In times like these when consumers don’t come easy and loss of revenue is easier done than said, some Indian retailers have been smart enough to deploy a strategy that allows them to manoeuvre shoppers’ impulses even as customers undertake pre-planned shopping trips.
If one thought that the key to success for any retail business in India lay in inflating the number of stores, better supply chain management, technology deployment and such incomprehensible jargons, there is something more subtle that has been evident all across, yet has evaded our eyes because we never realised our shopping may have been manipulated by the retailer.
Cross merchandising is a practice that works on the principle that there is an element of lateral thinking and logic in a consumer’s purchase, and thus this technique can be made use of not only to make shopping more convenient for the existing customer base, but also to poach a new set of consumers. While to a retailer, such a practice leads to incremental sales, for the consumer it is shopping assistance without much cognitive effort. Sample the instance of cross-selling, (which though differing from cross merchandising follows the same marketing principle) at McDonald’s, when consumers are unfailingly asked if they want French Fries and a beverage to go along with their order.
Deploying lateral thinking, cross merchandising is thus based on the concept of lateral marketing, which is a work process which, when applied to existing products or services, produces innovative new products and services that cater to new needs and situations and hence, offers a high chance of creating new categories or markets.
Defining cross merchandising from a retailer’s perspective, Samar Singh Sheikhawat, VP, marketing of Spencer’s Retail says, “Typically complementary products that make up similar buying behaviours for the consumers are defined as cross merchandising. It could straddle displaying and selling a product, promoting a basket of goods and visual merchandising as well.”
An extremely interesting characteristic of this practice is that it is intricately related to studying shopping behaviour and adapting merchandising of retail stores as per demands of the catchments. However, the technique also works backwards in that a retailer can educate his consumer as to what all additional products can go along with his usual basket of goods. Viney Singh, MD of Max hypermarkets explains: “Cross merchandising is the practice of displaying products from different categories together, which is aimed at improving the overall customer experience. Hence, we provide such opportunities to the customer to primarily facilitate convenience while shopping. It also generates additional revenue or incremental purchase.”
“A customer may not always remember every item on her shopping list and so a little prompting always helps. Hence, cross-merchandise is a very important aspect of retail, both from the customer journey experience as well as from the retailer’s financial viability. It creates a win-win situation for both the retailer and the customer.”
Thomas Varghese, CEO of Aditya Birla Retail Limited corroborates, “Cross merchandising is the setting up of displays of complementary merchandise so that they are placed near each other. Therefore, the customer shopping for one item gets tempted to ‘cross-over’ to other related product placed near it. It is definitely a powerful medium to boost sales, if deployed correctly.”
Having said that, cross merchandising is a tool that works across categories, but in the process of execution, not every category turns out to be so convenient to cross-present. For instance, in the frozen foods category, there are operational issues that factor in because this segment is highly ‘equipment-dependent’ and this is compounded by the space constraints that many modern food retailers face. Singh states that in this category (frozen foods) it becomes difficult to display the frozen foods’ complementarities along with the refrigeration units where these foods are stored.
While there is substantial unanimity in retailers’ views on the frozen foods segment, there is also subjectivity in the way a retailer perceives the difficulties in cross-presenting different categories.
Sheikhawat says that largely all categories are feasible for this practice; however, it is the staples section that is a mite tricky to display in a visually attractive manner. “It is very difficult to bring in the elements of aesthetics and glamour, for instance, in a rice shelf. At best, there is a possibility of putting it together with certain utensils like a rice plate or a storage container, but that still does not really prevent it from looking drab,” he says.
“All categories generally offer some promise to cross merchandise. It is most often the extent that varies,” says Singh. “For instance, in the range of utensils, most SKUs can be cross merchandised, but the same cannot be said for luggage, which is a difficult category in which to do this. Most foods are crossed with general merchandise but due to space constraints, it becomes physically impossible to display the merchandise properly.”
Varghese informs that for him, health and baby food supplements are most difficult to cross-merchandise. “In ‘planned-shopping’ categories like fruits and vegetables and staples etc, it gets tough to cross-present as the customers who come to shop for these categories have a pre-set shopping plan and a budget that has limited flexibility. This concept does really well in impulse purchase items,” he notes.
While it is largely considered that cross merchandising is more effective in triggering impulse purchases, there are varying opinions on the same. Worldwide, and as Sheikhawat also mentioned earlier, this practice is an integral part of in-store merchandising since it is proven to be a tool for boosting incremental sales. The technique has been a rage among all the retail stores in the west as the motive has been to maximise the gross profit per shopper.
“Cross merchandising is fundamental to retail, and boosts incremental sales and impulse purchases. However, one should be careful to the extent and the way in which it needs to be done. This is very important as consumers may get confused if it is overdone,” Singh says. “Cross merchandising is not limited to tapping impulse purchases only – it helps to give ideas to consumers. They are then free to choose from a range of products that the cross merchandise represents.”
