Vineet Agrawal loves to tell the Santoor story in four parts. The first part begins in the mid-’80s, when Agrawal joined the sales and marketing team of Wipro Consumer Care, the FMCG arm of IT services giant Wipro, which traces its roots to Western India Vegetable Products Company, an edible oils and soaps maker since 1945.
Launched in 1984, soap brand Santoor had a sedate beginning, with revenues plodding to ₹60 crore in little over a decade. Though the growth was modest, the stakeholders had nursed a far more ambitious plan. The intent was to expand the footprint across India.
Santoor was relaunched in 1995 with much fanfare. The packaging was changed, and the shape of the sandalwood- and turmeric-loaded soap was tweaked to make it look more contemporary. The idea was to fight brand fatigue as well as make it more enticing. The launch flopped. “Nothing happened. Numbers (sales) didn’t move,” rues Agrawal. Wipro was forced to go back to the drawing board.
The second part of the story is that of the competition. Owned by multinational Goliath Hindustan Unilever Ltd (HUL), Rexona, Lux and Hamam were ruling the roost across the country. Led by incumbent Rexona, the trio had left little space for rivals. While Rexona and Hamam were big in Andhra Pradesh and Tamil Nadu, respectively, Lux was dominant in North India. Santoor, in contrast, was languishing at a distant No. 4, at times even a tad lower, in the pecking order. The vision to be seen everywhere had resulted in Santoor spreading itself too thin.
Now for the third part: The reality check for Wipro. The ambition of becoming a pan-India player was buried unceremoniously and the brand custodians decided to narrow Santoor’s focus to the four states in South and West India where it was doing reasonably well: Andhra, Karnataka, Maharashtra and Gujarat.
“You cannot under-invest and win,” says Agrawal, now CEO of Wipro Consumer Care and Lighting, which closed the year ended March 2019 with a top line of ₹7,100 crore. The brand, recounts Agrawal, pulled out all money from the North and East, and pushed aggressively into the West and South.
Result? David pipped Goliath to become the second-biggest soap brand in India in value, and third largest in volume. In the year ended March 2019, Santoor posted ₹2,065 crore in revenue, taking it close to the leader Lifebuoy, reportedly worth over ₹2000 crore. Lux, reportedly in the ₹1,000 crore club, is third biggest in volume and second in value. HUL chose to put its might behind its Lifebuoy and Lux, which meant that Rexona and Hamam are no more the forces they once were.
Santoor, reckon brand experts, is a silent journey. “The brand relies more on the solidity of its product than anything else,” says Harish Bijoor, founder of his eponymous branding consultancy firm. The brand, he adds, has understood early in its life that there is a user and a buyer. In the case of Santoor, the user is the buyer, and also a big influencer in the home as to who will use what. In the case of Santoor, the buyer, user and influencer are all packaged into the avatar of the young mom in the house, adds Bijoor.
Stay regional and gun for No. 1 may well be the mantra for Agrawal. “In Andhra (and Telangana), we are almost four times the second brand,” asserts Agrawal, who now sings paeans to the virtues of staying regional. In FMCG, he underlines, there are a lot of brands that are not national, but the owners force them to become so. It’s an avoidable sin.
The war-weary CEO dishes out a China example, where a number of regions are as big as many national markets. Take, for instance, the Guangzhou Province in South China. A population of over 10 crore and a GDP of $1 trillion make the region much larger than Malaysia or the Philippines. Back home, when Santoor was tagged as a ‘southern brand,’ Agrawal stayed unflustered. Reason: You can get size and economies of scale even as a regional brand.
Decoding Santoor’s soap opera, however, remains incomplete unless one gets to knows what ‘really happened’—the last part of the story.
In the early ’90s, North and East India accounted for just 10 percent of sales. “We decided to lose 10 percent to make the most of the 90 percent in the South and West,” Agrawal recounts. “The new theory was that in the four states people should see us more on TV than any other brand,” recalls Agrawal. Distribution reach, especially rural, was beefed up, retailers were wooed with incentives and smaller shops were targeted.
The aggression was not confined to television. For two months in a year, a bunch of cities were turned ‘orange’. Since the packaging and product were orange, thousands of shops were painted orange, and hoardings and banners—all orange—were plastered across the towns and cities. Suddenly, Santoor was all over the place.
Places shortlisted for the marketing blitzkrieg were an eye-opener. The top cities were shunned. “It was not Hyderabad or Visakhapatnam, but places like Warangal, Vijaywada, Nellore and Guntur where activations took place,” says Agrawal. The traditional centres were cluttered, penetration into smaller towns was easier, and it helped in staying away from the gaze of the rivals. “The competition didn’t notice us,” he says with a grin.
The Santoor makers had a plan on which brand to take on first: Rexona.
While others such as Lux talked about how soaps enhanced the beauty quotient—read face value—of the users, Rexona was the only one apart from Santoor to talk about the beauty of skin. “We also felt that Rexona was probably the weaker brand (in HUL’s portfolio) to attack,” he adds.
Towards the fag end of the ’90s, HUL rebranded Rexona as Lux Rexona. The new identity created confusion among consumers and traders as Rexona’s skin proposition got muddled with the cosmetic beauty of Lux. “It was a golden opportunity for us,” recalls Agrawal, who sharpened the attack on Rexona and positioned Santoor as the only brand that makes skin look younger. After two years, HUL dumped the Lux Rexona branding, leaving Rexona to its original solo existence.
