Where are the new brands?

Name some of the high-profile new brand launches in the past one year. Despite their silencers, you'll find that it's the automobile or motorbike segments that have been raising the decibel levels in the Indian marketplace in recent times.

Even new television channels or telecom brands are being launched with increasing frequency. However, there are hardly any FMCG (fast moving consumer goods) brands in the "new"s.

The Business Standard Brand Derby published annually in The Strategist (which ranks new brand launches), highlights the lack of brand launch action in the FMCG industry.

In the last Brand Derby, published on September 30, 2003, only seven among the 20 new brand launches (or 30 per cent of brands) were from the FMCG sector.

Five years ago, the landscape was entirely different. In the 1998 edition of the Brand Derby, 60 per cent of the new brand launches (12 out of 20 brands) were FMCG brands.

Considering that the FMCG category dominates any list of powerful brands, (even in the 2004 edition of Indian Superbrands, 30 per cent of 101 brands belong to the FMCG sector), this decline in new brand launches in FMCG can hardly be ignored.

New bottles

A quick glance at the FMCG sector suggests that every company worth its brand name is banking on either relaunching existing products, or extending the brand into variants or extensions.

The trend began in 2001, when FMCG behemoth Hindustan Lever Limited (HLL) announced its intent to focus on 30 "power brands" from its domestic basket of 110.

This was in keeping with its parent Unilever's decision to put all effort behind only 400 brands instead of concentrating on the 1,100 brands from the global portfolio. Since then, HLL has mainly been extending its brands into related categories or launching variants in the same brand name.

 

HLL: More of the same
YEAR	BRAND	ACTIVITY
2000	Lakme	Cosmetics brand extended into beauty salons
2001	Sunsilk	Shampoo brand is relaunched
2001	Sunsilk	Shampoo brand extended into hair colour
2001	Fair & Lovely	Fairness cream extended into soap
2001	Max	Ice-cream brand extended into confectionery
2001	Annapurna	Extension of atta brand into ready-made chapatis
2001	Lux	Relaunched with four variants
2002	Ayush	Launched as an ayurvedic beauty and healthcare product brand
2002	Ayush	Herbal personal products brand extended into therapy centres
2002	Fair & Lovely	Fairness cream's ayurvedic variant launch
2002	Axe	Deodorant brand extended into male grooming products
2002	Vaseline	Petroleum jelly's Crack Relief variant launched
2002	Liril	Toilet soap brand's Icy Cool Mint variant launched
2002	Kissan	Jam and squashes brand extends into biscuit dips called Kissan Greedy Bistix
2002	Lifebuoy	Relaunched as a milled toilet soap with new perfume, shedding the earlier carbolic form
2003	Fair&Lovely	Anti-marks variant launched
2003	Fair&Lovely	Deep Skin variant launch
2003	Knorr	Soup brand's variant Soupy Snax is launched
2003	Surf	Relaunch of Surf Excel Quick Wash with a new formulation that claims to reduce water consumption by 50 per cent
2003	Brooke Bond	Tea brand is relaunched
2003	Sunsilk	Shampoo brand is relaunched with natural ingredients
2003	Pepsodent	Toothpaste brand is relaunched with two new flavours
2004	Fair & Lovely	Sub-brand Perfect Radiance, a range of premium skin care products, launched
2004	Lux	Soap brand extends into body wash
2004	Liril	Orange variant launched
2004	Lifebuoy	Toilet soap relaunched and shape changed again
2004	Lux International	Toilet soap brand relaunched
2004	Rin	Detergent brand franchise relaunched with a new 'nil mineral' formulation
2004	Hamam	Toilet soap relaunched with a new mix
2004	Close-Up	Toothpaste brand relaunched with a new formulation
2004	Clinic Plus	Shampoo brand relaunched with a new formulation offering five hair health benefits
lIn the past five years, Hindustan Lever Limited (HLL) has launched only one completely new brand, Ayush, which has received mixed reactions in the market.  The relaunch of existing brands is rampant in the toilet soap category where each of the major toilet soap brands have been relaunched at least once. Lifebuoy was relaunched twice between 2002 and 2004. Three HLL brands "" Lakme, Ayush and Surf "" have extended into services. HLL has entered a fourth service (food and grocery retailing) with the setting up of Sangam Direct.  Fairness cream brand Fair & Lovely has seen the most action. It has launched new variants and extended into the soaps and premium skin care segments.