Singh informs that the kitchen linen category at Spar recorded a 22 per cent increase in sales owing to it being cross-presented with kitchen utensils. “This is a form of ‘suggestive selling’ and often it creates a thought process that may not have existed in the customer’s mind previously. This often then translates into planned purchases,” Singh states.
Elaborating on the practice at More stores, Varghese says, “We use different permutations and combinations of presenting snacks and beverages, sweeteners with tea and coffee, noodles with soups, oils with wheat flour, rice with flour, sugar with rice and, oils with fruits and vegetables, etc.”
“Broadly, the categories we do this (cross-merchandise) in at Spar are utensils, kitchen linen, travel, toys, stationery, small appliances and in a more limited way in food and grocery,” Singh elaborates.
“We are currently applying the practice by cross merchandising between and within various non-food categories like utensils with kitchen Linen or Irons with Ironing Boards, cookers and non stick with grinders and mixies, buckets with detergents, cartoon mugs with children’s gifts, lunch bags with lunch boxes /water bottles, note pads with telephones and bath towels and bath salts/oils,” he adds.
“The direction will be to smartly cross merchandise between food and non-food categories, something we have begun to do. For instance, apples and pairing knives, toys and batteries, wines with glasses, cheese with cheese boards and knives, peppermills with peppercorns, and so on.” Some more examples in the food & grocery categories are sauces, mustards and spices being merchandised at Spar delicatessen counters, syrups, toppings, masalas in the frozen foods segment, the pet food category placed next to garden plants, snacks & cold beverages in the liquor section, wine glasses in the wine section, and masalas and dry fish in the fresh fish & meat counters, according to Singh.
What’s the right cross?
After seeing the differences in the extent of cross merchandising at India’s leading retail stores, the next issue that comes to mind is how two merchandise categories are aligned together so that they make for a perfect cross-merchandise display. This is, in fact, the point that Sheikhawat contends is that the biggest challenge in cross merchandising – to understand which category goes well with which one. Thus, while a particular retailer may present cheese with a cheese grater, another might display cheese with wine or olives or even bread, depending on the demands of the respective catchment. Sheikhawat suggests that in a cosmopolitan location, one could probably do an Italian book with olive oil, or an Italian music CD, but in a tier II town one would need to be more grounded in basics – with presentations such as a cola with a pack of chips, and so on. However, Sheikhawat specifies that consumer receptiveness for cross-presented merchandise remains the same across all catchments. Singh agrees. “Products may vary across different catchments, but the concept remains constant as customer behaviour is much the same in all locations,” he points out.
“To be effective, cross-presented merchandise must relate in a logical way. For example, coordinating items that would be used together, such as pasta sauces, pasta cookware and pasta cookbooks; items that are colourcoordinated, a range of products that offer customers choice within a particular category such as cappuccino or espresso coffee-makers and plain or patterned dinnerware that can be mixed and matched, products that offer themed ideas such as baby gifts, stocking stuffers or a fondue story,” he adds.
Sheikhawat believes that cross merchandising, from the display point of view, is more of an art than a science. However, even as an art, the cross merchandising technique has more to do with the category management philosophy, he adds.
The next level
The practice is certainly no cakewalk and there are numerous operational hurdles to it. Singh elaborates that primarily space constraints, assortment issues and certain operational implementation issues have been
deterrents to this practice being embraced in India to its fullest potential. Varghese reiterates this when he says, “There are a number of implementation issues at the store level.”
Elaborating on the assortment issues, Singh says that at times it becomes difficult to cross merchandise the complete assortment of a particular product. For instance, there may be an excellent range of cheese knives available with a store, but at the cross-merchandised point it becomes hard to decide which one to cross present, even as the whole assortment deserves an exposure at such location.
Sheikhawat holds that it is also difficult to templatise the results of cross merchandising, from the viewpoint of indicating its impact on sales, footfalls and such other aspects.
That being said, if the practice in more developed markets is anything to go by, cross merchandising has been used as an extremely flexible tool, which incorporates crossselling, cross-promotions, crosssampling and even cross-presenting non-complementary categories.
Cross-aisle merchandising, which includes placing related items on facing shelves, is another offshoot of the same. This perhaps, could prove useful when presenting the whole assortment becomes important, something that Singh spoke about earlier.
Further, while convenience is the driving factor behind cross merchandising, it cannot be denied that it is also a potent tool to alter shoppers’ preferences and behaviour inside the store. Thus, while the loyalty of a shopper may rise with greater convenience of shopping, a new set of consumers may be created by exposing them to all that the store has to offer. The aspect of loyalty however, can only be better gauged if a retailer has a successful loyalty programme by which one can evaluate a consumer’s basket and then make efforts to expand it through better cross merchandising.