Santoor, on its part, stuck to its positioning: The woman who uses the soap, a mother, is mistaken for a younger woman.
Santoor, avers brand strategists, worked on a more sustainable thought: Women desire timeless beauty. A married woman, with a child, who still looks like a college student is far more realistic in portrayal than other soap brands that harp on fairness and cosmetic beauty. “Santoor was the promise of timelessness for the everyday woman,” says Abhik Choudhury, founder of Salt and Paper, a brand consultancy. The message conveyed was simple: Don’t become Sridevi overnight, but feel the best version of yourself preserved over the years.
Although entering the coveted ₹2,000 crore club is remarkable, Santoor is likely to face headwinds as it expands its reach. Maintaining a similar growth rate will definitely be a challenge as the headroom for growth in its current dominant markets is not too high. “This could see the brand lose steam,” avers N Chandramouli, chief executive officer of TRA Research. Making successful Santoor product extensions is also going to be challenging, as it has been for many other bath soap brands.
Another challenge is converting the younger audience. While Santoor’s ever-loyal customers are mostly middle-aged women, college youth and young working professionals have almost nil brand loyalty. “They might lose their foothold if they don’t crack this code,” says Choudhury.
Agrawal can sense what’s coming. Even if somebody attacks us in any of our four big states, he stresses, the brand is geared to fight. “We won’t cede an inch.”
Mumbai: Santoor has become the first soap brand from an Indian FMCG company to breach annual sales of Rs 2,000 crore.
Wipro Consumer Care, the maker of Santoor, confirmed the number to TOI. With a turnover of over Rs 2,000 crore, Santoor has clearly overtaken HUL’s soap brand Lux, and is now challenging the numero uno Lifebuoy. HUL’s latest annual report places Lifebuoy and Lux in the Rs 2,000-crore and Rs 1,000-crore plus sales bracket, respectively.
Wipro Consumer Care and Lighting CEO Vineet Agrawal said, “Santoor has grown consistently across urban and rural markets. It is now among the Rs 2,000-crore plus consumer brands — first and only Indian soap brand to do so.”
According to industry sources quoting Kantar Household panel data, Santoor’s all-India market share in January-March 2019, at 15.1%, has exceeded Lux’s 12.5%, but is less than Lifebuoy’s 17.7%. The urban market data, however, shows Santoor (13.4%) ahead of both Lux (12%) and Lifebuoy (13%). Kantar declined to comment on this data.
Industry sources quoting Nielsen data said Santoor (9.3%) is the third-largest brand after Lifebuoy (13.7%) and Lux (12%) for January-March 2019. When contacted, an HUL company spokesperson said, “Lux continues to be the second-largest soap brand in India after Lifebuoy. As a policy, we do not comment on market shares.”
Insights into data from Worldpanel Division of Kantar reveal that Santoor’s penetration is much higher than Lux in South and parts of West regions. However, at a national level, Santoor has a much lesser penetration than Lux (34% against 60%).
Lux’s penetration is driven by the Rs 10-pack (about 55g), with 60% of Lux-buying homes purchasing this pack. On the other hand, Santoor’s penetration is driven largely by its 75g+ pack, with 70% of Santoor-buying homes purchasing this pack. According to the data from Worldpanel Division of Kantar, Santoor also has a higher number of buying occasions than Lux (Santoor buyers purchase about 45% more times than Lux buyers). As a result, the overall volumes of Santoor have gone ahead of Lux in recent times.
The maker of India’s largest-selling soap is losing its grip over the No. 1 crown in a slowing market.
Hindustan Unilever Ltd.’s Lifebuoy, the nation’s most selling soap brand, has been consistently losing share at least since 2016, according to Kantar Worldpanel data reviewed by BloombergQuint. Wipro Consumer Care and Lighting Ltd.’s Santoor, marketed as a natural product, gained at its expense. It’s already taken over second-placed Lux, also made by HUL.
“There is a shift towards the naturals segment as consumers are worried about chemicals,” said Alpana Parida, managing director of brand strategist DY Works. “Multinationals have not acted swiftly enough to adapt to changing consumer preferences and have not expanded their offerings in the natural and ayurved-based brands.”
To be sure, while Santoor has sandalwood oil and oleo resin turmeric, its other raw materials such as sodium palmate, sodium palm kernelate and perfume are common with Lux and Lifebuoy, according to ingredients disclosed on the packs.
Santoor is catching up with the market leader even as growth slows. Euromonitor International expects the Rs 21,130-crore soap market to grow at 2.3 percent till 2022 compared with a pace of 9.8 percent from 2012-17.
Lifebuoy and Lux have lost volume market share by 340 basis points and 150 basis points, respectively, since June 2016, according to Kantar Worldpanel data. Santoor and Godrej Consumer Products Ltd.’s Godrej No. 1 contribution to total industry volumes rose by 140 basis points and 110 basis points, respectively, during the period. Patanjali Ayurved Ltd.’s share also rose to 3.7 percent.
Even in the premium category, the share of HUL’s Pears and Dove largely remained stagnant at 1.5 percent and 1.6 percent, respectively.
HUL, in an emailed response to BloombergQuint, said Lifebuoy remains the largest soap brand and Lux keeps itself relevant “in the face of the changing paradigm of beauty”. India’s largest consumer goods maker didn’t comment on the falling market share of its brands.
