 "'40% of incremental revenues has come from new launches'")
At a time when slowdown is beginning to hurt the so-far resilient consumer sector, analysts have increased the earnings estimates of Godrej Consumer Products Ltd (GCPL). The company has launched seven new products in the last one year and increased advertising spends by 40%.
In an interview with Malini Bhupta, Harvard-educated Vivek Gambhir, 44, who took over as the company’s managing director on July 1 this year, explains what GCPL is doing to drive growth.
What are the broad levers of growth for GCPL?
We believe there is a lot of headroom for growth since penetration and consumption levels are still quite low. Over the last 12 months, we have launched seven new products in India and have also recently entered the hair extensions market in Africa, which we believe will be a big growth driver.
What are the investments you are making on marketing? What percentage of sales are you spending on advertising?
Currently, our A&P spend is around 14% of revenues, whereas historically it was around 10%. We have great confidence in our new launches, and so we are aggressively backing them. Going forward, we will continue to support our products with competitive investments. But over time, A&P spends as percentage of sales will moderate as our new launches gain scale.
What is the revenue potential of these categories?
We believe that the potential is quite large. In fact, in recent quarters, almost 40% of our incremental revenues has come from our new launches. Take a look at the penetration levels in household insecticides.
56% of households in India don’t use a branded insecticide product. In rural India, this number is as high as 72%. India lags behind countries like China and Indonesia where per capita consumption of insecticides is $1 and $1.5 respectively. In India, per capita consumption is about half of that.
When you say innovation is driving incremental revenues, what do you mean?
We are building on consumers’ trust to come up with even better products with sizzle. Our innovations address both the bottom of the pyramid as well as provide premium benefits to our mass consumers. So, innovation is really helping us accelerate our revenue growth.
Organizationally, we have Nisa Godrej as the head of innovation who is responsible for integrating the various pieces together. We are doing a lot more experimentation and prototyping and employing design driven thinking.
The market views Fast Card, your new mosquito-based repellant a disruptive product and expect the product to clock sales of Rs 900 crore over the next four years or so. Can you share details how the product was developed?
For long, we have been agonizing over diseases like dengue and malaria. There are 3.3 billion people affected by malaria. India alone sees 24 million cases of malaria each year and 90% of the population resides in malaria-prone areas. In rural India, in particular, penetration of household insecticides is very low because current products are either expensive or require electricity.
Our idea was to launch a product that would break the price barrier, work instantly and would not require electricity. The idea of a paper-based product came from our Indonesian business. When this product was launched in that market 18 months ago, it was a big success. We leveraged the idea from Indonesia but substantially modified the product for the Indian market.
What are the chances of this cannibalising your existing categories like coils?
Given the low penetration levels, we will grow the overall market, especially in rural India. We feel that this product will compete well with the eight-hour coil market, which has historically not been our strength. We will also see some consumers using Fast Card in addition to other formats. I don’t expect any impact on our liquids and coils business.
Are there any other examples of cross pollination of ideas between different geographies?
We have been doing this systematically. For instance, we learnt a lot about air fresheners with our Indonesian acquisition and enhanced the product to suit Indian needs.
In hair colour, we brought in sachet technology from our Argentina business but reformulated the product and changed the packaging to launch the first hair crème-in-a-sachet in India at a disruptive price point of Rs 30. Our cross-pollination relies on leveraging knowledge and technology, but it is not a “copy and paste” model. We tailor things for the local consumer.
Are you going to remain married to your three categories and three geographies strategy?
We do not plan to enter any new geographies over the next three years. However, in terms of categories we will look at adjacent categories. The three categories will therefore evolve. For instance, from protection against mosquitoes to dealing with other pests such as roaches. And we have also launched air fresheners to participate more broadly in home care.
What is your go-to-market strategy given that rural India is becoming equally important for FMCG companies?
Our focus is on offering superior quality products at affordable prices. Currently rural accounts for 29% of our sales but is growing faster than urban sales. Along with expanding our reach in rural areas, we are also investing heavy in enhancing our urban coverage.
How is the slowdown impacting your company?
There is no doubt that when economic growth slows down, consumption also takes a hit, though it happens with a lag. From last year’s 16% growth rate, the overall FMCG industry growth the first six months this year has been around 12%.
However, we are better placed as the categories we operate in are relatively less discretionary in nature. We also believe that our innovations will enable us to grow ahead of the market.
