Thursday, September 13, 2007

Marico's Makeover - Brandline 13/9/07

A couple is walking along a road when a man comes and runs away with the lady’s bag. Her portly husband gives chase but soon gets exhausted and is bent over panting uncontrollably. An old man sitting nearby tut-tuts sympathetically about the man’s stamina. Gasping for breath the man expresses regret for not having been able to catch the thief. The ad film cuts to a shot of the couple picking up a pack of Saffola Gold oil, with the voiceover exhorting viewers to use this brand of oil, which helps cut down on cholesterol, and keep themselves young and sprightly.

This ad is the latest in a series of television commercials (an earlier one depicted equally portly men and their battles with butter chicken and gulab jamun) that Marico Ltd, the Rs 1,556-crore consumer products company, has been screening over the years to reinforce the goodness of Saffola, its safflower oil (kardi) brand. And, if Marico’s CEO of Consumer Products Division, Saugata Gupta, has his way, the brand’s positioning on the health plank is only going to get stronger.

“Our thrust is on foods and supplements and we plan to have a range of Saffola products,” declares the dapper Gupta in a recent interview to BrandLine. Its foray into the functional foods category was with a brand extension earlier of Saffola to an atta mix, which didn’t quite take off but with a change in marketing mix, its re-launch has met with some success.

Just off a flight and having battled morning hour traffic jams in Chennai, Gupta sips a cup of decaf while talking animatedly about Marico’s brand portfolio. Marico’s focus as an organisation, Gupta emphasises, would be in the spheres of beauty and wellness. “Given the trend of lifestyle diseases, stress and so on, wellness is a key area. We have a strong brand in Saffola and we think that brand is quite a bit underleveraged,” he elaborates. The atta mix, a cholesterol management product, was test-marketed in Mumbai and has now been launched nationally. More such products will follow, avows Gupta.

He’s confident that Marico’s portfolio is on the right platform. “I think we are lucky to have a product portfolio that rides a trend. If you see, globally, it is very difficult to run a business that is against a consumer trend; it brings into question the long-term sustainability of a business. We are lucky that our products and plans fit into the trend of wellness. Today, wellness is half a leg for us — we have salt, oil, but there are a lot of products to be plugged in,” he said. And it’s this category that Marico hopes will grow its business.

However, Gupta is clear that Marico will not enter the staples game. Staples, as he explains, is a low-margin high-volume business. “And we do not want to get into that. Having moved away from branded commodities, we have moved up the value chain and wouldn’t want to undo that. We would like to give efficacious products. Any new category requires category building and investments. Growth will take time to come in, but we are in for the long haul,” he says emphatically.

Commenting on brand Saffola, the head of a national retail chain says it is indeed a strong brand and its positioning too, with the ‘good for heart’ perception, is just right, as is its extension to blended oils with Saffola Gold. The problems associated with kardi oil shortage which used to plague Saffola availability too is gone. “However, the issue for Saffola is that it is metro-centric and clearly an SEC A product. Extending the brand beyond metros would be a challenge.”

A fact Gupta is clearly aware of, as high on the agenda for Marico is to gain a higher footprint for Saffola. As of now, it is present only in about 10 cities with a middling presence in the South. “However, we have been investing in the brand over the past two years and have nearly doubled our base (in the South),” he adds.

The other trend that is helping Saffola is the growth in modern trade. The brand’s modern trade market shares are higher than the traditional trade share.

“This is because our products are slightly niche and catering to higher-end consumers. We do function at a premium. I don’t think people today are very price-conscious, though they are value-conscious,” he elaborates.

Marico’s other strong growth driver and blockbuster core brand is Parachute, which claims a 57 per cent market share in the branded coconut oil business, a Rs 1,200-crore market. With the acquisition of the Nihar brand from the Hindustan Unilever Ltd (HUL) stable, Marico has further consolidated its position and has pretty much a monopoly in most markets except Tamil Nadu where VVD is the market leader. Points out a retailer: “The product is attacked, if at all, by Dabur Vatika at the higher end. However, as pure coconut oil there is hardly any serious competition for the brand.”

