories has not rested on the laurels it has won. The company has leveraged on the understanding it has gained about the mindset of lower income consumers to expand its produc categories. Today, Jyothy Laboratories Limited is a multi-product public limited company well on its way to becoming a diversified, national-level FMCG (Fast Moving Consumer Goods) company.
The products it offers include:
  • Fabric care- Ujala Detergent Washing Powder
  • Mosquito Repellent and Household Insecticides- Maxo Cyclothrin mosquito Repellent
  • Air Care – Incense sticks / Aroma sticks- Maya Incense and Aroma Sticks
  • Surface Cleaning Preparations- Exo Dishwash Bar
  • Ayurvedic (Herbal) personal Care Products – Jeeva Ayurvedic (Herbal) Soap.

Saturday, October 6, 2007

FMCGs, retailers tie up for category management

Mumbai: FMCG companies and retailers in modern trade are coming together for the first time to undertake, what is globally known as category management, for maximising sales and giving consumers a better shopping experience.
Top retailers are entering into exclusive tie-ups with FMCG majors, who are essentially market leaders in their respective categories, to design and merchandise an entire section at the retail store based on the company's expertise in the given category and consumer insights. The company which undertakes the task is termed as the category captain.
Since there is a confidentiality agreement in such tie-ups, it was difficult to ascertain which company was doing category management for which store. However, what is certain is that most of the top retail chains are in the process of implemeting such an exercise. The objective, clearly, is to increase sales of the given category and which will in turn benefit the company and the store. It is learnt that Hindustan Unilever (HUL), which is a market leader in various categories of the FMCG market, has been chosen as the category captain for skincare and laundry by a couple of retail store chains.
Similarly, Marico is prototyping category management for a certain retail store. It is believed that the company will take up category captaincy in either edible oils or hairoils, or both. Johnson & Johnson has been one of the first FMCG companies to start category management work with top retailers. Starting with baby care section, the company has designed and merchandised the entire section for some of the top retailers. The company is also now working with the retailers on the feminine hygiene category as the retailers do not have complete understanding of this highly intimate category. Ever since J&J started this initiative, the impact has been huge. Said J&J MD Narendra Ambwani: "The work done on category management has already started yielding dividends for the company as well as the retailers with the category sales growing by 20%-30% where the plans have been implemented. The consumers and shoppers are also happy because they have a better shopping ambience as well as ease of shopping.''
According to Marico CEO (consumer products division) Saugata Gupta: "These are early days, so we may not be looking at all steps of category management at the moment, but would certainly look at SKU rationalisation, layouting, etc.''
"The idea behind giving the entire responsibility of managing a category at a store to a market leader is to maximise the benefits because only a leader would have the consumer insights and understanding of a particular category,'' said an industry observer. However, all retailers are not biting the bait. Said Subhiksha MD R Subramanian: "We, as a policy, have not handed over complete control to a single FMCG company for category management. We believe that we will do category management on our own and get insights from FMCG companies.''
As compared to the developed world, modern trade in India is still in its nascent stages of growth. In India, modern trade is growing at the rate of 15% CAGR. It accounts for about 3-4% of total FMCG sales.
Category management, said an industry observer, will evolve only after modern trade achieves the critical mass. An official from an FMCG firm pointed out that category management is, in fact, more a need of the hour for mom-and-pop stores, where products are assembled without paying much attention to which of the SKUs are moving fast and which ones are laggards.

Wednesday, October 3, 2007

FMCG: Short-term pains, long-term pay-offs

UNTIL the slowdown began, it would have been difficult to imagine that household names in the Fast Moving Consumer Goods (FMCG) business, such as Tide, Pepsodent or Surf, would actually be using price cuts to lure consumers.

After all, until a couple of years ago, consumers of FMCG products were pretty much resigned to regular increases in the selling prices of these brands year after year.

But the slowdown in demand has changed all that. What began as a promotional binge (remember all the buy-two-get-one-free offers?) has now clearly snowballed into overt discounts on selling prices of some FMCG products. Surf Excel, Tide, Colgate and Pepsodent are just a few of the FMCG brands that recently hacked their selling prices to woo consumers.

A ball for consumers: This is no doubt good news for consumers. It is a sign that they are finally reaping the benefits of healthy competition in the FMCG business.

Traditionally, key FMCG categories, such as toothpastes, soaps and detergents, have been dominated by just one or two large players which have dictated the selling prices by virtue of theirstranglehold on the market. But a growing tribe of local and regional brands has seriously threatened the established giants. This has injected a healthy dose of competition into the business.

Near term dent: For the key FMCG players, the recent bout of price competition is likely to dent their near-term financial performance. The lower realisations resulting from price reductions could turn single digit sales growth figures into the negative territory over the next couple of quarters. Profit margins too can be dented, as they are not able to pass on input price increases.

Broadening the markets: But, over the long term, the recent price reductions may actually pan out in favour of the players. Some sacrifices on the price front may be just what the industry needs to broaden the market for some FMCG products and perk up usage for others.

For some time now, there has been an irreconcilable gap between the undoubted "potential" of the Indian market, as captured by the penetration (reach) and per capita usage (consumption) numbers, and the actual sales notched up by the FMCG industry.

Products such as shampoos and cosmetics even now reach less than half of all Indian households. For high-penetration categories such as soaps, detergents and toothpastes, the average Indian usage is far below that of even neighbouring Asian countries.

Improving affordability: So, what has been stopping consumers from splurging on FMCG products? Affordability appears to one major obstacle. There is enough indirect evidence of this. Whether it is Nirma soap, Anchor white toothpaste, Fairever fairness cream or Colgate Herbal toothpaste — some of the most successful new products of the past three years have had one common thread running through them.

