A healthy head start?

Marico wants to leverage Saffola’s health equity to extend the brand to more categories

Sometime last year, Marico, the Harsh Mariwala-controlled and Mumbai-headquartered homespun maker of fast-moving consumer goods, test-marketed salted baked snacks under the brand Saffola Zest in Mumbai. The feedback from consumers was that the snack wasn’t tasty enough. So, the company has sent the product back to its laboratory for some more research. It will be a tightrope walk for Marico. Saffola has strong health equity. The company needs to do its homework well before it extends the brand to a category that is inherently unhealthy. It simply cannot afford a loose end in the strategic plan for Saffola Zest.

This is a part of the careful plan laid out for Saffola by Marico. From edible oil, it has been extended to salt, wheat flour additive and now rice. Snack food could come next. The healthy food market is no longer a niche — there are 30 million known diabetics and at least 20 million patients of high cholesterol and blood pressure in the country. Health-consciousness amongst Indians, especially urban Indians, is on the rise. And lifestyles have started to change accordingly. This is where Saffola could fit in, Marico thinks. “The whole area of functional foods, which is nascent in India, is of interest to us,” says Marico Chief Executive Officer (consumer products) Saugata Gupta. “We feel that we have not leveraged Saffola enough, especially when Indians are becoming more health-conscious and run high risk of obesity, diabetes and heart malfunctions.”

Sector experts see this is as an attempt from Marico to gain the first-mover’s advantage in a market that will sooner than later attract all FMCG companies, Indian as well as foreign. It provides Marico a second steady stream of business after hair care, which has got tougher as rivals like Dabur, Bajaj Consumer Products and Emami pursue aggressive growth plans. Also, Saffola’s premium positioning in the marketplace (Saffola oil sells for Rs 80 to Rs 140 per litre across its variants, almost 25 per cent more than Agrotech Foods’ Sundrop, its closest competition) will help Marico improve its profit margins with the brand extensions. Saffola, according to market estimates, fetches Marico 16 to 17 per cent profit margins; this is higher than the 8 to 10 per cent margin on its flagship, Parachute coconut oil, and 7 to 8 per cent on its other packaged oil brand called Sweekar.

SBI Capital Market analyst Preeti Panchal adds that the scope for extensions in Marico’s other brands like Parachute is limited. “Saffola, on the other hand, has the potential for a lot many extensions.” Marico has a bevy of brands in its portfolio like Parachute, Saffola, Mediker, Nihar, Sweekar, Revive and Hair & Care. Saffola, which is second in size only to Parachute, contributes 27 to 30 per cent to Marico’s annual turnover (Rs 2,388 crore in 2008-09). And now Marico wants to grow it further.

Saffola edible oil was launched way back in the 1960s. It was in the 1990s that Marico began to promote it as healthy oil for the heart. It set up the Saffola Healthy Heart Foundation in 1991, and followed it up with several rounds of on-ground activation and mass-media campaigns. The brand equity of Saffola that has emerged over the years is that it can help reduce the incidence of heart disorders. Thus, its oil talks of checking bad cholesterol to prevent heart ailments, while its salt, rice and flour additives claim to keep under control ailments that lead to heart failure such as hypertension, lethargy and diabetes. “Our message is about establishing Saffola as a reference brand for any query about a healthy heart,” says Marico’s head of marketing for consumer products, Sameer Satpathy.

Arise to rice
Marico extended the brand to low-sodium salt (Saffola Salt Plus) in 1998, to Saffola Functional Foods (flour additives) for cholesterol and diabetes management in 2007, and recently to rice with Saffola Arise. It was a result of the company’s efforts to land up on the dining table during meals. “In our interactions with consumers, we realised that we needed more than cooking oil to have a larger impact,” says Satpathy. Saffola Arise, claims Marico, has a low glycemia index, because of which it releases glucoses steadily through the day. It contains 20 per cent less carbohydrates and calories than other rice.

Once the product was ready, Shombit Sengupta’s Shining Strategic Design Company was brought on board to choose a name and suggest the right positioning in the market for the brand. “We conducted research among 700 consumers who unanimously said that they wanted rice which did not make them sleepy or lethargic,” Sengupta recently told Business Standard. “The job, therefore, was to successfully transform a commodity into a brand.” Sengupta, for the record, has worked with Marico for over a decade and was responsible for its new brand identity in 1998.

