| Beyond borders |
| Preeti Khicha / Mumbai June 6, 2011, 0:48 IST |
For Marico, going global is more than a means of opening up new avenues of growth
In roughly 13 months, between January 2010 and February 2011, fast moving consumer goods company Marico has snapped up four international acquisitions — which include brand Code 10 (Malaysia), Derma Rx (in Singapore via wholly-owned subsidiary Kaya Ltd), Ingwe in South Africa, and an 85 per cent stake in International Consumer Products Corporation (ICP) of Vietnam. That’s one new addition every three months or so.
For Marico — which started its journey as Bombay Oil Industries in a traditional commodity-driven business — going global is not just a means of opening up new avenues of growth but also an opportunity for cross-border learning. That, in part, explains the shopping spree, and the amazing growth of its International Business Group (IBG). With a footprint in West Asia, North Africa, South Africa, Bangladesh, Malaysia and now Vietnam, the division has grown from Rs 96 crore in 2004-05 to Rs 734 crore in 2010-11.
Today, Marico’s international business fetches almost a quarter of the group’s revenues estimated at Rs 3,300 crore for 2010-11, thanks to a judicious mix of organic (two-thirds of the IBG’s revenues) and inorganic growth. The Mumbai-headquartered company started off by exporting its flagship coconut oil Parachute brand across the subcontinent and in West Asia in the early 1990s, though its real foray as a serious investor overseas happened more recently, in 2000 in Bangladesh, when it set up a manufacturing facility for Parachute oil just outside capital Dhaka. Bangladesh brings in the lion’s share of IBG’s revenues at over 50 per cent, with West Asia (currently present in the Gulf Cooperation Council countries, Yemen, Sudan and the Levant region) bringing in another 30 per cent. The balance is contributed by the other geographies where Marico has a footprint, namely, Egypt, South Africa, Malaysia and Vietnam.
These acquisitions have also brought more than six new brands under the Marico umbrella, significantly adding to the company’s international offerings that comprised only one brand (Parachute) till about 2005. However, the company’s revenue mix is still extremely dependent on Parachute (hair care) and Saffola (edible oil), its top grossers, which together bring in close to 60 per cent of Marico’s overall revenues, points out Swati Gupta, senior research analyst (institutional clients), AC Choksi Share Brokers.
Marico has 14 production units overseas, seven owned and seven based on the contract manufacturing model. Last month, the company announced that it will set its eighth plant in Bangladesh at an investment of Rs 35 crore.
Marico is well aware that to take the next step towards being a global conglomerate, it will have to leverage its acquisitions well. “Going forward, we want to grow both in width and in depth,” says Vijay Subramanium, CEO (international business), Marico. “In terms of depth, the company wants to consolidate in the current geographies, introduce value-added offerings and gain scale. In terms of width, the company will continue to expand through organic and inorganic routes,” he adds.
In sum, Marico’s international expansion rests on three pivots — one, capitalising on the strengths of its acquisitions in categories such as hair care, healthcare (termed as nourishment franchise) and male grooming. Two, concentrating on emerging markets of Asia and Africa. Three, cross-pollinating products across geographies. Brajesh Bajpai, vice-president (sales and marketing), Vodafone who once spearheaded Marico’s Egypt and West Asia operations, adds, “The Marico stock is less affected now by factors like lack of demand and supply chain pressures in India.”
From the looks of it, Marico is looking at segments growing quickly and where penetration is low. In India, Parachute and Saffola have tried many brand extensions; not all have been successful. Says Shirish Pardeshi, co-head, research, Anand Rathi Financial Services, “There is a limit to how much more these brands can grow. It is wise that Marico is building a strong product pipeline abroad. In the future, the company could explore the possibility of bringing back these brands to India.”
Likewise, other FMCG majors such as Dabur, Godrej and Emami have also tried to de-risk their domestic operations by following the Indian diaspora to markets of West Asia, South East Asia, and parts of Africa. Dabur, for instance, has manufacturing units in Bangladesh, Nepal, Egypt, Nigeria and the UAE. The company recently announced its decision to bring to India its Hobby brand, which came under its fold during the Turkish acquisition of Hobi Kozmetik. On its part, Godrej is estimated to have spent $600 million on acquisitions over the years and owns brands such as Cuticura, Erasmic, Adorn, Nulon, Apri, thanks to the buy-out of Keyline Brands of the UK in 2005, and the home care, personal wash and hair care portfolio of Megasari (Indonesia) following its acquisition last year.
| STEP BY STEP Marico has set foot in these countries either with its own brands or via acquisitions |
| West Asia |
| * Year of entry: 1991-92 |
| * Brands: Parachute, Hair Code |
| Egypt |
| * Year of entry: 2006 |
| * Brands: Fiancee, Hair Code, Parachute |
| Bangladesh |
| * Year of entry: 2002 |
| * Brands: Parachute, Camelia and Aromatic, Hair Code, Saffola Gold |
| South Africa |
| * Year of entry: 2007 |
| * Brands: Caivil, Chic and Hercules, Ingwe |
| Singapore |
| * Year of entry: 2010 |
| * Brand: Derma RX |
| Malaysia |
| * Year of entry: 2010 |
| * Brands: Code 10, Parachute |
| Vietnam |
| * Year of entry: 2011 |
| * Brands: X-Men, L’Ovite, Thuan Phat |
Looking back
Marico’s expansion strategy grew out of the opportunity the company saw in markets Parachute was being exported to in large numbers. In West Asia, Marico began its journey with Parachute hair oil to cater to the demand of the Indian diaspora. Soon as sales of the product began to stagnate the company was forced to look beyond the obvious to figure out the reason. And that became the turning point of Marico’s international expansion strategy.