In an interview with Malini Bhupta, Harvard-educated Vivek Gambhir, 44, who took over as the company’s managing director on July 1 this year, explains what GCPL is doing to drive growth.
What are the broad levers of growth for GCPL?
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We see significant growth opportunities in our three core categories – hair care, personal wash and home care. We have been growing at about 1.5 times the FMCG market growth rate in India. We are the number one player in hair colours and household insecticides and the number two player in toilet soaps.
We believe there is a lot of headroom for growth since penetration and consumption levels are still quite low. Over the last 12 months, we have launched seven new products in India and have also recently entered the hair extensions market in Africa, which we believe will be a big growth driver.
What are the investments you are making on marketing? What percentage of sales are you spending on advertising?
Currently, our A&P spend is around 14% of revenues, whereas historically it was around 10%. We have great confidence in our new launches, and so we are aggressively backing them. Going forward, we will continue to support our products with competitive investments. But over time, A&P spends as percentage of sales will moderate as our new launches gain scale.
What is the revenue potential of these categories?
We believe that the potential is quite large. In fact, in recent quarters, almost 40% of our incremental revenues has come from our new launches. Take a look at the penetration levels in household insecticides.
56% of households in India don’t use a branded insecticide product. In rural India, this number is as high as 72%. India lags behind countries like China and Indonesia where per capita consumption of insecticides is $1 and $1.5 respectively. In India, per capita consumption is about half of that.
When you say innovation is driving incremental revenues, what do you mean?
We are building on consumers’ trust to come up with even better products with sizzle. Our innovations address both the bottom of the pyramid as well as provide premium benefits to our mass consumers. So, innovation is really helping us accelerate our revenue growth.
Organizationally, we have Nisa Godrej as the head of innovation who is responsible for integrating the various pieces together. We are doing a lot more experimentation and prototyping and employing design driven thinking.
The market views Fast Card, your new mosquito-based repellant a disruptive product and expect the product to clock sales of Rs 900 crore over the next four years or so. Can you share details how the product was developed?
For long, we have been agonizing over diseases like dengue and malaria. There are 3.3 billion people affected by malaria. India alone sees 24 million cases of malaria each year and 90% of the population resides in malaria-prone areas. In rural India, in particular, penetration of household insecticides is very low because current products are either expensive or require electricity.
Our idea was to launch a product that would break the price barrier, work instantly and would not require electricity. The idea of a paper-based product came from our Indonesian business. When this product was launched in that market 18 months ago, it was a big success. We leveraged the idea from Indonesia but substantially modified the product for the Indian market.
What are the chances of this cannibalising your existing categories like coils?
Given the low penetration levels, we will grow the overall market, especially in rural India. We feel that this product will compete well with the eight-hour coil market, which has historically not been our strength. We will also see some consumers using Fast Card in addition to other formats. I don’t expect any impact on our liquids and coils business.
Are there any other examples of cross pollination of ideas between different geographies?
We have been doing this systematically. For instance, we learnt a lot about air fresheners with our Indonesian acquisition and enhanced the product to suit Indian needs.
In hair colour, we brought in sachet technology from our Argentina business but reformulated the product and changed the packaging to launch the first hair crème-in-a-sachet in India at a disruptive price point of Rs 30. Our cross-pollination relies on leveraging knowledge and technology, but it is not a “copy and paste” model. We tailor things for the local consumer.
Are you going to remain married to your three categories and three geographies strategy?
We do not plan to enter any new geographies over the next three years. However, in terms of categories we will look at adjacent categories. The three categories will therefore evolve. For instance, from protection against mosquitoes to dealing with other pests such as roaches. And we have also launched air fresheners to participate more broadly in home care.
What is your go-to-market strategy given that rural India is becoming equally important for FMCG companies?
Our focus is on offering superior quality products at affordable prices. Currently rural accounts for 29% of our sales but is growing faster than urban sales. Along with expanding our reach in rural areas, we are also investing heavy in enhancing our urban coverage.
How is the slowdown impacting your company?
There is no doubt that when economic growth slows down, consumption also takes a hit, though it happens with a lag. From last year’s 16% growth rate, the overall FMCG industry growth the first six months this year has been around 12%.
However, we are better placed as the categories we operate in are relatively less discretionary in nature. We also believe that our innovations will enable us to grow ahead of the market.