Other Indian FMCG companies were quick to follow suit. If Godrej Consumer Products put its money on five brands (Cinthol, FairGlow, Godrej No. 1, Ezee and Colour Soft), then Dabur India also flaunted its famous five list (Vatika, Hajmola, Anmol, Real and Dabur). Marico Industries, too, wasn't far behind in pampering its brands like Parachute and Saffola.

Says an FMCG brand manager, "Launching a new brand in the current Indian context is an expensive proposition. Companies bank on extensions since the mother brand is already established and they just need to create awareness of the extension."

Adds Milind Sarwate, chief financial officer, Marico Industries, "There is a greater effort to woo the consumer with something new, although there may be a trend towards greater brand extensions and new price point SKUs (stock-keeping units) for existing brands."

And the heavy accent on restaging existing brands is because of the cost savings. For instance, a new brand launch can cost Rs 25 crore a year for the first two years in case of a national launch.

In comparison, a brand extension will cost less than Rs 10 crore annually. "Extensions are becoming a safe bet as companies get savings of 30 to 40 per cent on the marginal costs," says Nehal Medh, director, ACNielsen ORG-Marg.

"Buck" under pressure

The pressure on topline and bottomline in recent years is reason enough why FMCG companies are risk averse. A report on 12 FMCG companies tracked by the Business Standard Research Bureau from fiscal 2000 to fiscal 2004 indicates that only five of the 12 companies managed compounded annual sales growth rate in double digits (Click here to see "The numbers game").

For instance, the CAGR sales growth for biggies such as HLL was a paltry 0.02 per cent. Year-on-year growth rate of profits for HLL came down from 22.45 per cent in 2001 to 4.22 per cent in the last financial year.

Then, as an ACNielsen report points out, 80 per cent of new brand launches fail within three years of launch. Naturally, companies are wary of pouring precious marketing currency down the tube.

"Most FMCG companies are concentrating on brand focus because it makes sense from a financial point of view. If you have 20 brands, five or six of them contribute 80 per cent of the turnover and 100 per cent of profits.

So, the best idea is to make fewer brands stronger and bigger," says Pranesh Misra, president and chief operating officer of ad agency Lowe, which handles a large chunk of HLL's advertising business.

So it's not surprising that companies such as Godrej have declared that 95 per cent of their ad spends will be concentrated on brands in the company's top-five list, up from the 80 per cent being spent before these brands were anointed with the power brand status.

Meanwhile, for HLL, the power brand strategy has established the rule of extensions, variants and relaunches. In the past five years, according to a statement from the company, HLL had roughly 14 big relaunches, eight extensions of a brand into other categories, and eight variants that have been introduced. In comparison, the company has had just one high-profile "new" brand launch "" Ayush.

To be fair, it's not just HLL that believes in the theory of variants. Says Chester Twigg, marketing & sales director, P&G India, "We understand what consumers need and then consider if we require a new brand to deliver that need, or if it can be achieved through an extension or variant." In the past five years, P&G introduced seven variants for its shampoo brand Pantene.

The intensifying competition is another big concern. One marketing consultant points out that at present, an average retail store stocks more than 1,500 SKUs.

Three years ago, an average store would stock just around 1,000 SKUs. And most of these newer entrants in shopshelves are the smaller brands. It's no secret that the smaller players such as Anchor Toothpaste, Ghari detergent and others have given the big brands sleepless nights (see "Thinking small", The Strategist, May 20, 2003).

As the consultant quoted earlier points out, "Small brands stay out the radar of big companies as they feature in the 'others' category when bigger players are tracking the competition's market share."

However, by the time these minnows create a name for themselves in the market share reports, national brands find them to be too strong to be dislodged from their regional strongholds.

And in the recent past, small brands have given the national brands quite a few lessons. For instance, as Anchor toothpaste's 100 per cent vegetarian proposition translated into market share, Colgate Dental Cream was forced to shout from hoardings that it had always been vegetarian.

Ditto for Amar Toothpaste's offer of insurance, which was picked up by HLL's Pepsodent. Or even Dandi salt's earthy positioning, which prompted Tata Salt to change its advertising message Namak ho Tata ka, Tata Namak to Desh ka namak.