Both Wipro Consumer Care & Lighting and Godrej Consumer have yet to respond to BloombergQuint emails.
Similar Pricing
Pricing is not a factor behind the churn in the mass-market brands.
Both Santoor and Lifebuoy are similarly priced. A pack of four Santoor bars of 53 gram each costs Rs 40, the same as a similar pack of Lifebuoy bars of 59 grams each. A pack of four Lux bars of 54 grams are also priced at Rs 40. Godrej Consumer charges Rs 68 for three bars of 100 grams each with one free.
Wipro Consumer Care & Lighting sees the highest contribution of 42 percent from soaps to its Rs 6,682.6 crore revenue. For HUL, soaps account for 30 percent of its Rs 35, 218-crore sales and while they contribute 33 percent of Godrej Consumer’s Rs 9,937-crore top line.
Brand consultant Santosh Desai said since Santoor is marketed as a herbal product, one can hypothesise that consumers are partly walking away from chemicals.
It’s not that Hindustan Unilever doesn’t make herbal soaps. In its annual report for 2017-18, the company reiterated its focus on naturals through its Lever Ayush toothpaste, soap, handwash, shampoos and face wash. The company revived the brand after Patanjali started gaining momentum in India’s consumer goods market with its ayurvedic toothpaste to shampoos.
Still, according to brand consultant Harish Bijoor, there has been no innovation or disruption in the category which has caused a certain degree of boredom for the consumer. Moreover, the concept of family soap doesn’t exist anymore, and individuals prefer using their own bars, he said. “Brand loyalty does not exist as consumers search for more choices and are brand promiscuous.”
MUMBAI: The ‘naturals’ wave, which has been sweeping across consumer product categories, has resulted in a significant spike in growth of certain segments of the toilet soap market. Patanjali Ayurved’s entry, in particular, pushed other companies to come up with soap variants that have a combination of natural ingredients like aloe vera and lime.
Considered a “do good” natural ingredient, aloe vera has found more relevance in Indian consumers in recent times. According to industry estimates, aloe vera and lime have emerged as the fastest growing segment in soaps. With sales of Rs 4,500 crore, aloe vera and lime now contribute a significant chunk to the roughly Rs 15,000-crore toilet soap market. Growing at the rate of 27%, all-India, this segment forms nearly a third of the total toilet soap market in the country. Given the strong double-digit rate of growth, soap makers are going into overdrive in pushing their products in this category.
While Hindustan Unilever (HUL) and Godrej Consumer Products (GCPL) are already present in this segment, Wipro Consumer Care and Lighting has marked an entry with its key soap brand, Santoor. The brand is being launched in Santoor’s stronghold markets of south and west. Anil Chugh, president (India business), Wipro Consumer Care and Lighting, believes the ‘aloe fresh’ variant will make the Santoor brand more modern.
“This will help us acquire new consumers and leverage the aloe vera ingredient. Santoor is present in each of the segments of beauty, skin protection, mild or soft, glycerine, and baby. With Santoor Aloe Fresh, we have entered the freshness category, which was not addressed by the brand earlier,” said Chugh.
Industry sources said the freshness segment in soaps has grown 1.2 times the market growth rate, while the naturals segment has grown 1.8 times. Cinthol and Godrej No. 1 — with sales of Rs 660 crore in aloe vera and lime — are said to be leading growth in this segment. Sunil Kataria, business head (India & SAARC), GCPL, said the two variants are growing strongly in the last two years.
“‘Natural’ products continue to become more popular. In soaps, we are seeing ingredients like aloe vera gaining significant awareness and consideration. Lime, a refreshing, natural cleanser, is particularly popular during the summer. Several brands, including our Godrej No.1 and Cinthol, are actively building on these trends, and using aloe vera and lime, separately and in combination, in different products. We are also backing this through focused advertising and brand-building, and are seeing results,” said Kataria. A wide range of HUL’s portfolio incorporates these ingredients.
This Children’s Day Santoor Women’s Scholarship has launched a unique initiative to involve people to nominate girls they know who might need such financial assistance to pursue their higher education.
The campaign creative set in a rustic, river side location depicts a young girl fetching water home. When you scan the ad in print or interact with digital banner, it opens a video that shows the girl’s dream of becoming an engineer turning into a reality with the help of Santoor Scholarship. The girl transforms into a student in uniform carrying books to college.
Mr. S Prasanna Rai, Vice President – Marketing, Wipro Consumer Care & Lighting, said “We are committed to educating the girl child as we believe that education is a key enabler for social change. This children’s day, we want to create awareness about the program and involve people to nominate someone who they know & who might need support to pursue her further studies. Our awareness campaign is an interactive digital video. To amplify the reach, the campaign has been supported by a print ad. We believe this will help us in reaching out to more girls who might benefit from this scholarship.”
Santoor Women’s Scholarship, launched in 2016, financially supports girls from disadvantaged backgrounds, who wish to pursue under graduate education after grade 12. This recurring annual program offers 900 scholarships per annum across Karnataka, Andhra Pradesh and Telangana. Currently, in the third year of the program, the total number of beneficiaries stand at 2700 (including year. The scholarship amount of 
24,000 per annum is for tuition fee and any other expenses incidental to education.
