Dabur's acquisition of Fem gives it a foothold in the crowded skin care market. But can it deliver the goods?
It was evening and Dabur India CEO Sunil Duggal was in the mood to celebrate. After some tough negotiations, he had closed the acquisition of Fem Care Pharma, the Mumbai-based maker of skin care products and owner of the Fem brand. He was booked at the Taj and his key team members were at the Trident. It was the company’s second acquisition after Balsara and he decided to take everybody out for dinner. The Dabur men went to a Managlorean restaurant not far from the two hotels.
The date was November 26, 2008. By the time Duggal got back, the Taj as well as the Trident was swarming with policemen. Terrorists, who came from the sea, had taken over the two hotels. Bullets were flying everywhere. And no, they were told, they will not be allowed in to get their baggage. All of them bundled into a car and drove to the office of Balsara nearby. That is where they spent the night. Next day they were back in Delhi.
Fem saved the Dabur A team that fateful night. But can it deliver the goods for the fast-moving consumer goods company in the long run? All told, Dabur has paid Rs 257 crore to acquire Fem from Sunil Pophle, his sister Sunita Ramnathkar and small shareholders. The price, analysts have said, was high, possibly because there were others also in the fray. (The names that did the rounds at that time were Godrej and Marico.) But Duggal says the payment is just two-and-a-half times the annual revenue of Fem (Rs 110 crore in 2008-09). More important, it pitchforks Dabur into reckoning in the skin care market. Duggal says Dabur is now the third-largest player after Hindustan Unilever and Emami.
Long ambitions
This is a market Dabur has eyed for a while. It was the missing link in its personal care portfolio which had hair and oral care products. The skin care market is pegged at around Rs 2,000 crore and is growing at 20 per cent annually. Women have become more skin conscious in the country. The sun in India is very strong and clothes, especially in the age bracket of 18 to 30 years, expose more skin now than before. Hence, there is a tremendous possibility for growth.
The market is crowded. There are multinational corporations like Hindustan Unilever, L’Oreal, Nivea, Reckitt Benckiser and Procter & Gamble and homespun street fighters like Cavin Kare, Emami and Cadila vying for a piece of the pie. The average ad spend in the skin care category is 20 per cent of sales, as against 12 or 13 per cent in other FMCG categories, perhaps because consumers are extremely brand conscious. Still, the gross margins are at least 50 per cent higher than the FMCG average. Dabur, in fact, has made Fem its fifth power brand after Dabur, Vatika, Real and Hajmola in terms of revenue, profitability, extension opportunities and strategic fit. Clearly, the stakes are high.
Dabur first tested the waters some years ago when it launched a soap and face pack under the Vatika brand. But it did not make much headway. Consumers identified the brand with hair care. As a result, the soap was discontinued last year and the face pack registers negligible sales.
Then, about a year ago, Dabur came out with skin care products under the Gulabarai range: Moisturising lotion and cream plus a spray to freshen the face. The company had launched Gulabari rose water for use in food and medicinal purposes many years ago. But it found that women used it for skin care. Hence, the new range. More products under the brand could follow. To serve the food market, it has launched Gulabari Zaika.
Gulabari sales are around Rs 50 crore. But it is hardly a killer brand. This is where Fem fits in. Its product portfolio has a bleach lotion and hair remover. For men, Fem has a bleach lotion called Saka. Rivals point out that Fem doesn’t have a natural fit with Dabur: While the Fem range is totally cosmetic, Dabur’s core equity is herbal and natural. Duggal is not too bothered. He says Dabur has already made progress in the non-herbal world with its toothpastes. And almost 15 per cent of its sales are non-herbal.
All told, there will be three pillars in Dabur’s skin care strategy: Gulabari, Fem and a third Ayurveda range under a new brand for the top end of the mass market which will be launched by September. But the warhorse will be Fem. As the brand was under-advertised, a brand new commercial with Bollywood actor Preity Zinta has been rolled out. Though it has other celebrities on its rolls (Rani Mukherjee, Genelia D’Souza and others), it has chosen Zinta because “she is assertive and spontaneous and appeals to all age groups across the country,” according to Dabur Chief Operating Officer (consumer business) VS Sitaram. “When we want people to revaluate what they are doing, we look at Zinta.”
