In just three years, a new brand "" launched by a new company "" has become the leader in the Indian edible oils market. Adani Wilmar Limited (AWL) introduced the Fortune brand of soya oil at the end of 2000. By December 2003, the brand had slid into the top slot "" with 17.25 per cent of the 265,706 metric tonnes edible oils market "" dislodging the erstwhile leader Agrotech Foods, which slipped to a 12.9 per cent volume share*.
"AWL just swept the market," admits a rival. Another executive from a competing company describes the Fortune brand as an "overnight behemoth".
How did AWL (a 50:50 joint venture between an Indian export company, Adani, and Singapore-based oil traders, Wilmar Trading) earn such a formidable reputation and reach such a position?
It was a mix of all elements like product differentiation, backward integration and entering the market at the right time.
Everything's in the pipeline
What really helped the new entrant gain a foothold in the slippery oil market was a carefully-planned back-end system that was in place before the late 2000 launch. At that time, the competition had varied sourcing models.
For instance, Marico Industries, which markets brands like Saffola and Sweekar, followed flexible sourcing models: a large part of what Marico markets is refined at its own refinery, while the rest is outsourced.
Others like Agrotech (sellers of Sundrop) outsourced their entire manufacturing process, while the GCMMF (Gujarat Cooperative Milk Marketing Federation), marketer of the Dhara brand, owns eight to 10 refineries across the country.
AWL, in contrast, opted for an integrated manufacturing model that would allow it to control the entire manufacturing and packaging process.
"Our main learning from existing players was that there was enough scope to cut down on expenses like logistics and operating costs," says Pranav Adani, executive director, AWL.
That's where the choice of location proved critical. AWL's parent company, Adani Exports, already co-owned, with the Gujarat government, a port at Mundra, in Kachchh district of Gujarat.
So AWL invested Rs 150 crore and set up its oil refinery at Mundra. The port was connected to the refinery and packaging plant through a pipeline. (Competitors, in contrast, operated out of hinterland-based refineries and transported oil from the port to the plants through trucks.)
The pipeline delivered several benefits. First, there was minimum spillage of oil during transportation from one facility to another.
Then, logistics costs at the production-end were also done away with. That immediately brought down AWL's logistics costs to 10 or 15 per cent lower than the competition. Company sources say that this helped shave off a rupee from the selling price of a litre of oil.
Crucially, the proximity to the port and the pipeline helped slash AWL's time-to-market "" after the crude oil reaches the port, it takes the company 10 to 15 days to get the final product to the market.
Otherwise, claim company officials, the time-to-market would shoot up to 30 days. The result: AWL's operating costs were 8 to 10 per cent lower than competition. "The integrated manufacturing set up is AWL's biggest advantage," says one competitor.
Spoiled for choice
AWL had the infrastructure in place, but a critical question was still unanswered: which category should it enter? It was easier to see the paths it shouldn't take. The maximum competition was in sunflower oil, which accounted for 59.3 per cent of total volumes.
The largest-selling edible oil brands were also sunflower oils: Agrotech's Sundrop, which had a 15.8 per cent share, and Marico's Saffola and Sweekar, which together accounted for 11.8 per cent of the total market.
If Fortune was to make a quick impact, it would have to choose a market close to its production facility, which would help leverage the cost advantage. But the market for mustard oil was in north and east India and, while the west preferred groundnut oil, brands like Dhara were too well-entrenched there.
So, AWL decided to enter soya oil. "Our pre-launch market surveys had shown that there was a clear need for a lighter, healthier and affordable oil. Soyabean oil fitted the bill," says Anghsu Mallick, general manager, sales and marketing, AWL.
Also, competition in the segment was limited "" soya oil was just about 11 per cent of the edible oils market in 2000. The only organised players in the category were Ruchi Soya Industries (its brand Ruchi had an 18 per cent market share) and Agrotech (Crystal, 5 per cent).
"Most players shied away from the soya segment after the failure of Vital," points out a market observer. The reference is to a Godrej Foods' brand that was launched in the late 1980s and flopped dismally.
