YEAR 2010: FMCG cos fastracked growth via buyouts

A total of 13 acquisitions in 2010, mostly global, that is how Indian companies announced their arrival in the global FMCG space as they looked to fastrack their way to international expansion.

Led by Godrej, which had seven acquisitions on its account, domestic firms, including Marico (2 buyouts) and Dabur (2 acquisitions) and Emami (1 buyout) went on a global buying-spree during the year. The total valuations of the acquisitions could not be ascertained as the firms decided to keep it under wraps except in one or two cases.

On the other hand, beating Indian rivals like Emami and Dabur, multinational FMCG giant Reckitt Benckiser also bought over Ahmedabad-based Paras Pharmaceuticals, makers of over-the-counter health and personal care brands, including, Moov, D-Cold, Dermicool, Krack, Itch Guard and Ring Guard for Rs 3,260 crore. This was by far the biggest deal of the year.

This was also the year when the industry had to work harder to overcome challenges posed by surging commodity prices back home and how to keep product prices in check so that their consumers are not burdened much.

Despite the challenge, the FMCG industry estimated to be valued at Rs 1.25 lakh crore, was buoyed by a good monsoon and robust rural demand. Industry body Confederation of Indian Industry (CII) had even predicted a growth of 13 per cent this fiscal for the sector.

The saga of acquisitions for the year began with Marico, which sells hair oil brands like Parachute and Nihar, buying hair styling brand 'Code 10' from Colgate-Palmolive for an undisclosed amount. The company said the acquisition marked its entry into the Malaysian hair styling market.

Later, during the year the Mumbai-based firm also bought the aesthetics business of Singapore-based Derma Rx Asia Pacific (Derma Rx), through its wholly-owned subsidiary, Kaya Limited.

On the other hand, Adi Godrej led -Godrej group's Godrej Consumer Products continued with its African safari announcing acquisition of a leading African personal care brand Tura from Nigeria's Tura Group.The acquisition was part of the company's strategy to enter Nigeria and other West African markets.

"Tura helps us leapfrog in our endeavor to build a pan-African presence for our core categories such as personal wash and hair care," Godrej Consumer Products (GCPL) chairman Adi Godrej said.

Within a period of one month, the company announced another acquisition, buying out Indonesia-based insecticides maker Megasari Makmur Group and its distribution firm for an undisclosed sum.

It was later followed by two more with the company buying Latin American hair colour firm Issue Group and Argentinian brand Argencos. While Issue Group is a market leader in Argentina, Peru, Uruguay and Paraguay, Argencos is a mid-sized Argentine hair care company. The combined sales of the two Argentine companies is said to be over $45 million.

Meanwhile, it also bought out US-based Sara Lee's 51 per cent stake from their joint venture Godrej Sara Lee, which was selling household insecticides like GoodKnight and Hit among others, for over Rs 1,000 crore.

Later during the year, the firm also became the owner of 'Swastik' soap and 'Genteel' detergent brands when it acquired Naturesse Consumer Care Products and Essence Consumer Care Products from Muskan Projects Pvt Ltd.

During the second half of the year, another Indian FMCG player Dabur made its first overseas acquisition, buying Turkish personal care firm Hobi Kozmetik Group for $69 million (about Rs 324 crore) as part of its strategy to strengthen its presence in the Middle East and North Africa.

"This acquisition is an important step towards further consolidating and expanding our already substantial presence in the Middle East and North Africa region," Dabur India Chairman Anand Burman said. Later during the year, it also bought over US-based personal care firm Namaste Laboratories LLC and its three subsidiary companies for about Rs 451 crore.

The firm said the acquisition marked Dabur's entry into the fast-growing $1.5-billion ethnic hair care products market in the US, Europe and Africa.

Kolkata-based Emami had also acquired a manufacturing unit in Egypt for Rs 25 crore during the year.

Even as they continued to conquer in the foreign turf, an issue plaguing the sector was the surging input cost with several companies increasing the prices of their products by as much as 20 per cent during the year.

All major FMCG companies operating in India, both multinationals and homegrown, had passed on the cost burden to the consumers one after another.

At a time when sugar price touched Rs 40 per kg, soft drink firms decided to hike their product prices.

Coca-Cola upped the prices of all its soft drink brands in 300 ml and 2 litre PET bottles between 9 per cent and 20 per cent, PepsiCo also raised prices by Rs 2 of all its 200 ml, 300 ml and 600 ml bottles across all brand. Other beverages firm Parle Agro and Dabur followed suit increasing the prices of some of its products by up to 20 per cent.

Similarly, other FMCG players, including HUL, Britannia, Marico and Dabur, also hiked the prices of their products ranging between 4 to 5 per cent either for some of its select products or across all its brands.

This was also the time when competition among the companies was hottest. In order to beat rivals, FMCG firms increased their advertising spends on food and beverages, thus emerging as the top spender during the period among all the other sectors.

According to TAM Media Research, Hindustan Unilever, Reckitt Benckiser and Coca Cola India were the top three advertisers. For instance, in the first six months of the year Hindustan Unilever's advertising and promotion costs were at Rs 1,377.73 crore, up from Rs 1,011.66 crore in the same period last year, up 36.18 per cent.

Another significant ad spender, Colgate Palmolive also increased its advertising and sales promotion expenditure to Rs 152.75 crore in the Jan-June period from Rs 128.49 crore in the year ago period, up 18.88 per cent.

Besides, during the period, HUL and rival P&G were engaged in court battles over detergent advertisements. The one upmanship between the two firms to prove to the customers who was better later extended to shampoo ads.

Amid all these, the Indian FMCG industry can however look forward to a bright future, if a prediction by the Booz & Company comes true. The sector is expected to grow at a base rate of at least 12 per cent annually to become a Rs 4,000 billion industry in 2020.

The robust GDP growth, opening up and increased income in the rural areas of the country, increased urbanisation and evolving consumer lifestyle and buying behaviour, all point to a rosy future. It is time to be on the fast forward mode for FMCG companies.