Bleach appeal
Women in the Indian subcontinent face a peculiar problem: Facial hair. One way to hide it is to use a bleach lotion. And the only company which makes it is Fem, though there are a handful of regional players. Since it is not a worldwide problem, multinationals corporations have stayed away from it. At the same time, penetration is low. Sitaram reckons not more than two or three per cent of the women who have facial hair use a bleach lotion. This gives Fem a clear run in the market. Duggal says Fem’s bleach lotion business could shoot up from Rs 130 crore now to over Rs 500 crore in the next four or five years.
It’s not all that easy, though. Almost half of the FMCG market, sector analysts point out, is with a single brand, Hindustan Unilever’s fairness cream Fair & Lovely. Since Fem addresses the same market, the challenge is enormous. Duggal says there is a difference: While Fair & Lovely promises fairness after weeks of usage, Fem is about instant transformation. In other words, Fem does not compete head-on with Fair & Lovely. “We will go to the fairness cream market only if there is a compelling reason and clear product differentiation,” says Duggal.
Women often complain that use of a bleach lotion can be harmful to the skin. Fem had in the past carried out studies which showed that it causes no harm so long as it is used according to the instructions. Still, the perception has not gone away. To counter the perception, the company has prepared an additive with 16 herbs. Buyers now have the herbal option with a pre- and post-bleach lotion. A television commercial with Zinta has been shot and will soon be on air.
Hair remover
Hair removers worth Rs 200 crore are sold in the country every year and Fem has a ten per cent share of this market. Rivals are Anne French from Wyeth Labs and Veet from Reckitt Benckiser — strong brands that are supported by huge ad budgets. Dabur knew it right from the beginning that it would have to create a unique sale proposition for its hair remover.
Consumer research showed that hair removers tend to make the skin rough. “The cream turns the skin alkaline. So we came out with a nourishing lotion that restores the skin to its mildly acidic character,” says Sitaram. The product category calls for sensible advertising — hair removal is an intimate topic in most Indian households. “But we need to talk to these young women who have come to the market. We will go very aggressively to beauty parlours and colleges,” Sitaram adds.
The masculine option
There is enough evidence to suggest that men regularly dip in to the dressing table of their wives or sisters for toiletries: Shampoo, hair oil, perfume, hair colour and fairness cream. Thus, large skin care companies have launched fairness creams for men. There is in the market place Hindustan Unilever’s Fair & Lovely Men’s Active, Emami’s Fair & Handsome and now L’Oreal’s Garnier. All told, these creams sell about Rs 100 crore in a year.
Fem too had launched last year a bleach lotion for men under the brand Saka. (Fem is essentially a feminine brand so a new brand had to be created for this category.) Again, while other creams promise fairness after at least four weeks of usage, Saka talks of instant fairness. Saka closed last year with sales of Rs 3 to 4 crore. Sitaram thinks the brand proposition is very strong. In fact, it has been decided to continue with the old advertisement of Saka!
Bleach lotion and hair removal cream are not the entire Fem story. There is also a Fem in the liquid soap market (annual size: Rs 80-90 crore). The strongest brands are Reckitt Benckiser’s Dettol and Hindustan Unilever’s Lifebuoy. Both have strong anti-bacterial properties. Fem, on the other hand, is a soft soap that is gentle on the hands. But the proposition isn’t good enough. “The market has gone anti-bacterial,” accepts Sitaram.
At the moment, Dabur has kept all its options open: Should Fem continue with the current positioning, should it join the anti-bacterial bandwagon or should it create a new space for itself? “We are not 100 per cent sure how to take it forward,” says Sitaram.
At the moment, Duggal has decided to keep the sale and stockist networks of Dabur and Fem separate. “The Fem sales team may get lost in Dabur. Also, the Dabur team may not have the expertise to sell Fem products,” says he. As a result, any integration of the two sales forces is not on the cards for the current financial year. At the apex level, the marketing teams of course have become one. The back-end, purchase and media-buying functions have also been merged.
But, sooner than later, Duggal will have to see how the Dabur network can be leveraged to grow Fem. Fem has a decent network till towns which have a population of 500,000. Beyond that, its presence is patchy. That is where Dabur can take over. It reaches 2.8 million outlets in the country, as compared to Fem’s 500,000. Though all Dabur outlets cannot stock Fem too, there could be synergies that can be exploited.
