The Hindu Business Line : Godrej refreshes itself

Godrej Consumer Products has beaten the stagnation in the FMCG segment through a host of initiatives that saw it introducing new price points, enter new territory and strengthen its brands.

Hoshedar K. Press, Executive Director & President, Godrej Consumer Products

FORTIFYING its soap brands, introducing new price points, entering new categories such as babycare and hand sanitisers ... it has been a busy year at Godrej Consumer Products Ltd (GCPL). While FMCG categories such as toiletries, hair care and soaps have been under pressure, the company has outperformed the still sluggish FMCG industry primarily because it has been operating on a relatively smaller base compared to the biggies, and also because of the urban-centric nature of its brands.

Focusing on its stronger and faster growing brands, the Rs 550-crore Godrej Consumer Products began the year by extending Godrej No.1 ayurvedic soap to more markets and at an attractive price. At the same time it also decided to capitalise on the success of its FairGlow soap, instead of trying to push the languishing cream, to take on Hindustan Lever Ltd (HLL) in the fairness segment.

In fact, Godrej is almost consciously targeting the fairness cream users through its newly relaunched fairness soap. `The cool way to fairness and freedom from oily skin' is the message the company wants to convey to all its prospective users. Launching the All New FairGlow soap, Hoshedar K. Press, Executive Director & President, Godrej Consumer Products, said, "There is an increasing demand among Indian women for convenient and inexpensive solutions to skincare and a need to look good naturally. The soap keeps this need in mind."FairGlow soap, a pioneer in its category which managed to find a niche in the fairness market in spite of the looming presence of HLL's mega brand Fair & Lovely, has intentions of doubling its turnover from Rs 60 crore to Rs 120 crore within the first year of the relaunch. The brand was relaunched last month.

According to industry observers, HLL is not in a position to push its Fair & Lovely soap for fear of losing its share in the fairness cream market.

This situation gives Godrej an opportunity to strengthen its position in the fairness soaps category while phasing out its cream, which in any case did not manage to register any significant volumes.

In fact, the company suffered a loss in sales for its toiletries division primarily due to the failure of its FairGlow cream. Admits Press, "FairGlow cream did badly, leading us to withdraw the product. Our toiletries margins have been affected by its failure." Besides, Godrej Shave Gel for men has also failed to register any significant volumes.

The relaunch of FairGlow soap is expected to add weight to Godrej's soap portfolio. Says Anand Shah, FMCG Analyst at ICICI Securities, "FairGlow has been registering declining sales over the past two years. The All New Godrej FairGlow is aimed at female teenage college students instead of the previous positioning of that for women in their early 20s. This move could help GCPL build a younger clientele and broaden its target base."

Besides, the largest soap brand in Godrej's kitty, Godrej No. 1, managed to maintain robust growth and today accounts for nearly 60 per cent of GCPL's toilet soap volumes. Its low pricing and value-for-money proposition has worked for the company and it has been steadily increasing its variants with an ayurvedic offering.

Observes Shah, "Toilet soaps are likely to maintain robust growth of 15-20 per cent on the back of FairGlow's relaunch and the continuing growth of Godrej No.1." The new unit for toilet soaps in Himachal Pradesh would also lead to an improvement in profitability, as it is located in a tax-free zone. The unit would provide income-tax relief and exemption from excise duty, which is likely to improve the company's soap margins.

Meanwhile, its Cinthol soap franchise has taken a backseat, primarily due to lack of proper positioning. "Cinthol as a brand has been over-extended and we are in the process of redefining the positioning," says Press. This is being done through a new campaign and positioning statement which is likely to be unveiled soon through its advertising agency, Orchard.

Last year, Godrej decided to stretch the Cinthol brand to a hand sanitiser. "There is heightened hygiene consciousness emerging among consumers and we realised it would be ideal to introduce the hand sanitiser, a revolutionary concept for germ-free hands," says Press. Godrej already supplies hand sanitisers under the Cinthol brand to West Asia. The SARS epidemic did help in gaining sales for the product.

Beefing up its rural initiatives to accelerate sales growth, Godrej also decided to increase its rural penetration by introducing small unit packs of its soap brands in the Bimaru States of Bihar, Madhya Pradesh and Uttar Pradesh. By introducing its three power soap brands - Cinthol, FairGlow and Godrej No.1 - in 50gm SKUs (stock keeping units), the prices of these respective brands have been pegged between Rs 4 and Rs 5.

"We have decided to target these States with low per capita incomes through our small unit packs. This will be a great opportunity to grow since consumption levels of soap are still low in these parts. These small pack sizes will not be made available nationally and are meant specifically for these three States," says Press.

Meanwhile, its reign over the hair colour segment came under threat towards the end of last year as a result of increased competition from smaller brands and downtrading by the premium brands from Garnier's stable. Launching a hair colour cream under Godrej Renew, the vitamin-enriched cream-based hair colour has been pegged lower (Rs 85) than Garnier's Colour Naturals (Rs 99) offering in the same segment.

"Today we are the market leaders with a 45 per cent share in hair colours. While the market is not growing that rapidly there was increasing competition for us from Garnier which made us launch Renew," says Press.

The company also decided to beef up its liquid detergent brand of Ezee by introducing a variant, Ezee Silk, with a pH- balanced technology to retain the shine and lustre of silk clothes. "After soaps, it is liquid detergents which has grown the fastest for our company," says Press. In spite of being a niche product, stretching the Ezee detergent franchise from woollen to silk clothing indicates the segment has been growing for the company.

Gearing up to enter new categories, GCPL also acquired the Rs 5-crore Snuggy brand of diapers from Shogun Diapers in a bid to enter the babycare market in future. Claims Press, "We are looking at products which will be synergistic in our distribution system. Acquiring the Snuggy brand gives us an opportunity to get into more baby products such as soaps, oils and creams." The company is also eyeing new categories under feminine hygiene care by launching paper-based products as well. "We are evaluating plenty of options in the paper category including napkins and wet swipes," adds Press.

There have been some impediments to the growth of the company due to de-growth in its contract manufacturing business. After supplying products such as soap to a host of other manufacturers, the company saw shrinkage in its sub-contracting business due to the high excise duties imposed on soap manufacturing units. But the latest interim budget portends good news for the company for the year ahead. The reduction in duties for industrial oils (an input for soaps) should see the company increasing its soap margins in future. Besides, the company is gearing up to increase its soap prices, taking after the recent price increases announced by HLL. "Price increase for our soap brands is on the cards," says Press.

Summing up the future of GCPL, Yasmin Shah, Research Analyst at ASK Raymond James, says, "We expect Godrej to post a six per cent year-on-year increase in net sales for the quarter. Sales of branded products are expected to grow eight per cent year on year. Soaps would grow seven per cent, mainly on the back of stellar growth in Godrej No. 1 and the relaunch of Godrej Fairglow, while hair dyes and liquid detergents would grow by 11 per cent each. The toiletries segment is expected to decline.

The key drivers for the company would be the extension of the Snuggy range to other babycare products, which would not only help expand the company's topline but also help it shore up profits as margins in these products are high. Commissioning of the new soap plant in Himachal Pradesh would lead to a fall in effective tax rates from 14 per cent in fiscal 2004 to eight per cent in 2005, thereby boosting profitability." Reason enough for Godrej to be snug about.

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