FMCG cos bank on speed to win

Cut Time To Market Amid Downtrading Fears During Slowdown

Mumbai: Fast-moving consumer goods (FMCG) companies are using speed as a competitive weapon to win in the market place, especially when talks of a slowdown bring the possibility of downtrading into sharp focus.

Growth in the FMCG Industry has not lost steam even as other sectors have slowed down, but there is concern about a possible impact considering a deficient monsoon this year. The industry believes there is one weapon which can help companies win, and that is speed.

A Boston Consulting Group (BCG) report, ‘Speed To Win’, says increased agility can solidify a competitive position, boost profitability and reduce risk. It says for standard new product development, a seven months time to market can separate the best in class from average players. But would it also work in a slowdown? “In slowdown situation it is even more important as the consumers typically start to change their consumption patterns and it is important to refine the offerings (in terms of price pack architecture, composition and packaging) to ensure alignment with the consumer requirements,” said Abheek Singhi, partner & director, BCG.

A company can outpace its rivals by increasing its market share, boosting its negotiating leverage towards trade and positioning itself as an innovator and the mantra is: standardize, prioritize and mechanize. Take the case of Nivea lipcare. Speed helped the company redefine this category with the trade in terms of merchandising and distribution. The category was treated like an “impulse confectionery” and not like a traditional skincare category. “Our actions have followed out thoughts and results are there to be seen. We have been quicker than most of competition in developing the premium lipcare category for Nivea. All our initiatives have hit before competition, be it variety/price points/distribution. This has given us leadership,” said Rakshit Hargave, MD, Nivea India.

With compressed product life cycles, especially in some of the newer categories, being quicker to the market is a great advantage. “Speed to market is important, not just with new product development but also with reaching out to the consumer and ensuring that even the remotest of corners of the country get the products in a short period of time,” said Sunil Duggal, CEO, Dabur India.

Dabur integrated its consumer care and consumer health businesses and this was the genesis of ‘Project Speed’, which was designed to help the firm cope up with challenges by leveraging the power of its combined product portfolio through a unified sales & distribution structure. Dabur has also put in place an initiative to double its rural reach. The company is hopeful that this would enable it to have a direct access to 3,000-population villages across 10 states that account for 72% ofthe rural FMCG potential.

Some other examples are brands from mid-sized companies like Paras and Emami which were successful in gaining share as their product development times were shorter than others in the sector. When Emami conceived the idea of a men’s fairness cream, it knew it had a winning concept. What was important, however, was to ensure that it was put into market at a speed before others. “We were able to go to market within just under a year from the time the idea was conceived. This requires great agility. It took our established competitors by surprise as elements of marketing were in place within the short time,” said N Krishna Mohan, CEO, sales, supply chain and human capital, Emami. As a result, Emami enjoys market leadership in the category.

“Empowered companies with flatter and decentralized decision making structures can outpace its rivals in speed to market. This, when accompanied by stronger local consumer insights can develop into a potent competitive advantage,” said Saugata Gupta, CEO, consumer products division, Marico.

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FMCG cos ride the fast lane on stable prices.

The fast-moving consumer goods have started moving off the shelves faster in the past two months on stable prices, tempting companies to boost promotional activities and offer products at multiple price points. Key product segments such as soaps, detergents, toothpastes, biscuits, snack foods and soft drinks saw volume growth of more than 20% in April-May 2009, with companies ploughing back savings from lower commodity prices into brand building, consumer discounts and promotions, coupled with improved distribution strategies. In fact, most players have taken a break from their two year-old practice of raising prices since input cost pressures have come down.

The growth rate this year is expected to be volume-led. “Since April this year, we are witnessing an upturn in growth rates. Post-election results and a stable government assuming office, sentiment across corporates, trade and consumers has turned positive,” said Parle Biscuits executive director Arup Chauhan.

These companies are also investing significantly in distribution and tailoring their products and prices to specific geographies as demand picks up in both urban and rural markets. “Both urban and rural growth numbers are encouraging and we are recording our strongest growth in recent years. Buoyed by the overall political stability and expected fiscal stimuli, consumer confidence has picked up remarkably,” said Godrej group chairman Adi Godrej. Rough industry projections estimate growth at 30% in 2009-10. The industry recorded 17-18% volume growth in the last financial year.

Dabur has delivered its best organic growth in a decade in 2008-09 and is optimistic about continued strong performance. “New products contributed almost 20% to the sales growth during the last fiscal and we expect this contribution to go up to 30% in 2009-10,” Dabur COO VS Sitaram said.

Outlining key drivers that have led to growth at Dabur, Mr Sitaram said focus on rural markets in key states, coupled with sharper brand strategies, increasing competitiveness of brand propositions and investment in sales force with the introduction of category-focused teams in top markets worked for the company. Dabur ended 2008-09 with a 17.5% growth in net profit and gross sales of Rs 2,834.11 crore, up 18.3% over the previous year.

With summer setting in, the beverages segment too is witnessing higher sales. PepsiCo is recording a 30% growth in the current quarter against 12% in the same quarter last year. “The beverages arm has been clocking unit case volume growth of 30%, with both carbonated and non-carbonated drinks posting healthy growth,” said PepsiCo India chairman & CEO Sanjeev Chadha. Rival Coca-Cola’s India division has been posting unit case volume growth of 31% — its highest since the pesticide controversy in 2003.

To address healthy rural demand and a cautious urban consumer, companies such as Hindustan Unilever (HUL), Nestle, Procter & Gamble, Godrej and Dabur are shifting focus to volume growth and making higher investments in mass brands. HUL, which had been focusing on premium high-margin products, is now sharpening its mass-products strategy.