When launched, each of these brands was priced at a discount to the comparable offerings already available in the market. This suggests that consumers are willing to try out even an entirely new name, if it comes at a low price.

Riding on low unit packs: Then, there is the success of the low-unit pack strategy. Over the past five years, the penetration of shampoos into Indian households has moved up sharply, as consumers have taken to scaled-down sachet packs of the big brands.

Today, around two-thirds of total shampoo volumes are sold in sachets. Nestle's Rs 2 Chocostik (a scaled-down version of chocolate), Britannia's Tiger biscuits priced at less than Rs 5... There are many more other instances where an affordably priced version of a big brand has delivered the goods — in terms of pepping up volume growth.

Right idea at last: All this suggests that companies such as Hindustan Lever, P&G Hygiene and Colgate-Palmolive India may have finally latched on to the right idea when they slashed selling prices on some of their major brands to woo consumers.

The price cuts may depress financial performance in the near term and lead to one more round of de-rating for FMCG stocks.

It is a strategy that may be necessary for survival at a time when several extraneous factors are forcing consumers to tighten their belts.

But if the price cuts really manage to bring new consumers into the FMCG market or change the way consumers use FMCG products for good, the players may be able to reap rich dividends when economic fundamentals do stage a revival.

Sunday, September 30, 2007

Getting personal - ITC (ET-30/9/07)

The firm can leverage its distribution network as it takes on well entrenched players in the personal care space.

There are already about half a dozen players in there. But that hasn’t deterred ITC from entering the Rs 2,000 crore plus shampoo market. The Rs 16,510 crore cigarette major has forayed into the personal care segment with three variants of a shampoo branded Fiama Di Wills.

Notwithstanding the fact that market leader Hindustan Unilever controls an enviable 48 per cent share, the Kolkata-based company is ready to give it a shot. Industry watchers say soaps, shower gels and skin care products are next on the cards.

Priced at Rs 99 for a 200ml bottle and Rs 54 for a 100ml bottle (six Stock Keeping Units in all), the product is positioned at the premium end and will compete with brands such as Garnier’s Ultra Doux, Procter & Gamble’s Pantene and Hindustan Unilever’s Dove.

Says Sandeep Kaul, general manager, new businesses, ITC, “We believe there’s purchasing power for premium offerings and are targeting the SEC A and SEC B1 segments.”

It’s not just the premium end, the overall market for personal care appears to be seeing good growth with most categories clocking 15 per cent plus except for soaps. The shampoo space has seen a compounded growth rate of about 20 per cent over the last five years, says Kaul.

Moreover, the penetration as he points out, is not very high especially in the hinterland. But it’s not going to be easy for ITC because the competition is keen.

The relatively small share of just about three per cent that Garnier has managed after so many years is an indication of the kind of challenge that ITC is up against.

Says Unmesh Sharma, who tracks the FMCG space at Macquarie Securities, “Given that two-thirds of the market is controlled by two players, it’s not going to be easy for ITC to create some kind of niche for itself.”

What ITC has going for it though is a strong balance sheet. Says Arvind Mahajan, executive director, KPMG, “Personal products is not an easy category to be in and requires staying power. Players like ITC have the ability to invest, stay there and give the business five to six years to make money. The investment will be made from a long-term perspective.”

The other asset that ITC can leverage is its distribution reach, given that it already sells packaged foods. Says Macquarie’s Sharma, “ ITC is far better positioned than a foreign player or a new entrant because it already has a distribution network.”

Sharma explains that that ITC’s web of distributors will allow it to access even remote areas, even if the firm doesn’t have too many retail outlets. Adds Yasmin Shah, analyst at Alchemy Securities,” ITC is building a rural distribution network through its Choupal Sagars which they can use to sell personal care items.”

In fact, the rural network (of both distributors and retail outlets) will be put to good use when ITC launches sachets which it needs to do because they comprise 60 per cent of the market (in value terms).

Says Kaul, “You will see the sachets very soon because there is a very large franchise for them and we need to give consumers as many options as possible.”

Kaul, however, is reluctant to discuss whether the company will have a presence in the economy segment. Nonetheless, say analysts, the new business is a good way for ITC to de-risk its business model.

Today, cigarettes account for 68 per cent of gross revenues and about 84 per cent of the PBIT (profit before interest and tax). Others such as hotels, paper, food and other FMCG products are growing but are not too profitable. Losses from the FMCG businesses were close to Rs 60 crore in the June quarter.

Says Alchemy’s Shah, “More new launches mean that the division will stay in the red for a while. But the investment is worth it because, at the end of the day, India is a consumption story.” All ITC needs to do is give it a personal touch.

