Indian FMCG companies hold ground

Localisation helps domestic FMCG firms keep MNC rivals at bay

Emerging markets such as India’s have become a hotbed of activity for multinational fast moving consumer goods (FMCG) companies like Nestle, Proctor & Gamble and Hindustan Unilever. Add others such as Kraft, with its acquisition of Cadbury and eagerness to get a share of the India pie.

Domestic FMCG companies believe they are well-equipped to protect their turf. Helping them, say analysts, is their ability to tap into home factors, such as the country's herbal-ayurvedic heritage.

For instance, firms such as Marico, Dabur and Emami have managed to ring-fence themselves from foreign competition by pitching products on the 'nature' platform. This is visible in categories such as personal care.

Marico's flagship brand — the Rs 570-crore Parachute Coconut Oil — has no competition from foreign rivals. The only company that did have a product in the space was HUL. This was Nihar Coconut Oil, offloaded by it a few years ago to Marico. The rationale for the purchase, says Chaitanya Deshpande, Marico's head, mergers & acquisitions, was to strengthen its hair oil portfolio. Nihar's three per cent contribution to Marico's branded hair oil business in 2009-10 took the latter's share in total sales, along with Parachute's 21.5 per cent, to about 25 per cent.

Local segments
Deshpande says finding segments such as these, distinctly local in nature, has characterised the business model and operations of Indian FMCG companies. "International FMCG firms seek a larger presence across markets, so their interest in product categories is restricted to those that can allow them to do so. This is advantageous to us, because categories that are local in nature may not interest them, such as coconut oil," he says.

Consider Kolkata-based Emami, maker of products such as Fair & Handsome, Boroplus and Navratna Oil. All these are based on ayurvedic formulations. Company director Harsh Agarwal says it acts as a differentiator in the marketplace. "How else do you stand out?" he asks.

Emami's "distinctly Indian portfolio" has helped the company clock good numbers. In the last financial year (2009-10), its profit after tax grew 85 per cent to touch Rs 170 crore, while net sales increased 36 per cent to touch Rs 1,038 crore. Emami is hoping to touch the Rs 5,000-crore mark in the next five years. "We should do it on the back of our strong product portfolio," says Agarwal.

Other planks
If Marico and Emami have managed to steer clear of foreign competition with distinctly Indian products of little interest to international giants, that's not the case for all domestic companies.

Godrej Consumer Products Ltd (GCPL), for instance, has to deal with foreign rivals in all three of its key product categories -- soaps, hair colour and household insecticides. Despite this, GCPL leads the pack in both hair colour and household insecticides, with a 34 per cent share. The number two players in these segments, LÓreal and Reckitt Benckiser, have a 19 per cent and 23 per cent share, respectively. In soaps, HUL is the clear leader, with a 47 per cent share to GCPL's 11 per cent, say analysts.

Then there is Dabur, fighting Colgate and HUL in oral care, says the company's chief executive officer, Sunil Duggal. "It’s nothing unusual, you fight them in some, you don't in some others," he says.

Dabur's herbal range of products, says Duggal, have helped it gain share in oral care. "We are number three in oral care. But don't forget who we are fighting," he says. Dabur has a roughly 13 per cent share to HUL's 26 per cent and Colgate's over 52 per cent share, respectively. In categories such as hair oil, Dabur has brands such as Vatika, again positioned on the herbal platform. "Products that appeal to local tastes and preferences do work in the marketplace," says Duggal.

Adds A Mahendran, managing director, GCPL, "The only way to beat them (foreign firms) is to focus on your product, innovate and improve distribution and reach." GCPL is looking to expand its rural reach in the coming months. "Around 70 per cent of India resides in the villages. You can't ignore them," he says.

GCPL's share of rural sales, say analysts, is 38 per cent of the total domestic sales, while Marico's is 25 per cent and Dabur's 50 per cent. All of them, say analysts, are looking to take these numbers up, as demand and purchasing power improve in rural areas. They believe this strategy will help them fend off their MNC rivals.