According to Euromonitor, Horlicks is the leader in malt-based drinks, valued at Rs 78.70 billion in India. Horlicks’ estimated market share is 44-45 per cent. Both Horlicks and Complan have pushed the peddle on investment in brand-building, marketing, distribution and launch of new variants within the larger health food drinks market in the last few years.
Analysts and experts reckon that the main reason is structural issues within the category which leaves little room for growth in the future. As availability of milk increased, Horlicks began being stirred in milk itself as an extra dose of nutrition to children. Now, there are many more nutrition substitutes available in the marketplace, pushing children and parents away from brands such as Horlicks and Complan and bringing down growth rates in the process. Between 2013 and 2017, malt-based drinks as a category slowed to 8.6 per cent from 13.2 per cent per annum. Supplement nutrition drinks, on the other hand, slipped from 21.3 per cent to 11.5 per cent per annum in terms of growth rate. Experts say that the two categories will slow further to 5.6 per cent (supplement nutrition drinks) and 3.7 per cent (malt-based drinks) per annum by 2022.
Consumers are now increasingly demanding more herbal and natural products, the participation of Ayurveda-based companies in health food drinks is expected to grow. Ayurveda-based companies including Baidyanath and Dabur are planning to enter this category as demand for ayurvedic products increases. Existing players are also expected to revamp their product portfolios in line with changing consumer preferences and demands as people feel natural ingredients are supportive of physical and mental wellbeing.
Experts say that pricing power has been slowly but steadily slipping out of the hands of brands such as Horlicks owing to slowing category growth as well as competitive intensity from substitutes. Barring the last two to three years, health food drinks such as Horlicks saw a price increase of 5-6 per cent per annum. This ensured that gross margins were the highest in the industry for this category at over 65-66 per cent. This is now coming down. In case of GSK owned Horlicks gross margins for the financial year 2017-18 stood at 66.8 per cent versus 67.5 per cent in the previous year (2016-17). Analysts estimate this number could slip further as the company focuses on volume growth rather than price growth.
The country's largest beverage maker, Coca-Cola India, is the latest name on the list of probable companies to acquire Horlicks. Coca-Cola's entry not only puts the spotlight on the company but also some of the other players in the ring. Among the strongest likely contenders are firms such as Nestle, ITC and Hindustan Unilever (HUL). For Coca-Cola, of course, Horlicks will be a new bet at a time when it is increasing its presence in good-for-you beverages such as juices, dairy and flavoured water.