FMCG firms ally with kirana stores

The corner shop, as it grapples with the onslaught of big retail, has found formidable allies. At least three fast-moving consumer goods companies — Mumbai-based Hindustan Unilever and Marico and Delhi-based Dabur — have developed new brands and attached them to mom-and-pop stores and given them the same deal as large retail outlets.
In return, the companies get high visibility and dominant display for their products which, according to claims, has led to a 20 per cent rise in sales in some cases.
Hindustan Unilever is associating with small-format retail through its Super Value Store, Dabur with Parivaar and Marico with Mera. At many shops, the counter has been modified into a U or L shape so that the shopper can move and pick items, just like in large retail stores.
Market research reports say 25-40 per cent of consumers switch brands at the point of sale driven by display or promotion. As much as 95 per cent of FMCG sales in the country are through small shops.
In Mumbai, Marico has covered its top 10 per cent of sales points under Mera. “The sales of Marico’s products have improved by 20 per cent as they get preference in display,” said a retailer associated with Mera.
HUL, under its Super Value initiative, is providing consultancy to retailers on how to morph into self-service stores. In case a store does not have enough space, it is given advice on prioritising product display, inventory management, etc.
"The purpose of this programme is to activate the general trade channel keeping shopper behaviour in mind,” says Ishmeet Singh, general manager, customer marketing, Hindustan Unilever.
Put simply, general trade is sale through small shops while modern trade is through large retail stores.
"Under the Mera programme, we ensure that our small retailers get the same benefits as modern trade or more,” says Saugata Gupta, chief executive officer, consumer products, Marico.
Dabur, through Parivaar, is aiming at building long-term relationship with grocery stores across major cities. Special discounts, higher margins and rewards are part of it.
“We are rolling it out in a phased manner and around 5,000 key grocery outlets across 15 major cities are being covered in the first phase. By the end of the current fiscal, we intend to take it up to 12,000 outlets,” said a Dabur executive.

Thursday, September 27, 2007

Retailers’ home runs


Are organised retailers finding it difficult to emulate the local kirana stores with their home delivery models? Considering the largest retailer, Pantaloons (through Food Bazaar), does not think it a bright idea to compete with th em, discount retailer Subhisksha still fine-tuning its format and even the largest FMCG player, Hindustan Unilever Ltd (HUL), selling off its home delivery brand Sangam Direct, is door delivery not an attractive business proposition for retailers and manufacturers in India?

Argues Sadashiv Nayak, Chief Executive Officer, Food Bazaar, Pantaloon Retail, “We have to recognise the fact that mom-and-pop grocery stores already have efficient delivery, while for us home delivery is an added experience that we want to give our consumers. It is certainly not our core proposition and has always been part of the optional service that we provide.” In fact, today home delivery services comprise a mere 5 per cent of the leading food retailer’s turnover and there are slim chances of it being viewed as an attractive business proposition. Besides, the retailer insists consumers prefer to come and shop and carry home the goods themselves. As Nayak claims, “Consumers prefer to shop and carry back the goods. There is still little demand for such services.”

At the same time, there are other retailers who don’t seem to agree. Take the case of Wadhwan Foods which decided to buy HUL’s Sangam Direct. Having added a non-store delivery format through HUL’s Sangam Direct, Wadhawan Foods Retail is planning to introduce the concept before it launches its Spinach stores in the new markets. Dippankar Halder, CEO, Spinach said, “We may first start with the doorstep delivery format through Sangam Direct before we launch our Spinach stores in the new markets that we enter.” Post acquisition of Sangam Direct from HUL, Wadhwan Foods would be adding to the list of its doorstep deliveries. It intends adding categories in wet groceries, such as frozen foods and fruits and vegetables. “Today there are no wet categories present under Sangam Direct and we would be adding new products such as fresh fruits and vegetables which already exist at our Spinach stores,” says Halder.

Having set up multi-channel distribution systems, Wadhwan Foods would be exploiting the synergies between its store and non-store formats. For instance, it would now have the call centres operating on behalf of Sangam Direct or to direct calls to its nearest Spinach outlets to service customers. “Instead of contacting the warehouses, the call centres would be contacting the nearest Spinach stores and thereby saving on delivery time,” claims Halder.

However, there are other challenges in the non-store formats. Elaborates Halder, “The challenges are mainly internal and it is issues such as scale and competencies which are required in this business.” Considering stalwarts such as the Future Group’s Food Bazaar is reluctant about this model of retailing, managing costs remain critical to the success of the business. HUL’s best practices in managing the business have come in handy for Wadhwan Foods, though. As Halder says, “HUL has introduced us to some of its best practices which has helped in understanding warehousing systems and merchandising processes in the non-store formats.”

With Rs 600-crore turnover in Mumbai, Wadhwan Foods is now rolling out its stores in the rest of Mahashtra and in cities such as Kolkata and Delhi. The company has 23 stores in Mumbai where Sangam Direct also has its limited operations. “Today we have covered a larger geographical area through Sangam Direct and expect about 15-20 per cent of our turnover to come from our non-store operations in the city of Mumbai,” adds Halder.

Then there is Pyramid Retail’s Trumart which is also eyeing this model. Pyramid Retail is planning to introduce a home delivery format for its TruMart stores. With intentions of graduating to an e-commerce model, the retailer is targeting 20 per cent of its total grocery and general merchandise turnover through the home delivery format.

Upamanyu Bhattacharya, Chief Executive Officer, TruMart, says, “Direct home deliveries would be integrated into the existing retailing model. We expect to start this service in the second half of this year.”

The retailer would be directly servicing its customers from its stores. Explains Bhattacharya, who had been heading HUL’s Sangam Direct, “We will ensure that the deliveries take place from the stores, unlike the warehouse sourcing model adopted by Sangam Direct. In the warehousing model, costs are usually high and such operations cannot be housed on a stand-alone basis.”

Servicing establishments within a radius of two km, TruMart, with its supermarket format, expects to compete with the local kirana stores in the area. There are also plans to introduce a credit card for its shoppers to give the bene fit of buying goods on credit. The purpose is to emulate the services provided by the local kirana store, which also tends to sell on credit.

