The Hindu Business Line : The life after

Brands changing owners may be a continuing phenomenon but what happens to them post-acquisition? The past two years have witnessed some of the biggest M&A deals in the FMCG industry. Abetting it is the industry's turnaround and the fact that companies today want an array of brands in their kitty. But growing these brands will remain an ongoing challenge, more so if the category is new to the acquirers.

Take the case of the recent acquisition of Nutrine by Godrej Beverages & Foods Ltd (GBFL). While it gives the company a ready entry into the organised confectionery market, the decline in the category's growth has made Godrej more aggressive in the segment soon after the takeover. It has already taken a decision to launch a new brand, Maha Maha Lacto, on the strength of Nutrine's existing Maha Lacto brand. This double Maha will be priced at Re 1 and will be twice the weight of the existing brand.

There are more products lined up, such as `Choco Roll', which is currently being test-marketed in Tamil Nadu. As the name suggests, it is a wafer roll with chocolate and is now available in the grey market . According to A. Mahendran, Director, GBFL, "There are expected to be synergistic benefits from acquiring the brand, which include media buying and distribution and sales strategy."

Other local acquisitions made by Godrej in the recent past include diapers. After struggling with the brand post-acquisition, bringing down prices seems to have helped grow the brand. In spite of the barriers facing the category's growth, Godrej Consumer Products decided to acquire the Snuggy brand from Shogun Industries in late 2002. Apart from the fact that more brands help its distribution chain, Godrej realised the importance of having a brand name such as Snuggy, which could lead to it becoming a complete baby care brand.

At a recent analysts' meet, Hoshedar Press, Executive Director, Godrej Consumer Products, said, "Acquiring the Snuggy brand gives us an opportunity to get into more baby care products such as soaps, oils and creams." Recently, Godrej re-launched the Snuggy brand of diapers in slimmer and smaller pack sizes and scaled down prices to Rs 10 per piece.

Another home-grown FMCG major also took the risk of entering one of the most competitive categories in the industry. Last year, Marico bought out the relatively unknown herbal soap brand, Manjal, from the Kerala-based Oriental Extractions. The company had tried to acquire bigger herbal brands such as Chandrika in the past. However, the strategy is to go slow on growing these brands.

Elaborating, Saugata Gupta, Head (Marketing), Marico, says, "There are not too many soap brands operating on the natural platform in Kerala. There is localised opportunity for the brand in that State and we will see how it works out. There is no aggressive strategy that we have in mind right now." Realising the limitations of establishing a soap brand, Marico is testing the waters in Kerala with its new brand before it decides to roll out the brand at a national level.

The Rs 9-crore Manjal brand is Marico's second buy since it acquired brands such as Camelia and Magnolia from the Bangladesh-based Personal Care Products Company. Marico intends taking advantage of its extensive distribution network (on the back of its coconut oil brand) to exploit the potential of its acquired brands.

But Marico has been aggressive in the case of its acquired brand of Mediker from P&G, considering the brand was the leader in its category. Shampoos, especially in the anti-lice category, were new to the FMCG player, which is a stalwart in the hair oils segment. The past seven years have seen the anti-lice shampoo brand being stretched to oil. Of late, it has a new innovation, Mediker Naturals, whereby natural additives such as camphor, neem oil and custard apple seed have been added to the brand.

Dabur's buy-out of the Balsara brands including Odonil, Odomos, Odopic and Sanifresh, which marked its entry into new categories such as homecare, led to the growth of these brands. Claims Sunil Duggal, Managing Director of Dabur, "We were able to extract mileage from each of these brands. Considering these were brands which had limited distribution, we have been able to scale them up substantially. Today each of these brands are growing at more than 30 per cent."

Meanwhile, there are the MNCs who want to make inroads into distribution by acquiring brands. In the case of Heinz India, it became profitable from the time it entered the Indian market courtesy the Glaxo brands it acquired. Today, Heinz continues to beef up its brands acquired from Glaxo, which contribute to almost 90 per cent of its turnover. Initiatives taken on the flagship brand, Complan, include introduction of new flavours such as caramel, and distributing freebies such as shaker-sippers and magnetic dartboards to make the brand more exciting for kids.

Glucon-D too was re-launched with `Shakti-boosting vitamins' in a vanilla flavour while Nycil was stretched to a `cool herbal' variant with neem oil and mint as ingredients in the recent past.

Besides, this summer, the Glucon-D brand was extended to the interiors of Bihar and offered `Pyaao service' while Nycil has introduced the new Nycil Cool Herbal mini pack to target the frequent travellers and the rural markets.

With almost 1,600 distributors reaching out to 4.5 lakh retailers across the country, Heinz has also decided to work on its distribution network for brands such as Glucon-D, which is a leader in its category with a 70 per cent share. "Glucon-D is growing but not at the pace that we would like it to. We have to work on its distribution," says Nilesh Patel, Managing Director, Heinz India, in an earlier interview to Business Line.

While Heinz holds on to its Glaxo portfolio, there are others such as Wipro who started its foods business by acquiring the Glucovita brand from Hindustan Lever in 2003. "The acquisition marked our entry into the health and wellness segment. Glucose is an interesting category and we believe it can grow further. The brand has done very well in the last three years post- acquisition; it has doubled in sales value in this period. We have made significant changes in the pack, made it more vibrant and contemporary and unleashed the first TVC after a gap of almost ten years. We believe in acquiring brands to grow them and not aggregate turnover," says Nagender Arya, General Manager (New Business Development), Wipro Consumer Care.

Then there are other companies which would rather leverage the acquired brands to help their own brands. With reports of Hindustan Lever trying to offload the Modern Foods acquisition, analysts view the move as that of the FMCG major taking advantage of Modern Foods' distribution network to drive its own food brands. According to an analyst with an equity firm, "Foods is a low-margin, high-volume business for HLL and since it has not been getting the numbers after the Modern Foods buy-out, it is now scouting for a buyer. While it must have tried to ride its own food brands such as Kissan through the Modern Food distribution, achieving profitability would have been an issue with the FMCG major."

Other motives such as eliminating competition, expanding into new geographies and categories and even consolidating positions in a particular category could explain the reason behind brand acquisitions. But 2004-05 has seen a big spurt in the M&A deals in the FMCG industry. Explaining the possible reasons behind this trend, Nandini Chopra, Director, KPMG, says, "These are usually debt-free companies. Financial institutions and banks are chasing them to raise cheap money through structured financial deals. With money available, such companies are building up a war chest of brands."

The search for new brands continues as players such as Godrej and Marico continue to scout for them in countries such as China, Egypt and South Africa, ensuring yet another change in the fate of these new brands once they come into their kitty.

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