Even today, girls from lower social economic strata of the society face a lot of challenges in completing their education. Many of them drop out after High School or 12th standard as their family will not be able to support their education further. The Scholarship Programme accords preference to students from backward districts. So far girl students dreaming to study engineering, chemistry, humanities and other subjects have got the scholarship to pursue their dream.
This Children’s Day, Santoor Women’s Scholarship has launched a unique initiative to involve people to nominate girls they know who might need financial assistance to pursue their higher education. The campaign creative set in a rustic, riverside location depicts a young girl fetching water home. When you scan the ad in print or interact with the digital banner, it opens a video that shows the girl’s dream of becoming an engineer turning into a reality with the help of Santoor Scholarship. The girl transforms into a student in uniform carrying books to college. The campaign has been created by ADK Fortune Communications, Bangalore.
Wipro NSE 4.05 % Consumer Care & Lighting’s Santoor soap brand has toppled giant Hindustan Unilever’s Lux NSE -0.98 % as the No. 2 soap by all-India volumes for the first time, two industry officials said, citing data by research firm Kantar Worldpanel.
Volume share of Santoor was 14.9% in June 2018, the latest tracked numbers by Kantar Worldpanel show, ahead of Lux’s 13.9%.
HUL’s Lifebuoy’s remains the leading soap brand in the country, with 18.7% volume share. Kantar Worldpanel does not track value sales. Wipro Consumer Care CEO Anil Chugh said: “Santoor is now the No. 2 brand all-India in terms of volume, securing a clear lead over the brand behind us. We have achieved this through distribution reach, the consistent advertising proposition of younger looking skin, and new variants, which appealed to our target segment.”
Chugh said Santoor has been the leading brand across urban and rural markets in South and West India, but this is the first time it has taken clear leadership nationally. An HUL spokesperson said in response to an email query: “Lux has grown well in the last year. It continues to be the secondlargest soap brand in India after Lifebuoy.
Wipro Consumer Care & Lighting today announced the third edition of Santoor Women's Scholarship programme to help poor girl students pursue a degree of a minimum three-year period.
The scholarship rolled out in collaboration with 'Wipro Cares' is offered to the students from Andhra Pradesh, Telangana and Karnataka.
Each student is awarded of Rs 24,000 per annum.
"Santoor Scholarship is a platform for empowering underprivileged girls by providing them with the financial support necessary for completing their graduation.
We hope the girl students will come forward and use this opportunity," senior general manager of Wipro Consumer Care & Lighting S Prasanna Rai told reporters here.
The scholarship was first offered in 2016 as an annual programme and it has so far benefitted 1,800women, Rai said.
Each year, 900 students are offered the scholarship, he said.
To qualify, the student must have passed her grade 10 and 12 from a government school/college.
Applications for this year are available with all the government junior college principals across the three States, he said adding students can also apply online on www.santoorscholarships.com.
The last date to submit the application is September 15, Rai added.
In 1985, when Wipro Consumer Care and Lighting test-marketed its now No 1 product Santoor in the Bangalore market, it had failed. Usually, if a product fails in the test market, the company doesn’t extend it, either junk it or do a major revamp and do the retest. But in this case, it was different. The company was so confident that it went ahead and launched the product nationally. Now, Santoor brand has crossed Rs 1,900 crore in sales.
Wipro Consumer Care and Lighting, which is a part of Wipro Enterprises, was earlier headquartered in Mumbai, and it moved to Bengaluru (then Bangalore) in 2000.
Santoor is now the No 1 brand in Andhra Pradesh, Maharashtra, Gujarat and Karnataka. As an organisation, the company has grown from Rs 300 crore revenue in FY 2003 to Rs 6,600 crore in FY 2018.
Last fiscal, the company crossed $1 billion revenue for the first time. For long time now, Santoor has been the company’s key growth driver. “In 2003, Santoor was a Rs 150-crore brand, and now it is Rs 1,900 crore,” says Vineet Agrawal, CEO, Wipro Consumer Care & Lighting, sitting at his posh office in Doddakannelli in Sarjapur. In front of him lies the journey of Wipro Consumer Care and Lighting- from Santoor, Chandrika to Glucovita and the newly-launched Giffy dish wash gel.
Today, the business includes soaps, toiletries, personal care products, baby care products, wellness products, electrical wire devices, domestic and commercial lighting and modular office furniture. All brands that Wipro started have grown big at present. In 2003, lighting business- both home and commercial lighting- was close to Rs 70-80 crore, and now it is Rs 860 crore. Wipro Lighting, a part of Wipro Consumer Care and Lighting Group was started in 1992 to manufacture and market lighting products. Today, it offers a wide range of LED product offerings. Talking about its growing lighting business, Agrawal says, “it contributes around 12% of our total revenues”. LiFi is the new concept that the company is working on at present.
LiFi is a high-speed bidirectional fully networked, wireless communications using visible light rather than radio frequencies. It can offer significantly greater security, data rates and densities to support more robust and reliable wireless networks that complement and enhance existing cellular and Wi-Fi networks. “At present, three clients are using it, including one from Bengaluru,” informs Agrawal, adding large offices will prefer this.
When the company entered the lighting business there were already big players like Philips, Bajaj, Crompton and the likes. Wipro started focusing on newer technology with particular thrust on innovation. “Close to 80% of our sales come through LEDs. CFLs might probably die down in another couple of years, though regular bulbs that cost Rs 10 will remain,” says the CEO. Wipro has an added advantage when it comes to selling its lighting products, thanks to its personal care products as they help them in selling lights at 8 lakh kirana outlets, which a Philips or a Bajaj can not do.