Realising the intricacies of food retailing in the direct delivery format, Future Bazaar, the e-commerce portal belonging to the Future Group, has so far not entered this category. “The supply chain is fractured in the case of home food deliveries since all the food has to be sourced and sold locally. It has to be planned in different way,” says Sankarson Banerjee, Chief Executive Officer, Future Bazaar. Realising a central warehousing model cannot work for the home delivery format in foods, the strategy is to have a local sourcing model to satisfy the regional preferences of its customers. With intentions of adding foods to its list in the near future, Future Bazaar intends overcoming the hurdles associated with food retailing. Adds Banerjee, “We think it can be a viable business as there is a market for it. The challenge lies in making a success of the back end processes of this business.”

Creating a USP is Subhiksha Retail, which is already facing stock-outs in the Mumbai market. “There is a huge opportunity in home deliveries and the trick is to beat the kirana stores at their own game,” says R. Subraman iam, Managing Director, Subhikhsha Retail. Claiming to grow at double-digits in the business, Subhiksha’s USP is its discounted pricing, making it an attractive proposition for housewives. Giving estimates about the business, Subramaniam says almost 30 per cent of the Mumbai market is taking advantage of home deliveries. “Everybody wants to do it. At the same time some retailers are doubtful as they still believe in getting footfalls at their stores rather than send the groceries home,” observes Subramaniam. The home delivery format is big for the retailer — 30 per cent of value sales. “It works for us, better than other organised retailers as we sell on price, so the consumer has reason to ask for delivery from us. Others sell on ambience but on deliveries that is no consideration. Also, for us proximity is a big advantage,” he elaborates.

So while Food Bazaar is not enthused about the format, Future Bazaar, Pantaloon’s recently floated subsidiary in the e-commerce space, is gearing up for this service. But kiranas will continue to pose a challenge for the organ ised big retailers. “We have to match up with the kiranas to meet consumer’s expectations. Kiranas are already offering this programme which includes stock rotation and loyalty programmes, along with cred it and discount policies. We still have a lot to learn from them,” states Nimish Shah, Vice-President, West Zone, Spencer’s Retail.

In fact, small-sized convenience stores are likely to be the ones to crack the home delivery format more than anybody else. Kiranas might be restricted to serving the immediate neighbourhood while organised convenience store retaile rs might have better logistics to cover a bigger area. Ashutosh Chakradeo, Head (General Merchandise), Hypercity Retail (India), observes, “Home delivery is not one of the easiest businesses to be in. At the same time, the future will see a lot of convenience stores such as Reliance Fresh and More being in this business as these players might be able to cover a larger area than the present kirana stores. As for Hypercity, we have yet to enter the direct home delivery in the food s business although we have entered this business for our general merchandise.”

All in all, big retailers with their hypermarket formats need not fret. “It is the smaller retailers who are likely to face competition from the local kiranas in their home delivery services. The impact on hypermarkets on the other hand will be less direct if they were to give this service,” observes Mehul Maroo of KSA. Unlike the more evolved retailing markets where hypermarkets served as weekly destination for shoppers, in India it is still local kiranas who would continue to serve the daily requirement of shoppers till such time the smaller retailers learn to crack the home delivery model.

The power of private labels

BRANDLINE-27/9/07
When Pepsico’s Frito-Lay decided to boycott Pantaloon’s Food Bazaar due to differences in terms of trade, it was the latter’s private label which got a boost in shares. Today Tasty Treat, the ready-to-eat private label of Food Bazaar, is leading with a 16 per cent share among the rest of the snack brands.

Sadashiv Nayak, CEO, Food Bazaar, Pantaloon Retail, claims, “In the past few months our private brand in the snacks category has been dominant with a 16 per cent share. In fact, the second largest selling snack brand, ITC’s Bingo, is way behind it.”

Today Pantaloon Retail has 80 products comprising 350 SKUs with five private labels. Since Pepsico’s rejection, it has promptly approached local manufacturers such as Prakash Snacks in Indore and Pogo Chips in Kolkata to manufacture its snacks brands. Arvind Chaudhary, CEO (Foods Business), Pantaloon Retail, adds, “The purpose of our private labels is to grow the category and fill the gaps between demand and supply. Today we have upgraded our suppliers with better quality systems and processes for the snacks category, where there was a gap.”

The power of private labels is being explored by most retailers today as they do not want to be at the mercy of the big manufacturers. At the same time they also realise that it’s not going to be easy as it takes time and money to build private labels. Observes K. Radhakrishnan, Chief Executive- Hypermarkets, Reliance Industries, “While it’s our strategic intent is to build private labels, it is more difficult and takes longer to build these brands. However, in categories such as commodities, it is easier to build private labels. At present, nearly 15 per cent of our hypermarket brands comprise private labels.” On the advantages of owing private labels, Hemant Kalbag, Principal, Consumer Industries & Retail Practice, AT Kearney says, “Private labels are generally introduced to get higher gross margins from branded products. Besides, they place the retailer at a competitive advantage over the branded FMCG players who have historically been arrogant with the retailers. It gives the retailers a platform to negotiate with such branded players.” At the same time, in India, there are not enough branded products to fill the retail shelves. Tapping into the lacunae in each category gives retailers a chance to launch their private labels in that space. Take the case of the Spinach brand from Wadhawan Foods Retail which is now exploring private-label ground spices. Claims Dippankar S. Halder, CEO, Wadhawan Food Retail, “Private labels help in bringing in a range by fillings in the gaps in the category. Besides, they also give retailers a chance to bring in unique products that have not been branded before.” Spinach’s private labels in foods comprise 10-12 per cent of the food brands it stocks. “Today we have kirana stores which come in as customers and buy our private labels to sell them at their stores. Branded foods have an assurance of quality, something which is not necessarily available at a kirana store,” says Halder. Pitching its private labels on quality assurance, especially in commodities which have been unbranded, is an opportunity being explored by retailers. TruMart, the supermarket chain of Piramyd Retail Ltd, recently announced the launch of its private label in the grocery segment under the brand name Uttam. Uttam will be available in pulses, cereals, flour, sugar, whole spices, masala powder and dry fruits. Upamanyu Bhattacharya, Chief Executive Officer, TruMart, said, “The launch of Uttam will be an extension of our quality offerings to our loyal customers.”