One reason for Vital's bombing was the odour of soya oil: the oil's fishy smell put off many potential consumers. AWL kept this in mind before launching Fortune.
"If we had to grow the market for soya oil, we had to make it smell and taste as good as sunflower oil," says Mallick. The company found that the reason for the smell was that soyabeans required more deodorisation than other oilseeds.
So AWL introduced a "double deodorisation process" at its refinery. The process involved deodorisation of refined oil at two different temperatures, while other refineries deodorised at a single temperature.
Slick strategies
AWL began by test-marketing Fortune in Rajasthan. "It was a good test market: Rajasthan is a soya-consuming market, and it is close to the refinery," recalls Mallick.
But the next step was to set up a distribution network. By 2001, AWL had roped in 600 distributors with a reach of 90,000 outlets (now 2,200 distributors and 300,000 outlets). Then AWL focused on B- and C-class towns where big brands are considered expensive.
Even now, 70 per cent of the 2,200 AWL distributors are from small towns. "We tried to pick more distributors who had the resources but did not deal with big companies," explains Mallick. This ensured that distributors would pay more attention to promoting the new brand.
Price was also critical in drawing in consumers. Thanks to rising international prices of sunflower oil in the late-1990s "" close to half the sunflower oil consumed in India is refined from imported crude oil "" prices of sunflower oil brands in India rose from an average of Rs 40 a litre to Rs 60 a litre between 1998 and 2000.
Sundrop hiked its prices by 40 per cent during that time and, admits an Agrotech official, "market shares did suffer as a result of that."
Soyabean prices, however, did not increase as much. The price differential between soya and sunflower was widest in early 2001, when soyabean was roughly $325 and sunflower was roughly $500 per tonne. (crude prices) Leveraging the cost advantage, AWL priced Fortune soya oil at around Rs 40 a litre, which was almost Rs 15 lower than competing sunflower oils.
"This price difference meant a lot to the discerning housewife, so the brand gained presence quickly," says a market observer.
AWL's pricing strategy "" which it later carried over to its brand extensions "" was simple enough. The product was launched at a price significantly lower than the competition, which was later brought on par with the market price.
"Lower prices induce customers to switch, but our market research also indicates that they equate dirt-cheap prices with bad quality. Once we grow to account for at least 25 per cent of the market, we increase the prices," says Mallick.
It also helped that AWL padded Fortune's entry with a heavy advertising campaign where it spent nearly Rs 35 crore in the first two years as it took the brand national.
The budget was big enough to ensure Fortune was noticed, but it was also to AWL's advantage that, at the time, no other soya oil brand had a noteworthy presence on television. And the sunflower oil brands like Saffola, Sweekar and Sundrop were being promoted on the health platform.
Initially, therefore, Fortune's communication emphasised the lightness of the oil, rather than direct health benefits. The storyboard of the first campaign, which was launched in May 2001, featured a newly-married man dreading a heavy meal at his parents-in-law's home.
But, to his surprise, he wolfs down much more than he expected, since the food is cooked in "" naturally "" Fortune soya oil. The jingle sang "Fortune hai light. Thoda aur chalega. (Fortune is light, so a little more is welcome)".
The volumes game
The cans started flying off the shelves almost immediately. Between January and March 2001, 972 metric tonnes of Fortune soya oil were sold, equal to the then leading soya brand, Ruchi.
By end-June of that year, Fortune sales had shot up to 2,802 metric tonnes, overtaking Ruchi, whose sales declined to 827 tonnes. In the first year of launch (January-December 2001), AWL garnered a 35 per cent volume share of the soya market; by 2003, that figure had gone up to 47 per cent.
Meanwhile, the soya oil segment has grown within the total edible oils market, from 30,640 metric tonnes in 2001 (11 per cent of the total market) to 80,422 metric tonnes in 2003 (30 per cent of the market). "The steadily growing market shares do suggest that Fortune was able to override the taste apprehensions related to soya," says the market analyst.