Home automation
In February this year, Wipro Consumer Care and Lighting forayed into home automation space with the launch of Wipro Z Nxt Home Automation System. Though home automation is a new concept in India, it is evolving.
According to Research and Markets, the India home automation market is expected to cross Rs 30,000 crore by 2022. Wipro Z Nxt uses the latest wireless Z wave technology, which has distinct advantages over existing wired and other retrofit solutions.
The company started its international journey in 2007 with acquisition of Unza Holdings, followed by LD Waxsons in 2012, Zhongshan Ma Er in 2016. In the last 15 years, the company has spent more than $600 million on acquisitions and all of them are doing well now.
It acquired Glucovita in 2003, Chandrika in 2004, Northwest switches in 2006, Yardley (for Asia, Middle East, North Africa and Australasia) in 2009, Clean Ray in 2011, Yardley UK in 2012, and L D Waxsons Group in 2012. With these acquisitions, the company has a formidable presence in South East Asia, China and West Asia.
“All acquisitions of ours have done well. Chandrika has grown 4 times now since we acquired it in 2004, Yardley has grown 3.2 times and Unza 3 times. We clock 50% of revenues from international markets,” says Agrawal.
The company forayed into the hair oil category with the launch of Chandrika Ayurvedic Hair Oil in Kerala market recently. “It is made through an ancient authentic Ayurvedic Kaachiya Enna process. Hair oil is a large and cluttered market, we need to differentiate compared with others,” says Agrawal.
After a successful test launch, the company last month introduced Giffy concentrated Dish Wash Gel in Karnataka. The brand is currently available at more than 24,000 outlets in Karnataka and Maharashtra. Wipro is already into liquid detergent space with Safewash and it also has Softouch fabric conditioner. “The biggest driver is liquid detergent and it is softer on clothes. Worldwide there has been a shift from powder to liquid. US and Europe markets are much ahead of India, but now the country is slowly seeing the progression towards the use of liquid detergent,” informs Agrawal.
Aashish Kasad, Partner Tax and Regulatory Services, EY India, said the demand for personal care products and hence consequential growth of this category is imminent in India given the positive macro economic factors and current level of per capital usage.
“Wipro Consumer Care has invested in developing indigenous products and high recall brands that are enabling the company to offer healthy competition in a market that has multiple dominant players,” she said.
For Wipro Consumer Care, after India, the second largest market is Malaysia with a turnover of $145 million, followed by China at $120 million. The company has 15 manufacturing facilities in five countries (India, China, Malaysia, Indonesia and Vietnam) and a global workforce of more than 10,000 representing 22 nationalities. It plans to add ninth manufacturing facility at Telangana in India, and another manufacturing facility in Guangzhou, China. These facilities will be operational in two years. The company grew 18% last fiscal, whereas, the industry’s growth was around 13%. Agrawal concludes that Wipro Consumer Care will come up with new products both in India and outside the country.
(With inputs from Mahesh Kulkarni)
In an interview with ET Now, Ullas Kamath, Jt MD, Jyothy Laboratories, says the sales are doing well and after a long time, they are seeing the double digit growth.
Edited excerpts:
You were amongst the first companies to flag off that the demand concerns are going away and threads of recovery are visible in the rural market. Why are you sounding optimistic about the rural recovery?
The fact that the sales are doing well and after a long time, we are seeing the double digit growth. This is post GST and especially from end September and early October we are able to see that growth. While wholesale was an initial hiccup for everybody, we were able to recover from there also. Some pockets here and there will always have teething problems but we can manage that. This is the same thing we had in demonetisation period also but it is far, far better now for FMCG in the post GST era.
Wholesales have played a huge role for old brands like Ujala which was one of the reasons that Ujala Supreme saw a huge decline as well in the second quarter. Are you looking to decrease your dependence on wholesale going forward?
Yes absolutely because what we have done is in the entire rural market and villages with up to 10,000 population, we have put our distributors; vehicles and they are reaching the market directly. One cannot wait indefinitely for wholesale to comeback and that is one of the reasons why we are able to get our sales back and also wholesalers were watching how things are turning. Now they know that it is not as difficult as they used to think in the past and that has also helped us.
An emerging business model has come in into the wholesale markets. Some youngsters have come into the market place and are doing like much, much better than what we initially thought especially in north and eastern markets. It is back to normal now almost.
How much of the demand do you think could be pure GST adjustment? As of now, it may look like demand but this could be just restocking?
No restocking cannot happen over a period of four to five months because in FMCG, most of the times wholesalers do not keep more than a week's stock at a time and maximum maybe 15 days. Distributors will keep about a week or ten days' stocks because that is the way how the FMCG always works. Also, it is a cash and carry and there is no credit. I would think that probably about 2-3% could be restocking but otherwise 8% to 10% of the volume is real growth what we are seeing in the market place.
Will demand sustain or is it largely because of lower prices that demand is coming back?
If you look at the last five-six years, FMCGs always used to be GDP plus 5-6% by volume. In the last three-four years, that was not the case be but now it is becoming more normal and GDP plus 4-5% should be the volume growth and also the GST benefit what we have passed on to the market whether it is the retailer, the wholesaler or the distributor.