In fact, branding in commodities is an easier proposition compared to other categories where there may be relatively more brands to stock the shop shelves. Drawing attention to the Indian scenario, Kearney’s Kalbag says, “In India, about 20-30 per cent products are branded. This makes it difficult for retailers to fill up the shop space. Private labels can accomplish that but at the same time they must have a strategic positioning more than merely developing a product.” There are others like Trent from the Tatas who have developed a business model purely on private labels, especially in apparel. “The Tatas through Trent are trying to build a store brand under the Westside label. It all depends on the kind of price the customer is willing to pay. The question is whether a customer is willing to pay the same amount for a private label compared to a well-known brand in the same category. It all depends on the kind of sales and the kind of margins that the retailer can drive in this business,” observes Kalbag.

While store brands have the onus of trying to build their equity, they also have cost advantages (which can help in driving down prices) compared to the rest of the branded players in the respective categories. Pointing out the objective of having a private label, Sophie Joseph, Executive Director, AC Nielsen, says, “One of the reasons is higher margins, but the other objective is to maintain and increase footfalls through the lower-priced offerings at the same, if not higher, quality levels as that of the established brands. The ‘store equity’ in the mind of the consumer decides the fate of the private label. It denotes the trust that a consumer has in the store.”

In the apparel category, sourcing would play a key role in differentiating the products from the rest of the retailers. As Sriram Srinivasan, President & Chief Executive (Apparel), Reliance Industries, says, “It is our sourcing skills which will hold us in good stead in the apparel category. Today we have 50 per cent of private labels in our present stores.” There are others like HyperCity Retail, which has dominated its apparel category with its private labels. According to Andrew Levermore, Chief Executive Officer, HyperCity Retail, “In the case of private labels there are no restrictions on MRP and this makes it profitable for the retailers who in turn can offer better value to its customers. Private labels help retailers in controlling their destiny.” In fact, in the apparel category it is possible for a retailer to have its business entirely driven by its private label. Recently, a multibrand retail chain such as the $1.5-billion Rajan Raheja-promoted Globus Stores Pvt Ltd decided to become a single store label brand under its own name. Discontinuing its previous formats, Globus will now launch smaller stores under its private label. “At present, 90 per cent of the merchandise that we have is under the Globus brand but with time we plan to convert the balance into our private label brand. Globus will be our mother brand,” states Vinay Nadkarni, CEO, Globus Stores. Globus plans to build its brand by roping in a new brand ambassador – Kareena Kapoor. On the new business model, Akshay Raheja, Vice-Chairman, Globus Stores, says, “There are higher margins in private labels but at the same time it is a harder model for retailers. It is going to take additional effort to build the private label business but that is the new business strategy we have decided for our stores.” On the other hand, there are others like Shoppers’ Stop which believe in capping the percentage of private labels in apparel in spite of being one of the pioneers in this concept. Claims B. S. Nagesh, Managing Director, Shoppers’ Stop, “Today almost 20 per cent of the apparel section is driven by our private labels. We may take it up to 25 per cent. While having private labels might be a better business model, our consumers want a choice of at least 4-5 exclusive brand options and that is not going to be possible under private labels.” In the consumer durables category, it is still the known brands in the category which continue to drive the business for retailers. The Tatas-promoted Infiniti Retail, with its Croma stores, is on the threshold of bringing in private labels with caution. Ajit Joshi, CEO & Managing Director, Infiniti Retail admits, “There are plans on the drawing board to bring in our private labels but we are still waiting for infrastructure to improve in this business and this is mainly in the area of after-sales service.” Building equity for a consumer durables brand is based on after-sales services and Croma well realises the importance of this service before it decides to launch its own label in this category. However, Indian retail still has a long way to go before private labels become a successful model. Claims Mehul Maroo of KSA, “In the US, private label in food/FMCG is about 20 per cent by volume and about 15 per cent by value. But in the UK, it’s even higher.” According to him, how strong private labels become in India will depend on several factors. These would be:

The private label product proposition: Quality and price, primarily, relative to branded alternatives

How strong supplier brands are in the minds of Indian consumers: Many supplier brands are relatively new in India, so potentially have less awareness, and therefore, easier for private label products to supplant supplier brand products

How effectively suppliers innovate: Supplier innovation is often what allows them to stay ahead of retailer private label. Innovative suppliers can come out with new products that retailers haven’t necessarily thought of.

How consolidated Indian retail eventually becomes: The more market share a retailer has, the greater the opportunity to create a strong private label offering, and the greater the leverage a retailer can put on a supplier. This may be one reason why the UK has greater PL penetration than the US – UK retail is more consolidated than US retail. Right now, India retail is highly fragmented, so there’s a long way to go, as KSA’s Maroo observes.

Tuesday, September 25, 2007

Give it its Dew



How a clear lemon drink justified its existence in a cola portfolio.

The folks at PepsiCo India may well remember 2007 as the Year of Mountain Dew. This year, the clear lemon drink’s share of the carbonated soft drink market went up to 5 per cent — the brand’s highest-ever since its 2003 launch. Granted, that’s hardly a reason to uncork the bubbly, or even some flavoured fizzy water.

