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Training its guns overseas for growth
The lack of high-octane brands and intense competition is perhaps holding back Marico’s growth potential on the home turf, but opportunities in international markets beckon.
Issue Date - 08/12/2011
For a narrow-based FMCG player, Marico does not mind being a “boringly consistent” company. Over the years it has managed to keep a singular focus on its limited brands, which are profitable and sustainable in the long run, rather than try to expand its portfolio, enter new segments and thereby risk itself spreading too thin. Even though Marico’s corporate motto is “Be more, every day”, its limited mass brand appeal has often proved a hindrance to future growth. Its two master brands – Parachute and Saffola – despite registering a strong 22% CAGR in revenue in the last five years, haven’t been able to make much headway into new product categories. The company’s strategy of keeping a sharpened focus on its limited brands may have served it well so far, but times are a-changin’ and Marico could do better by pulling a few aces up its sleeve.

After all, the opportunity and the market is well in its sights. Already, FMCGs constitute the fourth-largest sector of the Indian economy. The category is estimated to grow to $100 billion by 2025 from the current roughly $13 billion, according to market research firm Nielsen’s report, Consumer 360. And rural India, with over 70% population and accounting for over 55% of consumption, will be the key driver of this growth, as more rural Indians embrace consumption of newer, more contemporary food categories. FMCG players, both homegrown as well as the MNCs, are bracing up to tap this new emerging opportunity. But therein lies the rub for Marico; it doesn’t have the products specifically targeted at this segment.

To give the company its due, Marico has entered new categories of late. Saffola, the premium edible oil brand, has been extended to breakfast cereals and packaged rice. And within a year, Saffola Oats has achieved the third rank in the space with a 16% market share. Even Saffola Arise, the rice brand, is doing well. Both are expected to rack up roughly Rs.400 million in annual sales for the company.

Currently, the oil category, in which Saffola is the market leader with over 55% share, contributes almost 90% of the revenue, while Saffola’s food business brings in the remainder 10%. The company wants it to grow to 75% and 25%, respectively. The Rs.31.3-billion turnover FMCG firm recently posted a 9.4% year-on-year increase in its net profit to Rs.782.9 million for the September quarter. Its net sales increased by 25.6% to Rs.9.75 billion from Rs.7.76. billion year on year.

In a bid to grow and expand its products to new market categories, Marico is also trying its hand in the personal care and grooming segments by parlaying its most bankable Parachute brand (contributes over 40% to the company’s top line) into more personalised products. The result was a recently launched body lotion, having coconut oil ingredients. Earlier, it had test-marketed Parachute brand shampoo in some southern markets, but had to hurriedly pull it off as it failed to ignite consumer response.

Things have been better with the skincare foray so far. But it’s still too early to say whether Marico’s latest entry into the Rs.50 billion skincare market dominated by the likes of Lakme, Pond’s and Vaseline (all HUL brands) will even be a modest success. Some analysts are however hopeful of Marico’s chances in the skincare market which, they reckon, is growing at around 15-20%, and offers newcomers a fair chance to succeed.

Other Marico brands like Kaya Skin Clinic – a chain of skin care clinics’ business to spur forward linkages for its personal care portfolio – Nihar Naturals, Mediker and Revive, haven’t really been able to hit off with customers yet. The company is however betting big with Kaya Skin Clinics, and is expanding it to other markets as well, with hopes of breaking even soon. To consolidate its Kaya Clinic business, the company recently bought Singapore based “Derma Rx”, which has four salons in South-East Asian countries (Singapore & Malaysia). Today, there are 82 Kaya clinics in India, and roughly 16 in the Middle East.

Marico, of late, has also been quite aggressive with international market acquisitions. Besides India, it’s present in Bangladesh, Middle East, Egypt, South Africa, Malaysia & Vietnam. Speaking to Business & Economy, Saugata Gupta, CEO, Marico, Consumer Products Group, says, “Our international business focus is on emerging markets, which are on a similar growth trajectory like India, and where product penetration is still low.” One of the motives behind entering these markets has been the fact that there’s lesser competition as compared to the home turf. That offers a good opportunity to understand and grow in these hitherto untapped markets.

Marico has invested over Rs.9 billion in international expansion and acquisitions so far. In January 2011, it paid Rs.200 million to buy Malaysian hair-style product vendor Code 10, which has a 10% market share and revenues in the region of Rs.120 million. In February 2011, it beat Dabur India to buy a 85% stake in the Vietnam-based ICP, which has the X-men range of shower gels, deodorants and hair styling products. Both ICP and Code 10 are expected to have contributed Rs.1.5 billion to the company’s kitty in 2010-11, or around 20% of the international business revenue of roughly Rs..7 billion. Global revenues account for 23% of Marico’s overall portfolio. The company is also studying a lot of its global brands closely, to see if they can be retrofitted to Indian market realities.


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