Moreover, the ‘suggestive’ characteristic of cross merchandising has been aggressively utilised by retailers in the west to build traffic and to cater to the existing customer base in a better manner. Many western retailers have been experimenting with ‘category destination programmes’ by re-routing shoppers from high-traffic zones to lowtraffic areas in order to boost the turnover of the low-traffic categories. Thus, shoppers at the relatively high-traffic baby diapers section can be routed to a laundry baskets’ department, for instance, while at the same time being supported with an appropriate advertising display and promotion.
Saumil Thanawala, director, marketing of Amalgam Speciality Foods, however, expresses caution when cross merchandising is being used to promote a relatively weaker brand or category. “Cross merchandising should be done in the right light so that it helps the retailer build consumer loyalty and preserve the brand image as well,” he cautions.
The end result
There indeed is a long way for a niche practice as cross merchandising to evolve in India. There is perhaps, also a need to expand the scope of this exercise, to include superior exposure to a large number of brands, as brand loyalty in India is still low in many categories and there is a huge opportunity for every new brand to leave a mark.
However, before that is achieved, retailers need to put in place more efficient Market Basket Analysis (MBA) methods which, among other things, would help them gauge a shopper’s price point sensitivity; a consumer’s likelihood to substitute items due to cross-promotions, out-of-stocks or item deletions; customer base for different brands and, consumer segment purchase preferences and traffic analysis. This would not only help in better management of categories, but also in building ‘consumer-centric merchandising.’
Last but not the least, the concept of collaboration with brands will need to transcend the battles of margins and slotting allowances. Cross merchandising is more about creating a consumer base for posterity.
Since there are no statutes to dictate and oversee the implementation of cross merchandising, there is always a room to tailor the practice if the retailer is benefiting from it. Sheikhawat and Singh admit that brands and manufacturers are quite receptive to this practice. “Some manufacturers who have been in business for long enough and who understand modern retailing would understand the concept and benefits of cross merchandising,” Varghese concurs.
Having said that, it is equally important to know what the brand manufacturers think. Thanawala contends that cross merchandising is largely made use of by strong brands. “Weaker brands do not feature in this practice, as they are perceived in as slow movers, and hence, are kept away from promotions.”
“Getting across to a retailer with a cross-merchandise idea is usually time consuming; I would rather work with the brand manager I want to partner with, to get the promotion going. This way I can measure the effectiveness and also tweak the promotion based on consumer responses,” he comments.
“Many manufacturers appreciate the concept of cross merchandising,” says Singh. “But, as a whole, its implementation is left more to the retailer’s discretion at this stage. Cross merchandising is very likely to be a win-win gameplan if it is a collaborative effort.”
Saturday, November 28, 2009
One of the pre-requisites of best-in-class food & grocery retail is a state-of-the-art supply chain and cold storage infrastructure. India’s largest cold chain company, Snowman Frozen Foods Ltd, realises this all too well, and is set to leverage the rapid spread of modern retail and cash-and-carry formats in the next few years across India.
Snowman Frozen Foods Ltd., is a joint venture between Gateway Distriparks Limited, Singapore and Mitsubishi Corporation, Mitsubishi Logistics Corporation and Nichieri Logistics Group Inc. of Japan. In India, Snowman happens to be the only cold chain logistics company to receive ISO 22000 certification from TUV, Germany.
With its current network of 16 cold storages and over 100 reefer trucks of different capacities, the company’s focus is to improve efficiency of distribution processes by proving cost-effective and high- tech logistic solutions to various clients across food sectors.
The company provides total integrated end-to-end supply chain solutions from source-to-store, taking care of transportation/storage, handling, and retail distribution of frozen and chilled foods across 20 locations within the country including Delhi, Chennai, Cochin, Hyderabad, Kolkata, Goa and Nagpur.
The wide range of products handled by Snowman include ice creams, poultry, dairy products, fruits and vegetables, meat products, and healthcare and pharmaceutical products. Snowman puts into use a customised fleet management software to monitor and control the cargo as well as the entire fleet (all the software is located at a central server in Bangalore), while a tailored Tally 9 package is used for superior control and checks on all financial transactions.
According to company officials, wherever one sees a temperature-controlled product in India, in all probability the logistics would have been handled by Snowman. Apart from offering cold storage solutions, the company also offers dry logistic solutions to select clients. It is also the only company in India to provide part load transportation for frozen cargo. The service runs on a fixed schedule covering around 100 cities across the country.
Up the ante
By December 2009, the company plans to make a new storage facility in Sriperumbudur near Chennai, in Tamil Nadu, functional. The Chennai warehouse is expected to be the largest multi-temperature storage facility of Snowman with a capacity of 3,000 pallets (one pallet = one tonne).
“Chennai is a major sea port in South India with high volumes of imports and exports of perishables. There is minimal or virtually no competition from any organised operator in the region. Competition, if any, emanates only from a few local operators. Chennai also has a good potential for food processors due to the large output of seasonal fruits,” explains Ravi Kannan, chief executive officer of Snowman Frozen Foods Limited, when asked why the capital of Tamil Nadu was chosen to set up the company’s largest warehouse facility.