But there are other reasons why PepsiCo is raising a toast to Mountain Dew. In the past nine months, the brand has changed its product formulation, its brand positioning and its communication. Perhaps the only feature left of the original Dew is the name.

That’s quite a change from the past couple of years. Within a year of its launch, Dew had narrowed the gap with market leader Coca-Cola’s Sprite. But it was equally quick to lose all the ground it gained and by 2006 marketshare was at an all-time low. How did PepsiCo turn around its neon cola? the strategist does a case study.

Over the hill
In 2003, Mountain Dew was launched with the high decibel “Cheetah bhi peeta hai” advertising campaign where a group of adventurous boys conveyed the message that the caffeinated beverage delivers a high level of energy: something even a cheetah would find hard to resist.

“The execution was humourous, yet over the top, to exhibit the high energy positioning,” recalls Pratik Pota, vice president, flavours, PepsiCo India. Within a year of launch, Dew had gained 4 per cent of the market, compared to Sprite’s 6.5 per cent.

The action theme continued the following year as well, with commercials of the boys head-butting a wild ram in a fight for their drink. The campaign was clearly targeted at a youthful, masculine audience, what Pota calls the “dew style” of customers.

Meanwhile, the brand brought in the California-based Crusty Demons group to perform extreme stunt biking in Bangalore — the city was selected keeping in mind its cosmopolitan youth. The event was promoted through SMS and online games and contests, apart from on ground events called “Dew Dares”.

The games were held at malls, at a time when large format retail in its infancy attracted a lot of attention.

Whose drink is it, anyway?
The initial effort was to distinguish Dew from other lemon drinks and establish a distinct, adventure sport-themed, youth-centric identity for the brand. While analysts still consider Dew a flanker brand for PepsiCo’s 7Up, Pota explains that Dew targets a completely different customer group.

“In terms of imagery and appeal, Dew is more of a cola. Its source of business is from the cola category. It’s a neon cola,” he declares.

That approach did seem to be working. Dew was clocking double-digit growth (14-15 per cent) in key markets in North India, including Punjab, Uttar Pradesh, Rajasthan and Haryana, areas that were perhaps culturally more tuned into the aggressive brand image.

Across the rest of the country, too, the drink was growing at 7-8 per cent compared to the cola category’s 4-5 per cent. Mountain Dew seemed to be well on course to be a powerful player in the PepsiCo portfolio.

End of the adventure?
That changed by end-2005. The key North markets were growing slowly, dropping more than five percentage points to under 10 per cent. Worse, Mountain Dew’s sales had actually dropped in the other three regions. Dew’s marketshare was down to 3 per cent.

A consumer insight study revealed the not-so-pleasant truth. Dew’s strengths — its brand image and communication — were becoming a liability. Consumer empathy was extremely low for visuals like head-butting a ram, locking horns with a bull and so on. “Consumers found it unbelievable as the commercials were a suspension of belief to some extent. Dew was flirting with those boundaries,” says Pota.

The brand communication had also settled into a predictable format — the commercial beginning with a high adventure scene and signing off with a joke. Importantly, the overt show of masculinity and aggression did not find acceptance across the spectrum.

“The communication was rejected by a set of consumers, particularly from South India,” says Pota.

It didn’t help that the product delivery failed to match up to the expectations built up by the communication — high adventure and energy. “Consumers complained that they didn’t get the same ‘kick’ from the product that they got from the commercials,” says Pota.

Scale the peak
Over the next few months, PepsiCo began salvage operations on Mountain Dew. It needed to work on the product and the communication and the relaunch had to gain credibility on two fronts: with the consumer and within the company.

“We had to go out and change the communication from mindless exaggeration to getting close to the consumers. However, we had to ensure that the brand did not lose its character and we had to carry core consumers along,” says Pota.

The marketing task for 2007 was to widen the franchise of Mountain Dew consumers and build brand empathy across the country. Consumer insights revealed that young consumers in India by and large couldn’t connect deeply with extreme adventure sports — access and affordability being two reasons.

Creative agency JWT, therefore, moved away from the thrill of adventure theme to one that seemed more believable: conquering the fear within.

Working on the concept that fear holds back even confident, capable people, the campaign went to say that those who overcome fear get success, recognition and adulation.

The new tagline, therefore: “Dar ke aage jeet hai (beyond fear lies victory)”. “Few brands acknowledge vulnerability. The theme gave a powerful philosophy to the brand,” says Pota.

The new campaign, which broke in March 2007, stood out for more reasons. It showed older teenagers riding a vehicle over a dangerous terrain, striking a fine balance between believability and thrill. More importantly, it heralded a new, punchier product formulation and a new green-black logo.

To support the action on the ground, Reliance Web World outlets had special corners for consumers to play 30 minutes of customised adventure computer games to experience the brand.

There were other alternatives like co-promotions with youth magazine JAM, a viral marketing campaign for youth to e-mail links of the “Dew Dares” website and so on. The promotion was held from April-June. The relaunch has resulted in a growth rate in excess of 20 per cent, claim company executives. At present, Dew’s marketshare is its highest ever.

“It is much more difficult to turn around a smaller brand that’s declining, than reviving a bigger brand that’s losing share,” says Pota. He adds that consumers and even the brand owners are willing to give larger brands a decent second chance.

Perhaps Dew would have revived itself, but it still has a long way to go before it becomes a worthy challenger to Sprite. The clear lemon drinks segment makes up 35 per cent of all carbonated soft drinks sold in India. Dew certainly has a lot more to conquer than just fear.

