Domestic FMCG companies have always been threatened by the presence of multinationals. Operating on a much smaller base, FMCG majors such as Godrej Consumer Products and Marico have survived either by forging joint ventures or buying out some of their competitors’ brands to bear brunt of the MNC onslaught. Today, both these players continue to seek inorganic growth opportunities as it seems to be the way ahead to compete with MNCs both in the domestic and international markets.
Adi Godrej, Chairman of the Godrej group, has admitted in the past that it was the presence of MNC Hindustan Unilever which prompted him to engage in a joint venture (JV) with P&G. While the group does not have track record of sustaining any of its joint ventures for very long, its erstwhile JV partners such as Sara Lee, Hershey’s and P&G have all been big MNCs. They helped the smaller Indian company compete in the FMCG category.
Today GCPL (Godrej Consumer Products Ltd) has sustained its position as the second largest soap player (after HUL) and the leader in the household insecticide category with its acquisition of the GoodKnight brand. In hair colours too, it’s the dominant player in the mass segment and stayed away from intense MNC competition at the top-end, dominated by with players such as L’Oreal and Wella.
Going abroad
But now it no longer needs the help of an MNC to survive; instead it has become an Indian multinational as its international acquisitions gained momentum. It started acquiring companies globally, beginning with its first acquisition of Keyline Brands in the UK in 2005. Since then, it has been buying brands and companies in Africa (Rapidol, Kinky, Tura), Latin America (Issue group, Argencos) and Indonesia (Megasari). More than 40 per cent of GCPL’s sales turnover comes from its international operations today.
Most of these big-ticket acquisitions happened in 2010-11 and now the company is in the process of consolidating its business in Africa and Indonesia. There has also been cross-pollination across brands from its domestic and international portfolio.
Growing inorganically is going to be the strategy forward, as Adi Godrej has been reiterating in his 3X 3 strategy at every acquisition deal that he announces. “Our 3X3 strategy is concentrated on three categories (personal wash, hair care and home care) in three emerging geographies (Asia, Africa and Latin America),” he has said. For the first time last year, it offloaded five per cent stake in GCPL to private equity player Temasek, the investment arm of the Singapore Government, to fund one of its acquisitions in Chile.
Buying competitors
Marico, the makers of brands like Parachute and Saffola, too had huge aspirations but limited resources. Inorganic growth has also been its strategy to beat competition from MNCs. It bought out its nearest competitor brand Nihar from HUL and today is the dominant player in coconut oil. It realised that increasing ad budgets and distribution would take time, so innovation was its fastest route to build equity for Parachute. The ‘new’ Indian FMCG company decided to replace the staid coconut tin format used for the category with plastic and a wider bottle opening to make using the product easier for customers. The conversion from tin to plastic was a game-changer for the category as not only were the packaging costs reduced but the usage of coconut oil also exploded.
Today, Marico continues to seek inorganic growth opportunities to beat competition in any category. Harsh Mariwala, Chairman & Managing Director, Marico, has made his intentions clear to his shareholders while buying out the personal care business of Paras Pharma from Reckitt Benckiser. “We have identified inorganic growth as a significant block to create value for you over the long term,” he said. Its latest acquisition has been Paras Pharma’s personal care portfolio with brands like Set Wet, Livon and Zapak. In 2010, the Mumbai-based firm had bought hair styling brand “Code 10” from Colgate-Palmolive, apart from buying out the aesthetics business of Singapore-based Derma Rx Asia Pacific (Derma Rx) in the same year.
Moving away from its core FMCG category, Mariwala also realised that there were better margins in new areas like retail services and made an audacious move with the launch of a new skincare brand Kaya, more than a decade ago. This year it de-merged Kaya as a separate business from its core FMCG business to give a fresh impetus to its interest in the skin care segment.
purvita.chatterjee@thehindu.co.in