“For importers, this new warehouse will serve as a single-door service option to de-stuff the containers, assist in in-transit storage location, thus facilitating de-stuffing, sorting, storing and effective distribution planning on a pan-India basis. For cut food-processors also this new storage facility will prove to be a huge help, as not only will it enable them to store semi-finished products during the volume produce of crop, but they will also be able to store in bulk and be able to meet the price and export demands,” he adds.
Snowman also appears to be preparing to extend its core competence to traditionally non-core areas. “So far, we have been involved in storage, primary transportation and last mile secondary distribution, essentially source-to-stores,” Kannan says. “But going forward, we will be getting into processing activity (F&V packaging, repacking, grading, kitting, bulk breaking etc., ripening chambers) mainly in fruits such as bananas, apples etc, blast freezing and dry warehousing (storage of any product at ambient temperature).”
The objective is to not just build critical mass for the business, but to also evolve into an end-to-end service provider in every sense of the expression. “It (the decision to backward integrate) follows from a customer requirement. All our clients want a single contact point; they do not want to deal with multiple vendors for their various requirements. So, since we are expanding now, we want to be able to provide some comprehensiveness and be a one-stop-solutions provider for our clients – a first again for any cold chain logistics company in India,” Kannan says.
“Our tie ups with the analytical labs is also a first-of-its-kind achievement for a company like ours in the country,” he adds. “Thanks to these alliances, we will be able to certify to our customers that all products stored in our warehouses are stored at the right temperature and hence safe for human consumption. We want to create benchmarks in the industry.”
In addition to this, Snowman is also shortly to synergise with the parent company, Gateway Distriparks, to simplify import clearance processess and avail of the bonded-warehouse facility. “All our clients — new and existing — will now be able to avail this service; the client will now not have to worry about imports and storage. Our role would begin as soon as a vessel pulls into the port and the containers are dropped off. We will inform Distriparks about the offload, they will go and pick up the container and take it to their bonded facility for storage. As and when the client requires the cargo it will be sent to our warehouse – thus offering one solution from end-to-end.”
As in all other Snowman storage facilities, the new Chennai unit will also feature all basic specifications in place, which includes maintaining the air temperature for storage at -20 degree centigrade in order to retain the temperature of product stored at -18 degree centigrade (international standard for frozen food). In order to offer optimum food safety standards, the freezer storages have been designed for operation at -25 degree centigrade with flexibility of incoming materials up to -15 degree centigrade.
All the company’s cold storages are made up of insulated sandwich panels made of polyurethane lined with metal skins on both sides having density of 37 kg/m3 square with thickness of 150 mm. Made from CFC-free polyurethane materials, the panels are supported with steel structural framework acting as building, which is covered up well with steel sheetings to protect it from the vagaries of nature.
Inside the cold storage sections, the temperatures are controlled by using an advanced refrigeration system (operates on CFC-free R404a gas manufactured by Dupont USA) using two-stage reciprocating compressors with suitable air handling units and evaporated condensers with proper control system.
The material storage arrangement is on standard two deep racking systems, which can store materials on Euro pallets of size 1000 x 1200 x 1500 mm with four-level vertical arrangements. Battery electric forklifts assist in the pallet movement. These forklifts are equipped for lifting material from the fourth level and second depth of the rack.
Dock levelers and dock shelters help in loading and unloading of materials from or into the refrigerated trucks. The dock shelters aid in air-locking the trucks into the cold storage area while the leveler matches the floor level of the truck with that of the cold storage.
With many national grocery chains having slowed the pace of store expansion in the first three quarters of the year, many support companies have taken a hit in topline growth. Did Snowman also feel the heat of this so-called slowdown in the food retail business?
Not really, says Kannan. “There has really been no impact as such of the slowdown; in reality, food imports are steady and have risen also to some extent. On the other hand, what did impact the topline was the H1N1 flu-virus outbreak and the multiplex closure to any new movie releases for approximately three months – foodservice brands felt the bite as consumers were not going to food courts, malls or restaurants to eat or hang out as much as earlier.”
New cold storage facilities with features virtually similar to the ones in the Chennai warehouse are expected to come up in Bangalore by April 2010 and in Mumbai by July 2010. In the next two to three years, new storage facilities are expected to come up in eight more locations pan-India. With an existing Snowman cold storage capacity of 10,860 pallets, the company plans to add additional capacity for 8,440 pallets by September 2010.
The company is also contemplating getting into dry warehousing in a major way. According to Kannan future plans for providing dry warehousing facilities include offering two lakh square feet storage space in four locations, one in North (Delhi), one in South (Chennai), in West (Mumbai) and in the East (Kolkata).
Explaining further he notes, “From 1st of April 2010 the Goods and Services Tax (GST) is expected to come into place. With a uniform GST, all big companies would be in the process of closing and consolidating their small warehouses, which they will have across different states due to various tax issues. These four major distribution centres will feed all the smaller locations. Very soon we will be coming out with a retail strategy plan as well.”