Sunday, September 23, 2007

Retail detail


Your access to the future of retail’ was the promise to the delegates of the three-day India Retail Forum held at Mumbai recently. Participants, ranging from retailers to FMCG companies, logisticis players and anyone even remotely dabbling in retail, grappled with issues plaguing the industry in the areas of logistics, trained manpower and escalating real estate costs, among other issues.

V. Vaidyanathan, Executive Director, ICICI Bank and Chairman, India Retail Forum, kickstarted the forum on an optimistic note, though. Said he, “The size of the retail industry in India is estimated to be Rs 12 lakh crore and is expected to triple in the near future. Retail will create 3.5 million job opportunities and therefore, it is imperative to support the retail momentum.”

For Kishore Biyani, CEO, Future Group, the retail evolution is still in its nascent stage and is a learning process. “We are experimenting with different formats and learning new things every single day. Nobody has perfected the art of retailing, so to say,” he said.

With this statement, Biyani summed up the experience of every retailer in the country. The forum fuelled interesting discussions on the nature of the challenges faced by the retail sector and how best to formulate a win-win situation for all attached to it. For once, competition took a backseat as retailers endeavoured to find solutions to problems the industry faces as a whole.

From retailers to real estate to FMCG players, everybody debated the future of retail in India backed by their personal business experiences.

Focussing on the future of consumer spending, Vinod Sawhney, President & COO, Bharti Retail Group, said, “Private consumption will reach 62 per cent of the economy in the coming years. As the prices will become lower, volumes will increase, leading to improvement in the quality of products sold.” He stressed that the sector will grow on the strength of the rising purchasing power of the consumer, which will mainly come from the service sector. As retail activity intensifies, it will spur a boom in malls, which will create a unique shopping experience for the Indian consumer, he added.

Abraham Rami Goren, Executive Vice-Chairman of the East Europe-based Elbit Imaging Group, recently in the news for announcing its plans to foray in India with its mall - Plaza Centres, said, “Retail in India is on an upward incline, but there are three aspects which need to be taken care of. Firstly, the interest rate policy should be normalised, issues in real estate like title registration improved, and a physical infrastructure put in place.”

Every emerging industry faces infrastructure issues and retail is no exception. Supplementing Goren’s views on infrastructure inadequacy in India, Arun Nanda, Executive Director, Mahindra & Mahindra, said, “Forty per cent of our produce dies in transit. We need to invest in warehousing needs and build a proper supply chain to ensure that the back-end is in place for the growing requirements.”

Citing this as an opportunity for ancillary industries to grow alongside, Bharti’s Sawhney said, “Growing retail will ensure benefits to ancillary industries. It has already created a huge demand for real estate, as it is.”

Real estate and logistics were identified as the main challenges faced by the Indian retailer today. If these were not taken care of, they could single-handedly lead to the decline of the sector, felt many.

In the space of back-end logistics, where procuring from the farmers directly is concerned, Reliance is perhaps the only retailer who has been able to build a proper logistical support for the purpose. RPG and some of the other retailers have begun to procure fruits and vegetables from the farmers in States where the Agricultural Produce Marketing Committee Act has been amended, but it will take some time for a full-fledged back-end system to come into place.

“The business has to reach a particular scale, after which retailers can set up their back-end operations. Where is the scale today for most of the retailers to do that?” said Ireena Vittal, Principal, McKinsey & Co. The marketing head of a leading logistics company said on conditions of anonymity, “The retailers are riding high on the boom and aggressively building their front-end without the back-end support. If they continue to do that without a reality check, in two years’ time they will feel the heat.”

The reason why most retailers have been unable to put a back-end in place is also due to the geographical complexity of the country, but third-party logistics with regional players seems to be the best way out for retailers looking to enter retail in a big way, he said.

Commenting on the unrealistic real estate rates existing in some cities today, Sumantra Banerjee, President and CEO, RPG Enterprises, said, “The land prices of Delhi and Mumbai today are comparable to or even greater than in Manhattan. This boom in malls across the country, wherever you get space, is going to lead to super-congestion. Growth will happen, but without profit or margins. This hankering for property by the retailers is going to hike up rentals, thereby transferring the opportunities to rural and semi-rural towns.”

The real estate boom was likely to be taken over by “vulture capitalists” and not “venture capitalists,” said B. S. Nagesh, Managing Director, Shoppers’ Stop. “At the current market rates, no retailer can have a share of the pie,” he said.

While Shoppers’ Stop said it does not immediately plan to expand its malls in 500 cities of the country but would like to take one step at a time, many retailers are eyeing the tier-3, -4 and even -5 towns to expand their retail outlets.

Prominent among rural retailers are Godrej Agrovet, ITC Chaupal Sagar, Indian Oil and Hariyali Kisaan Bazaar. They have penetrated markets at taluk levels and though they operate on low margins, like urban retailers, they are instrumental in expanding the scope of retail in India, reaching out to the villagers.

Rural retailing faces similar problems as urban retailing, but the nature of its problems differ. C. K. Vaidya, Managing Director, Godrej Agrovet, said, “In real estate, here the issues are of multiple ownership where four out of five owners of the same plot of land are untraceable. Moreover, there is an acute lack of trained manpower for these stores. Again, we sell our wares only at MRP, not lower in order to recover our margins.”

The opportunity in rural retail tempts even the Department of Posts & Telegraphs to venture into it. “We have 1,800 plots of half- to two acres area across the country, which we might use for retail purposes through Public Private Partnership initiatives,” said S Samanta, Chief General Manager, Department of Posts.

The forum proved beyond doubt that retail as an industry was growing in the country but needed to be dealt with cautiously. The charged atmosphere of the three-day forum culminated in the Images Retail Awards, where Kishore Biyani was given the Retail Face of the Year 2007 award.