Everybody is happy about it and one of the reason why volumes are growing is because of passing of the benefit to the consumer and the reduction of the prices has made people think that is good for the consumer and that was the intent of the government and it has also paid off in getting the volumes back.
And what about the CSD channel, have things normalised there completely?
Not completely but they started procuring the goods not in the way in which they used to do in the past but slowly they are getting back to normal.
You were confident of achieving that 14% to 15% revenue growth in the third quarter. What are the factors that have made you so confident about achieving these growth numbers?
All the brands are doing well and our distribution is in place and we have always worked very hard to reach remotest of the villages in the country and that is paying off very well and generally there is a feel-good factor post GST. First, there was panic for about three-four months and thereafter the feel good factor was there. Some of the emerging business models we are able to see it now and wholesales are consolidating and buying in large quantity and they are then redistributing and all these things are good for the FMCG sector and we are happy about it. I am confident because it is not just a month or two, we are being seeing this uptrend for the last four-five months.
We understand that the Henkel deal date has now lapsed. Is there any possibility of a future collaboration or is it complete curtains down on that deal?
Absolutely. I cannot say it is completely curtain down because in business everything is possible for mutual benefit. We are always open and that option agreement is behind us and that gives us an opportunity to explore any other possibilities the market plays. At the same time, we have been having great relationship with them for the last six-seven years now. They are extremely happy and we are continuing with their brands Pril and Fa on royalty basis. That relationship is still there. We are fine as long as it is mutually beneficial for both the organisations. So, it is not completely called off but option agreement is behind us now.
BSE FMCG INDEX has allied 30% this year compared to about 27% rise in Sensex in anticipation of the sector’s revival
The FMCG sector, which posted its slowest revenue growth of 4% CAGR in the past two years as compared to 13% CAGR in the last decade, is posed for mean reversion as the government would shift its focus from stabilising the economy to accelerating GDP growth rate in the run-up to the 2019 elections, according to HDFC Securities.
BSE FMCG index rallied 30% in 2017 compared to 27% rise in Sensex in anticipation of the sector’s revival. “The sector is poised for earnings acceleration, and that would sustain rich valuations. Based on the return potential, our pecking order is: ITC, Marico, Dabur, Jubilant FoodWorks, HUL, Britannia and Emami,” said a note by HDFC Securities.
The rural market has already had its share of challenges like deficient monsoon in FY 2015 and FY 2016 and low wage growth. It was further bruised with unprecedented events like demonetisation and GST. This led consumption growth dropping to its lowest in the past decade.
A majority of trade channels, the brokerage said, have begun to normalise post the shock of GST implementation, while modern trade and e-commerce will continue to grab share from general trade, leading to better traction in the urban market.
“Most companies are witnessing green shoots in the rural market, and expect that the government’s focus on improving rural income will help sustain healthy growth. Hence, companies with a higher exposure to rural markets will surprise growth rates on the upside,” the note said.
Over the past 10 years, FMCG companies have expanded gross margins by 350 bps, while EBITDA margins expanded by 450 bps. Pricing power, supply chain efficiency and cost optimisation have resulted in EBITDA margin expansion for the sector during the past 10 years.
The brokerage anticipate improvement in EBITDA margins by 150bps over FY 2017-20, led by higher revenue growth, improving share of the premium segment, GST-driven process efficiencies and continued focus on cost optimisation.
The sector, which has been subdued lately, saw an annual revenue growth of 13 per cent through the last decade, says an HDFC Securities report today.
The fast moving consumer goods (FMCG) sector, which has been down in the dumps in the past two years with a tepid 4 per cent revenue growth, is poised for a "mean revision" with government shifting its focus towards boosting growth ahead of the next hustings.
The sector, which has been subdued lately, saw an annual revenue growth of 13 per cent through the last decade, says an HDFC Securities report today.
"There is significant scope for an upward revision in revenue growth in the next year, with government shifting focus towards boosting GDP ahead of the Lok Sabha elections in the Summer of 2019," the report said but did not offer a growth number.
Blaming the challenges in rural markets, low wage growth and a deficient monsoon in FY15 and FY16 for the poor revenue growth, the report said the sector was further bruised with unprecedented events like demonetisation and GST in FY17.
But the report warned that "most macro indicators like rural wages, agricultural growth, minimum support prices (MSPs), job creation and RBI's consumer confidence index) are still not reflecting a meaningful recovery."
However, an expected shift in government focus from stabilising the economy to accelerating growth in the run-up to the 2019 elections will take the sector to better future.
The report points out that most FMCG companies have seen improved revenue growth after GST rollout, and most trade channels have begun to normalise after GST shocks.
"There is significant scope for a mean revision towards its 10-year annual revenue growth of 13 per cent," the report noted.
The company has appointed several master franchisees for the store rollout who will in turn appoint sub-franchisees in their area of operations, informed Katpitia.
Spiritual guru Sri Sri Ravi Shankar's FMCG and wellness brand Sri Sri Tattva aims to achieve a turnover of Rs 500 crore by financial year 2019-20 through its retail stores, which the company plans to start rolling out from January, a top official of the company told ETRetail.
The company plans to rollout 1,000 franchised stores by March 2020, of which around 600-700 stores will be opened by the end of March 2019 itself, according to Tej Katpitia, CEO of Sri Sri Tattva.