It's not just selling propositions, however. Small brands have even created categories that the national brands have walked into later. For instance, No Marks cream developed a niche category that was hard for HLL's Fair & Lovely brand to ignore. Consequently, Fair & Lovely launched Anti Marks in 2003.

Price, price, baby

Senior executives from FMCG companies point out that a big problem for the sector is the emergence of strong quality price-fighters. "Low price is no longer equated with bad quality," says one executive. And the products fighting on price are no longer the regional brands.

Take the case of companies such as multinational FMCG player, Procter & Gamble. In March 2004, the company cut prices of both its detergent brands Ariel and Tide by 30 to 40 per cent, inciting a new price war in the industry.

Or look at homegrown FMCG player, Godrej Consumer Products. When HLL's Sunsilk launched its hair colour extension, Pro Colour, in 2001 at a price point of Rs 220, Godrej's Colour Soft, which was priced at Rs 110, went down further to Rs 99.

The result: HLL's attempt into hair colour faded into nothingness.

As price continues to play a prominent role, gross margins have been sliding. According to an industry expert, "The pricing structure of the FMCG business has come under threat." Historically, the FMCG business in India has enjoyed good margins of 35 to 40 per cent. Now it has dropped to below 25 per cent.

Way to grow

"The ability to grow new segments or adjacent categories is a critical aspect of FMCG growth. But that's hardly happening," points out the industry expert. Take a look at the top-10 FMCG categories in the Indian market. 

The bestsellers' list Top 10 FMCG categories by value
Category	Percentage total	Value in 2003 (Rs crore)	Growth (per cent) in 2003	Adjacent category opportunities
Toilet soaps	10	4,780	2.7	Body washes
Washing powder/ liquids	7	3,346	0.1	Detergent tablets
Biscuits	7	3,346	11.7	Cookies
Packaged tea	6	2,868	-10	Iced tea
Refined oil consumer packs	5	2,390	-4
Detergent cakes/bars	4	1,912	27.2
Toothpastes	4	1,912	-9.7	Mouthwashes
Skin creams	3	1,434	2.8
Vanaspati	3	1,434	2.9
Beverages	2	956	3.7
The Rs 47,800-crore FMCG industry grew by a paltry 1.4 per cent in 2003. At roughly 30 years, skin cream is the youngest category in the top 10. The other categories are on the wrong side of 50, with categories like tea and soaps crossing the century mark.  Four out of the top 10 categories are adjacent categories. For instance, detergent bars and cakes are related to washing powders and liquids, while refined oil consumer packs and vanaspati belong to the same family  Mouthwashes is the only category that has been unsuccessfully explored by five or six players in the past. Globally, too, it is a niche category.  Iced tea is already present in India but, technically, is classified as a beverage. Source: ACNielsen ORG-Marg

Washing powders and detergent cakes are adjacent categories and both put together account for 12 per cent of the FMCG industry. Even refined oil consumer packs find an adjacent category in vanaspati; together they have a combined industry share of 7 per cent.

However, developing adjacent categories could be a long-haul game. Consider, for instance, liquids for washing utensils. The category has been growing at a healthy 10 per cent year-on-year for the past five years. Despite this, the liquid detergent category is just about Rs 7.1 crore, with Henkel Spic's Pril as the market leader.

Of course, opportunities do exist beyond the top 10 FMCG categories. For instance, Procter & Gamble's biggest global brand is Pampers. The diaper brand is worth $5 billion (Rs 23,000 crore). In contrast, the total diaper category in India is only Rs 90 crore, even after nearly a decade.

Or take the largest FMCG category, toilet soaps (which has been degrowing in excess of 2 per cent every year), for which the adjacent category is body washes, which could attract the premium end of the market and increase volumes. After all, in markets like Hong Kong and Singapore, body washes dominate 70 per cent of the market, as they are considered more gentle on the skin.

Indeed, India may be 10 years "" if not more "" behind these countries, but the market could be emerging. But experts point out that Indian marketers are restricting growth of the body wash category by portraying them as image drivers for the soap franchise, rather than selling them as stand-alone offerings.

For instance, an advertisement selling Lux body wash also shows a packshot of a bar of soap in the closing shots of the commercial. "Bath gels is a growing segment but poor marketing is hampering growth," laments a marketer. Will fast moving consumer goods manage to live up to their name?

(With additional reports by Tarun Narayan)