Tuesday, September 18, 2007

A change of face


Coca-Cola’s run in India can well be equated with that of the ever-so famous obstacle race. Having been ousted from the country in the Seventies, it made a ‘comeback’ in 1993 with a vengeance, when it went on a buying spree, taking over the country’s most popular aerated drinks brands Thums Up, Limca and Gold Spot, to emerge as the single largest beverage player in the Indian market. Although it was not smooth sailing after that, things really turne d sour with the entire pesticide issue cropping up in 2002 and 2005, tainting the image of the global heritage company.

Since then, Coca-Cola India has gone into overdrive trying to undo the damage, and recently, launched a re-branding and repositioning exercise for the Indian market. Prasoon Joshi, Executive Chairman and Regional Creative Director, South and South East Asia, McCann-Erickson, Coca-Cola ad agency, says, “It is an umbrella campaign that features all the brands, a goodwill exercise to remind people what Coca-Cola is all about. The campaign’s tagline - boond boond khushi khushi, or ‘Little Drops of Joy’ - reaffirms what Coca-Cola in India stands for, which is being part of little moments of joy in the daily lives of consumers. The communication reminds us that the best things in life can only be experienced. For instance, a sip of the drink is a moment of truth, a second of satisfaction, an instant of happiness and a bubble of hope. What is very real about the entire campaign is that it goes hand in hand with the company’s philosophy – we don’t claim to transform lives but simply envelop one moment with joy,” says Joshi. For a company that has always been an aggressive advertiser, it is the first time that it has undertaken a campaign that does not brand just one individual product but acquaints people with the entire portfolio that the company has on offer. “We are not promising to change the world, but to add just a little drop of joy,” says Venkatesh Kini, Vice-President (Marketing), Coca-Cola India.

Coca-Cola’s advertising strategy, right from the time it re-entered the country, has been that of establishing the brand through socially relevant messages. Explains Joshi, “Advertising always in some way or the other reflects the social issues of the time. One has to understand what the need of a product like Coca-Cola was at the point of time when a campaign was being conceived. When we made the ‘Thanda matlab Coca-Cola’ ads our idea was to drive into the heartland of India, as the company realised the need to establish contact with the masses. Then we had the ‘Thande ka tadka’ campaign where film stars like Aishwarya Rai and Aamir Khan gave out socially relevant messages ab out eve-teasing and the treatment meted out to foreigners in India. With the current campaign, the people in the company thought it was time for people to know the company as a whole and realise the iconic brands that it has created.”

GROWTH STRATEGY

Also, as part of its re-positioning strategy, Coca-Cola revealed its five-pillar growth strategy, that of people, planet, portfolio, partners and performance.

“Each of these is a drop of a larger vision aimed at mutual growth and development. Over the last few years we have continuously engaged with a large number of stakeholders and incorporated the learnings in refining our strategy for India. The integrated communication platform is a tribute to their valuable inputs and truly depicts what the company has always stood for,” said Atul Singh, President and CEO, Coca-Cola India.

Coca-Cola, as part of its focus on the country, intends to set up a university that will help people learn to enhance business performance, set up an equipment testing facility in Hyderabad to test coolers from India and the Asia-Pacific region and provide global services such as engineering, finance, marketing and technical R&D.

The beverages giant plans to set up a retail university to provide Indian retailers with the right techniques, tools and knowledge to operate in the new retail environment. As part of its plans, the company aims to provide drinking water solutions to 1,000 schools by 2010, commission a study on ten watersheds by 2009 and implement interventions accordingly.

BEYOND FIZZY

The initiatives don’t end here. In fact, one of its major activities in India would be to enhance its product portfolio.

As an industry expert who did not wish to be identified said, “Coca-Cola realises that to retain its leadership position in India and to keep away its competitors from capturing its position, it has to do better than what it was doing so far. Now that it has established its name in the market well enough, it has to focus on expanding its portfolio, which would also mean stepping out of the ‘aerated beverage brand’ tag that it so far carried, more so because of the huge wave of health and wellness that has engulfed the entire country. People are turning towards healthier, low-fat options, and Coca-Cola has to follow.”

Actually, the company has already started the process of breaking away from the ‘fizzy drink’ image with the launch of its juice, Minute Maid.

According to Atul Singh, “We are looking at expanding our current portfolio. We want to be seen as a total beverages brand. So we are testing options and our future launches can be in any format that is non-alcoholic and ready-to-drink suitable to Indian tastes. We will, however, continue to invest in sparkling beverages.”

Product expansion

Says Kini, “We are actively looking at expanding our product portfolio in India through a three-pronged approach. The expansion could be through variant addition, launching brands from our global portfolio and foraying into new territories. It could be from a wide variety of beverages such as energy drinks, sports drinks, flavoured water and juices, with most of them being developed in India.”

The company is testing a foray into dairy-based products as well as introducing in India energy drink major Glaceau’s brands that it recently acquired for $ 4.1 billion.

Coca-Cola, which has invested around $1.2 billion in its Indian operations so far, plans to invest an additional $250 million over the next three years. The money will be used to create bottling capacities for new products, execute marketing strategies and devise distribution models to meet consumer demand and also to ensure value creation for all its partners.

Coca-Cola India witnessed a 12 per cent increase in unit case volume in the second quarter of 2007, and aims at achieving a better growth rate through its several initiatives in India.

Whatever be its fate, what is clearly visible is that the domestic beverages market is hotting up more than ever, with players both big and small gearing up to rough it out, and consumers emerging as the clear winners, almost spoilt for choice.