"The company has strategically decided to open three formats - Mart, Wellness and Home and Health. Mart will be a small outlet comprising our entire FMCG range, while Wellness will have our entire range of prescription medicine and OTC ayurveda products. Home and Health will be a combination of FMCG products, prescription medicine and OTC ayurveda products. It will also have a doctor," he said.
The company has appointed several master franchisees for the store rollout who will in turn appoint sub-franchisees in their area of operations, informed Katpitia.
The average size of Mart will range between 300 sq ft and 400 sq ft, while the Wellness stores will range between 200 sq ft and 250 sq ft. The size of the larger format Home and Health store will range between 600 sq ft and 800 sq ft.
"The cost to open a Mart and a Wellness format store will be around Rs 10 lakh, while it will go up to Rs 20 lakh to open a single Home and Health format store. This will include the cost of infrastructure, store setup and opening stock," said Katpitia.
Out of the 1,000 proposed retail outlets, the company will open around 150 Wellness stores, while the remaining will be divided between the other two formats. The company will open slightly more Mart stores than Home and Health informed Katpitia.
Pfizer isn't the only route to solving Reckett's growth problem. Some are less obvious, but that's not an issue for Kapoor as he has a habit of doing the unexpected.
2018 is the year for Rakesh Kapoor to show he's worth it.
Because 2017 has been patchy for the CEO of Reckitt Benckiser Group Plc. At one point he could claim he more doubled the company's value since his arrival in 2011-but sales stumbles meant shares have had their worst year since then. Along the way, his outsize pay has been brought to heel.
So the decisions he takes next year-primarily, whether to bid for Pfizer Inc.'s consumer health arm-will have far-reaching consequences for both the company and his own position.
His $18 billion swoop on infant nutrition business Mead Johnson in February was a surprise not just because its mother and baby products lay outside Reckitt's core business. It was also a pivot from a strategy of hunting for the consumer arms of the big pharmaceutical groups. The challenges stemming from this deal could make or break him.
To start, it may swell net debt to almost 3.5 times Ebitda by the end of 2017, according to Bloomberg consensus forecasts, above the level at which investors start to get nervous.
As Gadfly's Chris Hughes noted, the deal also landed Kapoor with a terrible dilemma: whether to bid for the Pfizer business with a mooted price tag of more than $17 billion.
Reckitt's not the only big consumer group facing sales challenges. Its response has been to move away from slower-growing homecare goods into fatter-margin consumer health products, helped by a good dose of cost cutting. There is only so much Cillit Bang cleaner that consumers can buy, while ageing populations and wellbeing-obsessed millennial mean healthcare has the potential to keep on performing. Buying Pfizer's consumer division would accelerate this shift-for instance, bringing on Advil would take Reckitt into the U.S. analgesics market.
But without offsetting disposals, net debt would balloon to between 4 and 5 times Ebitda. So if investors already start to get nervous when leverage exceeds three times, this could border on frightening.
Reckitt already has the medicine it needs. The question is whether it will take it.
Mead Johnson not only stretched the balance sheet but management bandwidth. Reckitt's answer was to split the company into its health brands, such as Nurofen painkillers, and hygiene and home goods, such as Finish dishwasher tablets.
The latter could be an attractive target for private equity or trade buyers on the hunt for cash generative consumer brands. It could have an enterprise value of about $20 billion, according to Jefferies analyst Martin Deboo. That would more than cover the value of the Pfizer arm even if the auction becomes a fevered one.
But even if Kapoor does solve the funding challenges, a purchase would still present problems. Up until now, Reckitt has absorbed its acquisitions pretty well. But digesting two big businesses in quick succession is a lot for even the best operators.
Pfizer isn't the only route to solving Reckett's growth problem. Some are less obvious, but that's not an issue for Kapoor as he has a habit of doing the unexpected.
The paths less travelled include buying Merck KGA's consumer health arm, with a potential price tag of about $5 billion. Its sales are expanding faster than the broader market, and it would be a more digestible bite.
But Gadfly's Hughes has noted that the unit's best known brand, Seven Seas, is well-established so there's less scope for Reckitt to work its magic.
Kapoor could keep his powder dry altogether. He is a patient man-playing bridge in his very limited free time. Purchasing nothing would mean space for Mead Johnson's performance to improve, and synergies to kick in. What's more, dedicated management of the hygiene and home business should elevate the eventual sales multiple.
And he may be holding out for disposals elsewhere. Reckitt might covet GlaxoSmithKline Plc's consumer arm, but there's no sign that it is up for sale, and even if it were, it would be expensive. Still, if anything were to happen here, it would likely be some years away.
The trouble is, he may not have as much time as he would like.
Reckitt's split, together with its equity underperformance, has opened up the possibility of a break-up, as Bernstein analysts led by Andrew Wood have noted. That's catnip to activist investors who have made the consumer giants one of their favourite hunting grounds.
Sum of the parts valuations range from 72 pounds per share at Jefferies to 92.80 pounds at Bernstein. The latter assumes that Reckitt first sells the hygiene and home division, and is then itself gobbled up by one of the big pharmaceutical groups.
Either way, all are above the current share price. Unless Kapoor can both lift sales growth and reassure investors that its enviably high margins are not at risk, the gap will only widen.
Kapoor may be prepared to play a long game. An activist investor may be far less patient.