A new advertising campaign in February 2002 also contributed to AWL's good fortunes. This time round, the communication showed a doubting housewife to play up the health benefits of soya, turning the spotlight on Omega 3 (a compound in soyabean oil that is beneficial for the heart, eyes and skin); the term found instant recall with consumers.
"The campaign was aimed at driving away all apprehensions associated with soya oil," says Jayesh Ravindranath,executive director, Triton, the ad agency for Fortune.
Meanwhile, AWL had moved ahead to the next logical step. In September 2001, the company entered regional markets in other oil categories such as double-filtered groundnut and cottonseed, all under the Fortune umbrella. "In the Indian market, you can't be a national brand if you overlook regional markets," explains Mallick.
Initially, regional variants were pushed piggybacking on the equity created by the advertising for the soya brand.
"The overall advertising for the Fortune brand centred around the goodness of the soyabean variant, although no variant was specifically mentioned in any of the advertisements," a rival points out. For instance, the doubting housewife campaign played up the Omega 3 aspect, while showing other variants at the end of the commercial.
Now, however, the communications approach is changing. "We realise that we cannot over-focus on one success," accepts Mallick. Soya may be the flag-bearer for the company but it may not necessarily do well in regional markets that are skewed towards other tastes like mustard or groundnut.
In this case, Fortune soya can piggyback on the strength of other variants in regional markets. For instance, the company launched its raw mustard oil variant "" Kachi Ghani "" in August 2003 and is propping it with exclusive television campaigns in east India.
The slippery slope
But problems could soon creep in. As its brands have grown, AWL has abandoned the low price strategy "" and with it, its biggest advantage. The health plugs, too, seem to have been forgotten "" the recent forays into mustard oil and vanaspati (hydrogenated vegetable oil) have drawn criticism from industry observers.
Mallick defends the decision. "Largely, 'healthy' oils in the Indian context also mean nutritious, not just light. And we can't ignore regional tastes if we want to be a national brand," he says.
That's an ambition that is yet to be realised. AWL is yet to make a mark in the southern markets, which leans towards consumption of sunflower and coconut oil.
In fact, sunflower oil continues to dominate the edible oils market in India, accounting for 44 per cent of the total market (although that's lower than its 59 per cent share in 2001).
At present, AWL accounts for only 4.5 per cent of national sunflower oil volumes while the south-based Kalisuri Mills (which owns the Goldwinner brand) leads the market with a 26 per cent market share, followed by Agrotech , which hogs 21 per cent of the volumes. And it is this category that could well decide whether Fortune will retain its sheen.
THE IMPORTANCE OF BLENDING WELL
If Fortune kicked up action at the lower end of the market, competitors have brushed up their act at the other end. Curiously, none of the competitors has plunged into the soya segment, in spite of the lure of volumes. "Segments like soya mean low margins. Our focus is the top-end of the market, where our margins are much higher," says Harsh Mariwalla, chief executive officer, Marico. Instead, most oil manufacturers are pinning their hopes on blended oils to change their fortunes. Marico Industries has already tried its luck in the blended oils segment in 1998 with "Tasty Blend", a corn and kardi blended variant of its 40-year-old brand Saffola (which at Rs 99 a litre, is the costliest brand in the market). Marico took another shot at the premium blended market with the recent launch of Saffola Gold. Company sources don't rule out the possibility of more launches in the premium blend segment. While Marico has successfully tied in its blends with its existing brand, Agrotech's brandname "" Sundrop "" isn't proving as amenable to variations: the association with sunflowers is too strong. Instead, it launched various blends with sunflower oil: Sundrop Nutrilite (sunflower and soya) was launched in 2001, while Sundrop Super-Lite (sunflower-palm blend) was launched the following year. Recently, a premium rice and sunflower variant was also launched. "The blended oil variants are helping us recover our marketshare," confirms a company source. Clearly, it helps to blend well. |
* All figures from the AC Nielsen Retail Audits