Foods companies such as Nestle, Britannia and Frito-Lay have introduced multiple price points to prevent the consumer from downtrading. Latest ACNielsen numbers indicate that low-priced packs are growing faster than bigger ones.

Dabur enters health and beauty retail

After several big corporate houses such as Bharti, the Aditya Birla Group and others have announced their retail plunge, now Dabur has timed its retail entry, although through a chain of specialty stores focused on selling health and beauty products.

Though it has been announcing its retail plans for sometime, it is only now that it has shared a specific blueprint for its foray. These stores will be called ‘new-u’. H and amp;B Stores Ltd, a wholly owned subsidiary of Dabur India Ltd, is pushing
this venture with an initial investment of Rs 140 crore.

The initiative is quite similar to personal care stores run by global players Watsons and Boots. The company will open the first store in Delhi in January 2008 and by the end of 2007-08 financial year, it will have six ‘new-u’ stores in the Delhi-NCR region. The company will add another 50 stores over 2008-09, taking the ‘new-u’ stores number to 160 by 2009-10.

The stores will have around 20,000 products (SKUs) in different categories, including colour cosmetics, fragrances, skin and personal care, baby and amp; family care, fashion accessories, general merchandise, ayurvedic, herbal and pharmaceuticals.

The store sizes (carpet areas) will vary between 1,200 sqft and 6,000 sqft According to Anand Shah, retail and FMCG analyst at Angel Broking, Dabur may have a first mover advantage here.

He elaborates: “No retailer has tried such a concept in India. Dabur is expected to clock revenues of Rs 3,500 crore by 2009 and if this venture manages to garner Rs 400 crore revenue by 2009, it is easily a significant contribution of 10 to 15 per cent.” To create a distinct identity, the stores will also have beauty and health experts to assist consumers make informed decisions.

“The beauty and health advisors would be one of the strong differentiating factors of ‘new-u’ stores. Our intention is to give consumers a wide choice of beauty, health and wellness products all under one roof, in a modern comfortable environment, with great value-for-money offers,” says Graeme Fraser, head – sourcing, buying and amp; merchandising, H and amp;B stores.

While a lot of players have opened up stores that offer beauty and health services in India-Marico with its Kaya services (Kaya also retails products now), Lakme with its salon chain-Dabur’s decision to retail health and beauty products is a unique move.

Arvind Singhal, chairman of Technopak Consultants, approves of the move, saying: “The biggest advantage that Dabur has is that consumers’ awareness of health issues is rising. Moreover, they have a higher disposable income at hand, which frees some money that they can spend for preventive health rather than reacting to any illness.” He feels that Dabur, with its offerings like Chyawanprash and Real fruit juices is closely associated with the health and wellness platform and hence this is a logical extension.

Shah of Angel Broking says that the company expects revenues of Rs 20,000 per square foot per year, quite a high estimate compared to revenues of formats such as Big Bazaar and Vishal, which pale at Rs 7,000 per square foot per year. “More players will go this way in the future,” is his guess, considering the big potential this model of product-plus-retailing holds.

Dabur aims Rs 1000 crore turnover from lifestyle retail biz by 2010

NEW DELHI: Home grown FMCG major Dabur India on Tuesday said it is targeting a turnover of Rs 1,000 crore over the next three years from its beauty and lifestyle subsidiary – H&B Stores.

“We are aiming a turnover at about Rs 1,000 crore by 2,010 and around 150 H&B Stores. On an average, we are expecting a turnover of nearly Rs 22,000 per sq ft per annum from the outlets,” Dabur India CEO Peter Braker told reporters.

The company is planning six retail outlets in the Delhi NCR region by the end of January and by next financial year the number would go up to 50.

“Currently, we are focusing on the Northern India and will soon open stores in Chandigarh, Amritsar and Ludhiana. We also have plans to open shop in Bangalore by January and foray in the Southern part,” Braker added.

When asked how the company would compete with the existing retail outlets, Braker said, “We will offer products at a price which is 20-25 per cent cheaper than the Maximum Retail Price (MRP). This would attract the customers as this promotional price will be made available through out the year.”

The company’s market size is about Rs 25,000 crore and is now targeting customers in the age group of 16-45 years.

The retail initiative of H&B Stores is not only confined to selling only Dabur products, Braker said and added, “products of other FMCG majors, both national and international will be available in the outlet.”

The store size would vary in the range of 1,200 – 6,000 sq ft. The company would be investing about Rs 140 crore for streamlining its operations by 2010.

The lifestyle retail section of the H&B would be operating under the brand name of ‘new u’.

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Dabur inks pact with IOC for rural retail partnership

NEW DELHI: Homegrown FMCG major Dabur on Monday entered into an agreement with Indian Oil Corporation (IOC) to service rural market demand for consumer goods through the latter’s chain of Kisan Seva Kendra (KSK).

Under the agreement, IOC’s over 1,600 KSK across the country would stock and sell Dabur’s range of healthcare, oral care, personal wash, skin care and home care products, the company said in a statement.

The agreement is initially for a period of five years.

“Dabur already has a strong rural footprint with a pan- India network of over 2,200 stockists and super-stockists. The agreement with IOC will help Dabur expand its rural footprint and better reach out to rural consumers,” Dabur India Vice President-Sales (Consumer Care Division) George Angelo said.

IOC’s KSK is a chain of one-stop rural retail outlets that offer fuel and other non-fuel value-added services like seeds, pesticides, fertilizers, grocery, personal care, tools, auto spares etc, in the rural markets.

Dabur will now offer its range of consumer goods in the chain.

“IOC was looking at widening the product portfolio being offered at its KSK to include FMCG (fast moving consumer good) items and reach out to rural women. We felt it was a good opportunity to further penetrate the rural market,” Angelo added.

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