Saffola Arise has been priced at Rs 49 for a 1-kg pack. This is not very different from what a similar-sized pack of basmati rice can cost. The price point is interesting. The search for a premium position has more than once caused Marico to correct Saffola prices midway. For instance, Saffola Salt Plus was first priced at Rs 20 a kg when other brands were priced at Rs 10 a kg. It soon came out with Rs-10 pouches. More recently, Saffola oils saw a 10 per cent cut in price. “We learnt fairly fast that guarding consumer franchise (volumes) was far more important than margins. If the base is strong then it is easier to regain margins,” says Gupta. He refers to the last couple of quarters in 2008-09 when Saffola’s volume growth, which had been in the range of 15 to 20 per cent for the last three to five years, had slipped to 9 per cent and below. The price gap between Saffola oil and other branded refined oils had increased. With purse-strings tightening, Saffola began to lose consumers. Hence the price cut which has taken growth back to 17 to 18 per cent.

Gupta is aware that “Saffola can’t go mass in distribution” because of the brand’s premium slot. It is available through about 100,000 retail outlets, which is not more than 5 per cent of all kirana stores in the country. Modern trade outlets such as superstores and hypermarkets account for 10 to 15 per cent of Saffola’s volume. While Saffola cooking oil, salt and rice are being sold thus, the flour additive is retailed at chemists and modern trade. “There was no point distributing it elsewhere since it is a sharp value-added product,” adds Gupta.

Hearty line
Marico has rooted its Saffola communication in awareness about how to keep one’s heart healthier. The Saffola Healthy Heart Foundation conducts camps to build awareness about risks that modern lifestyle poses to the heart and help people lower those risks. Saffola went on TV in 2007 with its Saffola Life campaign to solicit people to take cholesterol tests. Since then, over 9 million people have participated in these tests.

The Saffola Life campaign has enabled the company to put together a study called ‘State of the Indian Heart’. Marico distributes it among doctors. For the families of those recuperating from cardiac ailments, Saffola organises ‘Healing Hearts’ seminars to tell them how to take care of the patient. “Consumers are intelligent. Our communication has never been transactional in nature. If we do the right things in this space, the consumer will automatically trust us. They stay on with the brand since the brand’s philosophy is clearly conveyed to them,” says Satpathy. Of course, the communication among opinion leaders such as doctors and heart patients is expected to help create a need for the category of functional foods. “More awareness about such products through word of mouth and opinion leaders will increase their adoption in the meals of Indians,” says Gupta.

Saffola Arise will ride on these initiatives. But what are its chances? Saffola leads the pack in super-premium edible oil category with a 53 per cent share of the market. But its salt, now priced at Rs 19 a kg, sells only 150 to 200 tonne per month. And the flour additive has notched sales of 20 to 40 tonne per month. The volumes are tiny. This does not augur well for Saffola Arise. Marico needs functional foods to find more acceptance among customers if it wants large volumes.

Has Marico built a foolproof business around Saffola? Not everybody is sure. The new products do not have significant entry barriers. These can, in other words, be replicated. Shaktibhog, the Rs 1,600-crore flour brand, for instance, plans to come out with variants that will have ingredients that can help control diabetes, high cholesterol and obesity. Shaktibhog Managing Director Kewal Krishna Kumar says these will be priced less than Rs 30 a kg. This is way below Saffola Functional Foods flour additive which sells at Rs 119 a kg. Given Shaktibhog’s nationwide distribution network, Marico could get a few anxious moments.

Some rivals privately remain skeptical of Saffola’s brand equity, its lead in super-premium refined edible oil notwithstanding. One says that Saffola should not charge a premium if it wants the category to proliferate. Analysts expect the premium to come down once Saffola products face competition. Another rival feels that Saffola’s health pitch is on shaky grounds: “It has been proved that pure mustard oil is the best for one’s heart. No other oil can deliver similar benefits.” Claims of efficacious health benefits remain a grey area not just for Saffola but for other food brands as well.