“A consumer insight in 2000 revealed that using hair oil was not a large scale habit. Hence, we launched Parachute creams, developed at our R&D facility in India,” says Subramanium. This new product was Parachute Advanced hair cream, which is the leader today in that market with 20 per cent category share and competes with the likes of Brylcreem (marketed by Zetra) and Sunsilk (Unilever).
Likewise, Bangladesh was a country where Parachute exports did well. To achieve scale for Parachute, Marico acquired a company that owned two soap brands, Camelia and Aromatic, in 2005. “The objective was to piggyback on the strong wholesale network of the soaps,” says Subramanium. Today, Parachute has grown its reach to 3 lakh outlets (direct reach) and another 8 lakh plus outlets indirectly, says a local industry observer. The soap business continues to be in maintenance mode, but the acquisition, says the company, has served its purpose. Parachute is the leader with 80 per cent share in the Rs 500-crore hair oil market in Bangladesh. Its closest competitor is a local player Jui that has a small 15 per cent share.
The success in West Asia whet Marico’s appetite to explore opportunities in adjacent economies. “With Egypt, the inorganic route to expansion was the first call as import duties in the region are very high,” says Subramanium. It acquired Haircode and Fiancee — two hair care companies in 2006 which had a basket of styling products like hair gels and creams, addressing different segments of the market.
“Today, Parachute is the dominant hair care brand in the West Asian region (25 per cent share) with its variants like Parachute coconut oil, Parachute hair cream, Parachute Secrets and Parachute Hamam Zeit,” says Debashish Neogi, executive vice-president and regional head, MENA (Middle East and North Africa), Marico. In Egypt, both Haircode and Fiancee are market leaders with 60 per cent share of the hair gel market.
Marico spread its wings further, into South Africa. At this point, the company was well positioned to pursue products in the hair care category beyond hair oil. Says Subramanium, “In 2007, we acquired two ethnic hair care brands, Caivil and Black Chic, which included products like hair relaxers, hair moisturisers, and shampoos ideal for African hair. We acquired a third OTC brand, Hercules, which had health care products under its umbrella.” In South Africa, the market for hair care is estimated to be close Rs 600 crore, with players like Sunsilk Afro (Unilever), Carson’s (L’Oreal) and a local player Amka dominating the show. In the last three years, Marico has more than doubled its share in the hair care category from 4 per cent to 10 per cent with these two brands. This, Subramanium ascribes to a relentless focus on distribution and brand building.
Last year, the company also acquired Ingwe. The strategic intent was to strengthen the company’s distribution reach. The Ingwe brand, which has products such as immune boosters in its fold, complemented the Hercules range.
South East Asia has been the more recent part of its journey. Last year, the brand acquired Code 10 from Colgate Palmolive. “Malaysia is a beachhead of sorts as a lot of the trends come into the Far East from Malaysia and later enters other geographies,” notes Subramanium. Today, Code 10 stands in third place in the Rs 200 crore hair styling market in Malaysia. The lead players in this market are Godrej’s Brylcreem and Mandom Corporation of Japan’s Gatsby brand. Since acquisition, the company has created a separate distribution network with leading market expansion services group DKSH. The brand has grown by over 30 per cent since takeover, says Subramanium. The focus this year will be to strengthen Code 10 with innovative variants.
This year’s acquisition in Vietnam has allowed Marico to bolster its male grooming product portfolio, which by default or design, has become the harbour for its international expansion strategy. The opportunity in Vietnam with a population base of 89 billion is huge — it has the second largest young population in Asia. The X-Men brand comprising shower gels, shampoos, deodorants, and facial foam brings in the bulk of the Vietnam revenues and will continue to be the focus brand. The tertiary brands like L’Ovite (premium skin care) and Thuan Phat (condiments and sauces) might be nurtured at a later stage, says Subramanium.
| SEGMENT AND RULE | ||
| Business segment | Revenue in Rs crore | |
| Domestic | International | |
| Coconut oil (Parachute & Nihar & Oil of Malabaar) | 1,100 | 275 |
| Hair oil (domestic brands: Parachute Advansed, Parachute Jasmine, Shanti Amla, Parachute Therapy), (international brands: Parachute Therapy, Parachute gold oil etc) | 500 | 100 |
| Total coconut oil & hair oil | 1,600 | 375 |
| Saffola | 500 |
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|
| Kaya & Derma Rx | 154 | 57 |
| Sweekar & other business (Medikar, Revive, oilseed trade & prototypes) | 151.4 |
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| Health care, hair dyes, hair creams, styling gels, male grooming (all through acquisitions) | __ | 303 |
| Total | 2,405.40 | 734.6 |
| Source: AC Choksi share brokers | ||
Way forward
Next on the agenda is cross-pollination of products across geographies. Subramanium shares a few examples. “Our thrust will now be on building Parachute cream in Egypt and taking Haircode styling products into the West Asian region.” This will require local adaptations. “One of the initiatives that we took before launching Haircode in West Asia is to upgrade the packaging. Unlike Egypt, in markets such as the UAE, over 50 per cent of sales happen through modern tr
