The Hindu Business Line : Godrej bucks the trend

IN spite of the slowdown in the FMCG sector, the Rs 490-crore Godrej Consumer Products Ltd (GCPL) has managed to buck the trend. While being small has helped the company, its healthy revenues from soaps and personal care brands have led it to explore more categories and brands in spite of the sluggishness in the market.

For instance, this month it launched a new germicidal soap, Nimin. Pitting itself against HLL's Lifebuoy, and pegged on par with Lifebuoy's variant in the sub-popular category, Nimin is priced at Rs 8 for 75 gm and Rs 13 for 125 gm.

Adi Godrej, Chairman and Managing Director, GCPL, says: "Nimin has natural germicidal positioning. We believe the product will be well accepted in the market, and our market research shows there will be strong consumer preference for the brand." The Nimin brand has extracts of neem and tulsi and will compete against a host of herbal brands already existing in the market.

Says Godrej, "We have a strong rural thrust planned for the new brand, and it will not be a metro product in a big way." In fact, in the past Godrej had been looking at the possibility of acquiring a herbal soap brand and the Chandrika brand was on its list. Hoshedar K. Press, Executive Director and President, GCPL, says: "There are no brands available but we did look at the Chandrika brand. Considering the complexities and lack of clarity, we decided against buying it."

The company has appointed Mudra as the ad agency for the new brand. Mudra also handles the company's leading soap brand, Godrej No. 1, which recently introduced a Jasmine variant.

Besides, it has also stretched the equity of Cinthol into a deodorant soap this summer, forcing FMCG stalwart Hindustan Lever to react by launching a new Liril variant as also re-launching its Breeze brand franchise.

Besides, GCPL has also decided to enter the hair oil market with a brand under its company name. The company is already test-marketing an ayurvedic thanda tel under the Godrej brand in UP. Press says, "Thanda tel is a growing sub-category in the hair oil category and there are many players in the market." This product will be pegged at Rs 35 for 100 ml. As of now, players such as Marico have entered the category with Shanti Thanda Tel.

Godrej has been marketing hair oil brands, such as Anoop, belonging to other companies. "We may look at sub-contracting our hair oils," says Press.

The thanda tel account will rest with Contract Advertising in Mumbai. Explaining the strategy for the brand, Rajiv Sabnis, Senior Vice-President, Contract Advertising, says, "While the other oil categories have been stagnant, cooling oils have grown. In our communication, we will be highlighting the stress relief associated with using the oil. It will not be about physical but mental cooling."

GCPL realises that it is in a position to grow the personal care category compared to a saturated category such as soaps, where it has to fight for share and improve margins. States Godrej, "Unlike in personal care where we want to grow the category, our strategy for soaps is to get shares and improve our margins."

However, prices of toilet soaps are expected to rise further due to high vegetable oil prices. As Godrej observes: "Most companies will continue to increase the prices of toilet soaps due to high vegetable oil prices. But unlike in shampoos and detergents, there can be no price wars in soaps."

Observes Nitin A. Khandkar, Vice-President, East India Securities Ltd, a brokerage firm, "GCPL's soaps segment has grown in each of the last three years, while the soaps market itself contracted. Even in 2003-04, as evidenced by the 13.3 per cent growth witnessed by GCPL in the toilet soaps category, vis-à-vis a 5 per cent de-growth in the industry, GCPL has indeed managed to buck the sluggish trend in the category. However, GCPL is a relatively small player compared to HLL, in toilet soaps, with a market share of around 6-7 per cent. There<147,1,7>fore, exceeding industry performance is not a major achievement."

Khandkar adds, "In hair colour, the company has over 40 per cent market share and has outperformed the sector with a growth of 7 per cent, while the sector de-grew by 2 per cent. And it is likely to do well. In liquid detergents too, GCPL's Ezee has almost the entire market (90 per cent). These categories are doing well. In terms of profitability too, both the soaps and personal care segments have registered an improvement. Segmental margin for soaps has improved from 8.4 per cent (quarter to December '03) to 13.4 per cent (quarter to March '04), and for personal care from 35.6 per cent to 39.5 per cent.

So what are the challenges ahead for GCPL? Analysts claim that the main challenge remains increasing the topline and market shares — this is important, given that the FMCG sector as a whole has witnessed a slowdown.

Secondly, the company should look at expanding the product portfolio and improving the product mix (to reduce the dependence on the soaps segment; currently soaps account for 63.6 per cent of sales, but only 32.1 per cent of PBIT (profit before interest and tax).

While the company has been satisfied with its growth in the current situation, it realises it cannot take up challenges in new FMCG categories.

Claims Godrej, "While we are quite satisfied with our growth, we do realise that it is not going to be easy breaking into new categories such as solid detergents, shampoos and toothpaste due to existing competition. It would be foolhardy to move into these segments and we would rather focus on getting profitable topline growth."

While it has been trying to get into the niche FMCG categories such as diapers, GCPL's experience post-acquisition of the brand has not yet reaped any positive results.

Says Godrej, "We have been disappointed with the performance of the Snuggy brand. The product continues to be imported and we are still looking at ways to push it."

At the same time, the company realises that acquisitions of brands is the way forward.

Pinning its hopes on the turnaround expected for the FMCG industry soon, Godrej says, "Today, rural demand has accelerated and a poor rural economy is behind us."

The company is hoping that a strong GDP growth on the back of a good monsoon should drive consumer spend in both rural and urban areas.

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