The fast-moving consumer goods (FMCG) firms had a lacklustre 2017 due to GST implementation and lingering effects of demonetisation Packaged goods companies and makers of consumer durables have pinned their hopes on 2018 for a revival in demand as the market recovers from the initial hiccups that followed the implementation of the goods and services tax (GST), the country’s biggest indirect tax reform. Consumer-facing firms suffered through 2017 as the first half went in tackling the after-effects of demonetisation-the invalidation of high-value banknotes announced on 8 November 2016-which suddenly took 86% of the currency out of circulation, leaving cash-dependent Indians with little in hand to spend, besides choking wholesale trade. On 1 July 2017, GST was rolled out. Its implementation required massive destocking of inventory in various sectors including packaged consumer goods and durables in the run-up to the roll out. In the short term, both demonetisation and GST impacted wholesale trade because of issues related to execution, and led to massive destocking across trade channels, said Lalit Malik, chief financial officer, Dabur India Ltd. “While the urban markets, particularly modern trade and distributors, remained somewhat resilient to demonetisation and reported growth, rural demand-for lack of cash-was hit hard during the early part of 2017,” he added. Packaged goods makers, however, have started seeing “a revival in demand and consumption”, led by a rural market surge on the back of a good monsoon last year. “With market sentiment showing signs of improvement and stability returning post-GST, we expect the demand scenario to move up, both in rural and urban markets,” Malik said. While a spokesperson at Swiss packaged food company Nestle India Ltd said the company was confident about stronger growth in 2018, American beverage maker Coca-Cola India’s spokesperson said aerated beverages companies would have “preferred a lower rate”. However, the Coca-Cola India spokesperson said the company was focused on “managing business with the applicable tax, taking advantage of the efficiencies it will generate”. Consumer durables makers echoed the sentiment. “We went through some ups and downs, given the two major reforms of demonetisation and GST during the year. Both these reforms, while being in the right direction from a long-term perspective for the economy, did have some short-term impact on the economy and the industry,” said Sunil D’Souza, managing director, Whirlpool India Ltd. He added that the recent figures and trends indicate that the industry is again poised for “acceleration on the economic front” and remains “bullish about prospects”. Usha International chief executive Dinesh Chhabra said the company has started witnessing double digit growth across all product categories in the last two quarters. “Industry outlook is positive for 2018 and we expect that Usha will surpass the growth we had seen annually in the last three years,” he added. The government’s 15 December decision to raise import duty on a bunch of electronic products such as television sets, digital cameras, microwave ovens and mobile phones by 5-10 percentage points and the consequent increase in prices could have some impact on the consumer durables industry, especially on those companies and categories which depend heavily on imports and do not have production or assembling units in India. The industry is also pinning its hopes on more sops and government spending on infrastructure and development projects putting more cash in people’s hands, especially in the rural markets, which could potentially translate into consumer spending. Given that assembly elections in several states are due in 2018 and the general election the year after, there could be a host of incentives or populist steps by the government, which could spur revival in demand and consumption.
For the advertising and marketing community, 2017 was a year when, thanks to demonetisation and GST, in brand strategist Harish Bijoor’s words, “even biscuits became items of selective consumption”. Both consumers and marketers spent cautiously. “FMCG companies bore the brunt of demonetisation, and durables, auto and literally every category got a sock in the gut,” says Bijoor.
In a ‘Crystal-Gazing’ press release, Ashish Bhasin, Chairman and CEO - South Asia, Dentsu Aegis Network, says the ad spends CAGR of 12 per cent over the last five years dipped due to demonetisation in late 2016 and its continuing impact this year. However, the 12 per cent CAGR will resume from 2018, he added.
Digital powers up
A clear trend was the boost in digital advertising. There was much digital output. Across agencies and brands, digital amplification was a major component of campaigns, observes Senthil Kumar, Chief Creative Officer, JWT India. According to Zenith Optimedia, Internet advertising will account for 20.4 per cent (of projected Rs 58,422 crore ad spend) compared with 11.6 per cent share of (Rs 53, 918 crore) this year.
Living with disruption
Anil Nair, CEO & Managing Partner, Law & Kenneth Saatchi & Saatchi, says, “Business is being disrupted by technology, of which digital is only a smaller part.” Traditional businesses have to compete with rivals outside their categories for a share of the consumer’s wallet, especially in fintech and entertainment. Advertising’s challenge, as a business enabler, is to help traditional businesses and brands deal with these changes, he adds.
According to JWT’s Kumar, there was significantly more creative output in languages other than English and Hindi.
Talent crunch
Talent crunch was the biggest challenge, Nair says. “The margins are gone. For the challenges thrown at us, we need talent of high calibre but clients are forcing us to take less and do more. Every other challenge is related to this,” he added.
According to Patanjali spokesperson SK Gupta Tijarawala, Patanjali will launch both kids and adult diapers and affordable sanitary napkins in the Rs 16,000-crore market in the first quarter of the next financial year. After making headway into several markets, Patanjali Ayurveda is now eyeing the diaper and sanitary napkin industry, to take on the international companies. According to Patanjali spokesperson SK Gupta Tijarawala, Patanjali will launch both kids and adult diapers and affordable sanitary napkins in the Rs 16,000-crore market in the first quarter of the next financial year. Since its establishment in 2006 as a herbal product enterprise for medicines and personal care and food products, Patanjali has expanded its range of products and included instant noodles, cosmetics, baby products, Himalayan water, etc. One of the fastest growing companies, Patanjali climbed from 45th place last year to 19th this year, in the Forbes magazine's Annual India Rich List.
