From being a company with a limited portfolio of brands, including the popular hot drink Horlicks, GlaxoSmithkline Consumer Healthcare India Ltd (GSKCH) has moved into new categories such as noodles and salty snacks. Managing director Zubair Ahmed explains the strategy behind the initiative in a rare interview. Edited excerpts:
What’s the rationale behind the move?
The strategy is very simple. It is based on two or three pillars. One, obviously, is our base business—brands that we have been marketing and selling for the last 50 years like Horlicks, Boost, Eno and Iodex. The idea is to maintain the momentum in this business by leveraging the growth trajectory which the economy is seeing, so better quality marketing, distribution, access. Hence there will be more persuasive marketing and higher advertising and promotion (A&P) spends behind these brands. We will make it available in different pack sizes and in new catchment areas.
Secondly, the Indian consumer is changing. He has more money in his pockets and is a little more aware of health. Hence we will get into new categories that he did not earlier venture into. We are identifying categories that are large, which are synergistic with our brand and company values... Lastly: is the Indian consumer ready to buy our global brands?
Last November we launched Breathe Right, a drug-free product to reduce nasal congestion. In January, we started test marketing Sensodyne, a sensitive teeth toothpaste. We will bring in more global brands.
Zubair Ahmed, managing director, GlaxoSmithkline Consumer Healthcare India
Will the spending on new launches affect earnings?
We are looking at profitable growth. In the short term, we are leveraging profit and loss for long-term growth. How long will the brands take to pay back, will be speculative (to answer). Some brands would be low-margin products such as biscuits. But the size of opportunity is huge. Hence margins of 6-8% are far more profitable than even 30% margins in a small niche category. We will, however, not chase business that does not create value for the shareholder.
In 2008, nearly 75% of your sales came from Horlicks alone while malted drinks accounted for 96% of revenue. How do you see this changing?
Horlicks continues to grow. We are trying to get out of the malted drinks categories and get into new categories. However, with the base growing in high double digits, the percentages will not change much.
Horlicks is stronger in the south and east than in the north and west. How do you plan to make it more pan-Indian?
We have plans in making Horlicks a national brand. In the north and west we are understanding consumer requirements and looking at addressing them.
Is there a mega brand strategy?
We are constantly looking at brands where synergistic extensions are possible. In the past we have extended Crocin into the areas of headache, cold and flu. We will look at other categories where an extension is possible.
Chill Doodh, Sensodyne, Lucozade (energy and sports drinks) require a distribution network that is different from that of the malted drinks network. How do you plan to expand the current network?
Whether you sell drinks, snacks or health products, the top 3.5-4 lakh stores cover 60% of our market reach and is common across most FMCG (fast-moving consumer goods) categories. Our direct reach is to six lakh outlets and through secondary distribution we reach more than a million outlets.
However, for the new categories like noodles, biscuits, nutribar, a direct distribution of 2.5-3 lakh outlets, which cover the supermarkets, larger kirana (grocery shops) and larger chemists within our distribution reach is sufficient.
Wouldn’t Horlicks Asha (a cheaper variant of the brand) require a new distribution network?
This is a product specifically developed to bridge the gap at the bottom of the pyramid. There is a need for nutrition, affordable nutrition. It’s a huge opportunity... We are test marketing the product in two markets—Andhra Pradesh and Karnataka—and the challenges are to make the product available in small stores and create awareness where the consumer upgrades from what they are traditionally used to, to a more balanced scientific product.
The market is getting more competitive. How do you see GSKCH increasing marketshare?
Our products are science-based. We have a huge heritage due to our pharma background. For instance, our biscuits provide calcium, Boost is scientifically proven to give more stamina.
We are entering new categories with Horlicks Lite, Women’s Horlicks which provides calcium and iron, and are now going beyond the traditional target market of kids to address women and the entire family. We are looking at straddling the entire pyramid.
Would you look at inorganic growth?
We are always on the lookout for inorganic growth opportunities, but we don’t find anything. Everything in India is doing well and thus demands a high valuation which is not feasible.