FMCG makers head abroad to minimise margin blues

As high cost pressures continue, the fast moving consumer goods (FMCG) makers are using a two-pronged approach to keep operating margins stable by moving into new countries or new categories.

Hindustan Unilever already has operations across the world. It is therefore consistently improving its product mix to introduce premium variants in its product portfolio. In the April-June quarter, the company launched premium products such as the Dove hair care range, Ponds White Beauty Detox and Bru Ice Cappuccino satchets.

Dabur has announced the launch of a range of premium skin care products and Procter & Gamble introduced its high-priced skin cream Olay in the Indian market. Marico has also implemented product diversification in case of its hair care brand Parachute for adding value to its products.

New categories help companies to nearly double margins compared with their existing portfolio, estimate analysts.

According to Marico CEO Saugata Gupta, "The main objective of discovering new markets is to enable growth. It helps the company to protect margins as well."

When the prices of copra rose, Marico's margins in the coconut oil hair category shrunk. Improving efficiency could not help the company to protect margins. Yet, Marico registered higher net profit, according to analysts, because it maintained high price points in those markets that provided higher margins.

"Even when the prices of our products rise, we make efforts towards adding value," added Gupta.

Access to new geographies also helps companies in improving their margins. Both Marico and Godrej have accessed foreign markets through acquisitions. Marico could get better margins for its hair oils in Egypt, while Godrej realised better profits for its toilet soaps in the UK. In 2006-07, Godrej reported 5-8 per cent increase in the prices of soaps and toiletries internationally. The company made its first shipment of Godrej Consumer products to Keyline in the UK. "Companies are improving margins by either pushing their local products through the distribution network of the acquired company or manufacturing in India to ensure cost effective-production for their overseas markets," according to a consultant.