Snowman is also looking at greenfield projects with large customers. Clients looking for Snowman warehouses in specific locations dedicated specifically for their use will also be serviced. According to Kannan, Snowman will build state-of-the-art warehouses for any such clients and manage the show for the specified period of time. Such an arrangement is already underway for one of Snowman’s clients in Pune, where an exclusive distribution centre is currently being built for the client.
Thursday, July 23, 2009
Harsh Mariwala’s face lights up while recounting his favorite story. In the late 90s, Keki Dadiseth, the then Hindustan Lever (now Hindustan Unilever) chairman, wanted to buy his company, Marico. Many of his friends advised him to cash out when the going was good, but Mariwala dug in his heels. “Marico is a dream for me and I was in no mood to sell my dream,” he says. So, one of the high points in his life was when Marico bought the multinational giant’s hair oil brand, Nihar, for Rs 240 crore in 2006.
The dream run of Mariwala and his counterparts at other mid-sized FMCG companies is continuing, and much of the robust growth they are enjoying is at the expense of the FMCG behemoths. Companies such as Marico, Dabur and Godrej Consumer Products (GCPL) have been growing at a compounded annual growth rate of over 20 per cent over the past three years, compared to HUL’s 14 per cent. The respective sales volume growth are 10-15 per cent and 5 per cent.
Analysts say their relatively smaller size is one reason why the mid-tier companies found it easier to respond to the market. For example, towards the end of 2008, raw material and packaging material prices started sliding as oil prices dipped, and these companies were quick in passing on the benefit to consumers by paring product prices. HUL also cut prices but took its own time to do so. Result: HUL’s volumes dipped four per cent in the quarter ended March 2008-09, while the mid-sized FMCG firms clocked a volume growth of over 20 per cent in the same quarter.
Innovative strategies are another reason. For example, Marico’s mantra is to find niches where MNCs are not present, making it easier for the company to dominate that space. The leadership position in products like Saffola and Parachute (over 48 per cent marketshare) is evidence of that. Last year, Marico launched ‘hot oil’, which does away with the need to heat the oil. Likewise, it forayed into services with Kaya clinics (a space vacated by HUL). Kaya clocked close to 60 per cent growth year-on-year in the last financial year.
"We are continuously prototyping and at any given time, have at least five to six products in the test market," said Sameer Satpathy, chief marketing officer, Marico. In the last financial year, the company saw its revenues grow by 25 per cent, to Rs 2,388 crore.
Sunil Duggal, chief executive officer, Dabur, attributes the winning away of market share from established MNCs to the company’s new products and variant launches, and inorganic growth strategy (acquisition of Balsara and Fem). "We saw the fastest organic growth in a decade last year,” Duggal said.
A large part of this growth was volume-driven; Dabur had the highest volume growth in the FMCG industry. In the shampoo market, for instance, Vatika has been the fastest selling brand for three years in a row. Dabur Red Toothpaste has become a Rs 100-crore brand within just five years of its launch. Its skin care portfolio, with Dabur Gulabari, saw a 40 per cent growth in the last financial year.
So, too, for the Rs 1,450 crore GCPL, the soaps and hair colours major, which has been pursuing both organic and inorganic growth. Its international operations now account for Rs 300 crore of its overall revenues, post the acquisitions of Rapidol, Kinky and Keyline. Soaps account for Rs 800 crore of its Rs 1,150 crore domestic revenues. In the last financial year, Nielsen says the company saw its marketshare grow from 9.1 per cent to 9.9 per cent in this category.
Most agree that price is not the only reason why the mid-sized firms have gained marketshare. For example, GCPL Managing Director Deepak Sehgal says Godrej No 1 soap has been gaining marketshare in the downturn even though several rival brands like Breeze, Nirma and Diana were at lower price points. “Others such as Santoor, Rexona and Lux have also dropped their prices and are now in the same price band as us. But we are still gaining traction and are market leaders in five states, which shows there is a preference for the brand," Sehgal said.
Profits of mid-sized FMCG companies also grew at a faster clip than big competitors, due to their better rural focus. GCPL , for example, is planning to increase its marketshare in rural areas to 50 per cent from 38 per cent now, through better pricing and focus on regional advertising. "We have plans to increase our small-town distribution reach from 3,000 to 6,000 and village reach from 17,500 to 50,000 over the next two to three years,” Sehgal said.
Dabur, whose rural sales are now almost half of its overall sales, covers villages with a population of under 3,000 across seven states.
“The FMCG universe is likely to register lower sales growth of 10.9 per cent year-on-year (y-o-y) due to muted sales growth in Hindustan Unilever (HUL) and ITC, and lower price growth for most other companies. However, volume growth is expected to be strong for most categories. Lower input costs and excise benefits will result in margin expansion and, hence, we expect operating profits for the sector to grow 21.5 per cent y-o-y,” say ICICI Securities’ analysts.