As Gupta points out, it was weak in the Eastern region but Nihar gave it instant market share. On Marico’s strategy of acquiring strong regional brands, Gupta is quite clear. As he explains, “Automatically, we become strong in that region. For example, we are not so strong in the North, so if we get a brand in the UP-Bihar belt it makes sense, but having a pan-India brand with a 5 per cent market share in a category is not going to excite us because what is the long-term story in that? The other thing about acquisitions is when you already exist in a category where you are competing with another brand, with a similar footprint, it doesn’t make sense to acquire – if you’re catering to the same set of consumers, in the same space, it doesn’t make sense.”

Nikhil Vora of SSKI Securities in a research report says that Marico continues to piggyback upon multiple growth drivers that it has built over the years and continues to strengthen. Its three-pronged strategy has been to strengthen the core, identify new growth areas and take the inorganic route to growth.

With the hair oil market unlikely to expand, Marico has been extending its brand to other categories such as shower gels (Parachute Advansed and Go Get Noticed), hair loss treatment (Parachute Therapie) and soaps with Parachute Jasmine. Vora is quite bullish on the company, appreciative of its strategy of aggressively targeting inorganic growth opportunities at home and abroad. As he says in his report: “Marico continues to play out the story of transition to a pure consumer play operating on the broader health and wellness platform … it will continue to maintain its growth momentum and the growth propellers are in place. It is well on its way to becoming a full-fledged FMCG player and we expect margins to be in line with other consumer majors.”

Male grooming, with young men increasingly wanting to look good, is a high-potential category that Marico wants to grow in. Marico’s after shower hair gel has garnered a 43 per cent share of the market in just two years, Gupta claims. The market size for gels and creams is about Rs 65-70 crore, with growth at 30-35 per cent. But the market for hair gels is competitive with Brylcreem the market leader. Garnier has launched its Fructis brand as well while there’s SetWet from Paras Pharma. “We believe that this is a category that is going to grow,” he adds.

For Gupta, there are no short-term measures. As he emphasises, “We believe that we need to stay invested in markets, drive category growth and wait for the inflexion point to arrive. Every new product will not immediately grow to a Rs 100 crore. The point is for all our new products, we need to do category creation, it’s a long haul. Consumer value concept has changed. Earlier, it was only price but today if you deliver value in terms of functionality people are willing to pay a price.”

Asked whether Marico’s strategy has been to stick to niche products and not directly compete with the big guns such as HUL and P&G, Gupta puts it differently when he says, “If you have to grow you have to participate in certain categories but we have to see if there is a differentiated space available.” It did test-market a shampoo a while ago but hastily withdrew when HUL and P&G slashed prices to fight a bloody price war.

Nor has it been able to transition from a strong hair oil player to a shampoo brand for which Gupta reasons, “If you have two MNCs fight, and the numbers are high in terms of investments, international technology needed and so on, do we have a sustainable proposition? It’s a question of allocation of resources. Without a completely differentiated product you would get squeezed out. Having said that we are not saying we will never do shampoos but we will concentrate on pre- and post-wash.” It has also launched Silk ’n Shine, a non-greasy hair conditioner which competes with Paras’ Livon. This is virtually a new market with the former cornering a 35 per cent share and Livon 38 per cent. “There are markets out there which have enough opportunities for growth. It’s in our DNA; we have been successful in creating categories and innovation as a culture.” Uncommon sense, is what Marico likes to call it.

The retailer quoted earlier in this report points out the company’s core so far has been in oils. Other products such as Revive starch and the Parachute extensions are still small, though good forays. As he points out, “Technically the margins can be under pressure if there is a competitive attach. HUL tried it but gave up too soon as it too was stuck on margins. The strength of the brand could be tested if somebody such as ITC were to enter the market.”

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