“The volume-led growth will be led by led by companies like GlaxoSmithKline Consumer Healthcare, Nestle and Dabur,” forecasts Anand Shah, FMCG sector analyst with Angel Broking, who expects the sector to record a 12 per cent net sales growth.
With most companies either effecting a direct rollback in prices (HUL, Marico) or offering various trade and consumer promotions, growth in sales will be mainly volume driven. “FMCG companies will post 8.7 per cent growth in sales, 15.2 per cent in Ebitda and 13.6 per cent in net profit. Excluding HUL, the growth would be much better at 15.4 per cent in sales, 20.2 per cent in Ebitda and 24.3 per cent in net profit,” says Pritee Panchal, FMCG sector analyst with SBICap Securities.
However, going ahead, while the makers of personal and packaged goods should benefit with no letdown in consumer demand, especially with the benefits of the National Rural Employment Gurantee Scheme and farm loan waivers causing rural demand to hold strong, weak macro-economic conditions, coupled with falling income levels, could lead to moderation in consumer spending in the ensuing quarters.
“If the monsoon is poor, it will affect consumer purchasing power. There could be a risk to revenues for the next three quarters, but this will be at least partially mitigated by social sector spending, as laid out in the Union Budget,” cautions an HSBC Securities results forecast.
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GlaxoSmithKline Consumer Healthcare is leveraging on Horlicks' brand equity to get into new categories. Will the move pay off? Walk in to any small eatery in the southern and eastern parts of the country and you will find it hard to miss the bottle of Horlicks at the cash counter. Horlicks is not a young brand — it has been around for decades. After imports were disallowed in 1955, Hindustan Milkfood Manufacturers started making the drink in the country in 1960 and now it’s owned by GlaxoSmithKline Consumer Healthcare. But there are no evident signs of ageing. Horlicks’ market share of the Rs 2,305-crore milk beverages market is above 50 per cent (source: The Nielsen Company). Rivals know beating Horlicks in the market place is a tough act. Nestlé has stopped making Milo and new entrant Dabur India has decided to stay clear of Horlicks and pitch its Chyawan Junior against GSK Consumer Healthcare’s other beverage brand, Boost.
It would be foolish not to leverage the equity of such a brand. Thus, GSK Consumer Healthcare has decided to use the brand to get into new categories. In the last few months, it has launched biscuits for children, a nutrition drink for women, an energy bar and chilled milk. More could follow in the days to come.
“Our business was doing well as was the economy. So both from our point of view as also from the consumers’ perspective, it was a good time to shift gears,” says GSK Consumer Healthcare Managing Director Zubair Ahmed. Ahmed believes the new products will make a meaningful contribution to the company’s top line in the next few years. “These categories are relevant and our research shows that consumers need these products. We are not creating needs, we’re simply fulfilling them.”
Those who know Ahmed well will hardly be surprised by the fast pace of product launches. As the chief executive of Gillette, his previous assignment, he tried to grow the business rapidly with a slew of new shaving products. He left the grooming products company two years ago after it was acquired by Procter & Gamble to run GSK Consumer Healthcare.
Something for everyone
Ahmed is aware that new products do sometimes end up as casualties but he has taken confidence from the strength of the Horlicks brand. “We’re riding the equity of Horlicks and supplementing it with consumer insights,” says he. Horlicks may be the country’s sixth most-trusted brand but GSK Consumer Healthcare is playing in a market where consumers can be demanding. And rival brands are no rabbits: Cadbury’s Bournvita and Heinz’s Complan each with a 15 per cent share.
So far though, GSK Consumer Healthcare has succeeded in segmenting the customer base by catering for specific needs of women at the same time cashing in on the increasing population of children with Horlicks. Ogilvy & Mather Country Head (planning) Madhukar Sabnavis feels “the brand today talks to every member of the family rather than the entire family.”
With Junior Horlicks, launched in 1995, GSK Consumer Healthcare had positioned a product exclusively for children between the ages of two and five. That, Anand Ramanathan, who advises companies in the FMCG space at consulting firm KPMG, points out is a crucial segment given that India is a young country — a clever ploy to engage consumers at a very young age. The Junior Horlicks brand has grown to become a Rs 150-crore brand now, says GSK Consumer Healthcare head of marketing Shubhajit Sen. Taking advantage, the company launched Junior Horlicks biscuits last month. Again, five years ago, GSK Consumer Healthcare had reached out to pregnant and lactating mothers with Mother’s Horlicks; last year it came up with Women’s Horlicks catering for women across age groups.
“The idea is to address all age groups. There’s Horlicks Lite for the elderly who often have a sugar problem and for the youth we have Horlicks Nutribar which we launched in February this year,” says Ahmed.
With Horlicks Nutribar, positioned on the twin planks of health and convenience, GSK Consumer Healthcare has leveraged the brand to venture into an entirely new product category — energy cereal bars. Says Ernst & Young Partner Ashish Nanda: “When you’ve created a strong brand, it opens up doors to new variants and even new categories. Unless you enter a completely unrelated area, there’s little risk in extending the brand to other products.”
While the company hopes that Horlicks Nutribar will chip in with about Rs 100-150 crore of revenues in five years, it hasn’t stopped there. In April this year, it invited consumers to taste its summer drink called Horlicks Chilled Doodh (milk), available in four flavours. Sen concedes that the product will be up against some keen competition in the Rs 45-crore chilled milk category from Amul Kool and strong regional players like MAFCO in Mumbai, but he hopes the brand can pull in revenues of Rs 50-100 crore in about five years — more than the current market size.
Of course, GSK Consumer Healthcare will promote other brands too — it does need to hedge its risks, after all. Thus, in April, Glaxo ActiGrow, a protein supplement for children, was unveiled. Ahmed explains that the company is cashing in on the brand equity that Glaxo still has with mothers and will leverage that for specialist products like ActiGrow. “We’re looking at new products across food and beverages, like healthy snack foods because the opportunities aren’t taken care of simply by Horlicks,” says Ahmed.
Full of beans
At the moment, Horlicks takes care of GSK Consumer Healthcare’s top line. The brand, which was worth around Rs 800 crore in the early parts of the decade, is today 50 per cent bigger at close to Rs 1,200 core, bringing in the bulk of the company’s annual turnover of Rs 1,580 crore.
If Indians drink more than five million cups of Horlicks everyday it’s because GSK Consumer Healthcare has worked on the product. At one time, in the late 1990s, market research showed that Horlicks was seen “as a nourishing, but boring drink” and was beginning to lose significance. What’s more, consumers were beginning to prefer flavours over nutrients.
So, in 2003, the brand was revamped: It was made tastier and launched in two new flavours — vanilla and honey. The company had earlier launched a chocolate version to try and win over consumers in the North and West who typically prefer chocolate-flavoured drinks. But the success was limited. Nearly half of its sales are still generated from the South, while 35 per cent come from East. But that doesn’t seem to bother investment analysts. IDFC SSKI Managing Director Nikhil Vora points out that GSK Consumer Healthcare has held on to its market share in a space that’s grown at around 20 per cent in the last couple of years. “As the market leader, the brand could yield some share but volumes have grown in double digits for five consecutive quarters.”
Not just higher tonnage, the company does succeed in extracting a price from consumers. In January this year, for instance, prices were upped by about 5 per cent. What has worked in the company’s favour, says KPMG’s Ramanathan, is Horlicks value-for-money positioning. “Horlicks may not be a cheap product but it’s been communicated as a value-for-money product. Parents today are willing to spend more on nutrition for their children and that has helped GSK Consumer Healthcare.”
To that extent, Horlicks may have gained over competitors such as Complan which are perceived to be more expensive, a perception that hasn’t changed over time. Says Ahmed: “Compared to competitors, Horlicks is the best money proposition and, moreover, the consumer gets value for the money spent.” For the new launches too, he has in mind a similar value proposition, though final prices will be fixed keeping in mind the target group. “Women’s Horlicks is far more expensive than the base Horlicks but that’s because the consumer is getting much more and there’s no other product available. Horlicks Nutribars will be primarily a metro phenomenon to start with, so the pricing has been decided accordingly.”
Nourishing the brand
Horlicks does not feel the need for a brand ambassador, though GSK Consumer Healthcare has engaged expensive celebrities like Kapil Dev, Sachin Tendulkar and Mahendra Singh Dhoni to endorse Boost. Still, the several new launches could push up the ad budget of one of the country’s top advertisers, most of which is spent on television. Sen believes that spends could inch up over the Rs 194 crore that GSK Consumer Healthcare spent on advertising and promotions last year. Typically, FMCG companies spent 12 to 13 per cent of their turnover on brand promotion.
The radio, through which Horlicks reached out to mothers even 40 years ago, is still an effective channel in states such as Bihar or Orissa where consumers don’t have access to television or where power cuts are frequent. In the early years, mothers were the sole target audience since the product catered to the entire family. However, once pester power became big in the 1990s, the Horlicks advertisements started talking to children too. The change worked because it was also the time when mothers’ mindset was changing — they had become more indulgent and let children drink what they liked, rather than imposing on them a drink of their own choice.
Today, JWT Client Service Director Debarpita Banerjee believes, the Internet can be a good way to connect with kids. So, there are tips posted on examinations on the website — “Exams ka bhoot bhagao” (Drive the exam demon away). Besides, the company has also reached out to children with Wizkids, a contact programme that provides a platform for schoolchildren across 25 cities to showcase their talent.
Adding rural reach
Under Ahmed, GSK Consumer Healthcare has upped the ante on distribution. In an aggressive ‘Go to Market’ approach earlier this year, it created a second layer of distributors in the smaller towns to supplement the existing chain of around 500 big distributors. Most of these 4,000 sub-distributors were appointed in the eastern and southern parts of the country. The idea, according to Vice-president (sales) Navneet Saluja, is to increase the retail reach by at least 30 per cent. “Right now we reach out to around 25 per cent of the rural market and we hope to extend this reach to about 40 per cent of the hinterland in a couple of years. We’re looking to have a presence in towns that have a population of 5,000 people.”
As for reaching out to customers in the urban markets, Sen has begun to work with retailers to create excitement and awareness. “In some outlets, we even created play areas for children,” he says. Although modern trade remains a relatively small channel currently, fetching just 4.5 per cent of the firm’s sales, Saluja’s aiming for higher shares. Ahmed’s not worried about the expense. “We’ll be leveraging the P&L (profit and loss account) for some time because we need to invest in the business and new products,” he says. Clearly, no effort is being spared to grow Horlicks.
Thursday, March 26, 2009
Wednesday, March 11, 2009
Saturday, February 28, 2009
Wednesday, February 18, 2009
Unsold merchandise is piling up at retail outlets and warehouses as consumers faced with an economic downturn hesitate to spend, squeezing the already wafer-thin margins of retailers further and limiting their capacity to repay debt.
Heavy discounts that ranged up to 70% in an extended sale season failed to convince shoppers to open their wallets, leaving retailers holding inventory that was supposed to supply stores they have either shut down or decided not to open.
"I don't think sales have picked up despite the discounts," said Hemant Patel, an analyst at Enam Securities Pvt.
Ltd. "Consumer footfalls were not coming despite the sales." The economy is forecast by the government to grow 7.1% in the fiscal year ending 31 March—the slowest pace in six years. The slowdown, after four years of growth that averaged 8.9%, has caused firms to stall expansion plans, put hiring on hold and reduce staff, denting consumer confidence.
The country's largest listed retailer, Pantaloon Retail (India) Ltd, said so-called samestore sales were down in December for the first time in years. Same-store sales typically denote sales by outlets that have been open for at least a year.
Pantaloon managing director Kishore Biyani attributed the December contraction to slack sales of furniture, electronics, mobile phones and some other merchandise.
Pantaloon's The Great Indian Shopping Festival was spread over almost a month in December and January. Pantaloon followed up with its annual discount season at the Big Bazaar hypermarket chain, but analysts say January sales were lacklustre because of subdued consumer response and competition from other retailers that marked down prices similarly.
Figures released by Pantaloon showed same-store sales in January were up for the socalled value and lifestyle segments, by 4% and 12%, respectively. Home segment sales were down 4%.
A New Delhi-based analyst, who asked not to be named, said Pantaloon has about Rs1,700 crore of inventory. "As per the past track record, it's marginally on the upper side," this analyst said.
"Our inventory is best in terms of industry standards and we have standard stocks," Biyani said.
Shoppers' Stop Ltd, Tata group's Trent Ltd and other retailers also offered hefty discounts on select merchandise.
Even Reliance Retail Ltd, for the first time since its inception about two years ago, organized the first concerted sale across different store formats.
"This year even discounts could not boost sales," said Ritesh Doshi, an analyst at First Global Securities Ltd.
"They are not able to clear their inventory," he said.
"Once they (merchandise) become obsolete, they have to write (it) off and (that) is affecting their margins." A person close to the situation said Reliance Retail fell well short of its target of opening 1,500 outlets by September and was able to open only about 850 stores until early this year. As a result, the chain was left holding unsold goods that had been ordered for hundreds of additional stores whose opening may have only caused more losses, this person said.
"We deny any such situation," a Reliance Retail spokesperson said in an email reply to Mint.
Girish Solanki, a research analyst at Mumbai-based Angel Broking, says Bombay Stock Exchange-listed Vishal Retail Ltd has a "pretty high level" of inventory that could last as long as seven months.
"There is a big problem there," said Solanki, who attributed the inventory pile-up to stalled expansion plans in the face of a funding squeeze.
Manmohan Agarwal, chief executive for corporate affairs at Vishal Retail, said the economic slowdown had caused the retailer to curtail its expansion. Agarwal said the company had Rs800 crore worth of inventory at the end of December. "Our sales for the Repub lic Day campaign were good," he said, but declined to give the current value of inventory.
According to analyst Ankur Periwal of Religare Securities Ltd, Vishal has about Rs480 crore in "stuck up" inventory.
Vishal may have to get rid of the inventory at below cost price, he said.
The mountain of unsold goods and extended discounts would further squeeze the already low margins of retail chains and restrict their ability to repay debt, analysts say.
Doshi of First Global expects margins at Pantaloon to narrow to 2.3 percentage points for the year ending June, from about 2.6 percentage points a year ago.
Meanwhile, Indian exporters hit by the global meltdown, which has led many international buyers to cancel orders, are dumping their products in the local market, according to Solanki at Angel Broking.
"That is also putting pressure on the existing inventory," he said.