Godrej bets on new launches, product innovation to beat slowdown

Mumbai: Godrej Consumer Products Ltd (GCPL), the maker of Cinthol soap and Hit insecticide, is counting on new launches and product innovation to help it beat the economic downturn and inflation that have prompted consumers to cut back on spending.

The packaged consumer goods maker is also setting up a research and development (R&D) centre in India to come up with innovative products, said Nisaba Godrej, executive director at GCPL who also oversees innovation strategy at the company.

Godrej spends up to 1% of sales on R&D.

Since the start of fiscal 2013, GCPL has introduced 10 new products, and plans to launch at least one new product in each quarter.

After the success of a paper-based mosquito repellent called Good Knight Fast Card and Hit Anti-Roach Gel, it is about to launch a third innovation in the insecticide segment called Good Night Xpress. Apart from the insecticides segment, launches are also planned across the personal care product space.

“Our pipeline has enough ideas for two-three years and it’s a matter of sequencing it and phasing it strategically,” said Vivek Gambhir, managing director of GCPL. “If we look at the last nine months, almost 40% of the incremental growth came from these innovations.”

Godrej and other consumer product makers are trying to overcome consumer aversion towards discretionary spending as the Indian economy grows at a slower pace and persistent inflation disrupts household budgets. After slumping to 4.5% in the last fiscal year, economic growth is forecast to stay below 5% in the current year as well.

The consumer packaged goods industry saw volume growth contract for the first time in the September quarter by 0.5% from a year earlier, although price increases helped sales by value increase 6%, according to a December report by researcher Nielsen Co.

In the October-December 2013 quarter, GCPL, a part of the $4.1 billion Godrej group, posted a lower than expected 13.68% increase in net profit to ₹ 195.77 crore.

Bigger rival Hindustan Unilever Ltd (HUL), the Indian subsidiary of Anglo-Dutch consumer products maker Unilever Plc., posted a net profit, excluding one-time gains and writebacks, of ₹ 955 crore, an increase of 9.6%.

“In terms of growth we are doing much better than our competitors, so you can clearly see what innovation is doing for us; it clearly means growth and penetration for us” said Godrej.

Among the launches that have done well for the company over the past two years was the Good Knight Fast Card, a ₹ 1 mosquito repellent card, launched in October. The strip burns for three minutes, then keeps away mosquitos for four hours. Because the card doesn’t require electricity, it was a hit across rural areas where power supply is inadequate.

The odourless anti-roach gel launched in February 2013, and a ₹ 30 hair colour branded as Godrej Expert Rich Hair Crème also helped revenue growth. The company declined to give a break-up of sales for each of these brands.

“Our growth rate over the last nine months in India has been 17%, about 6.8-7% came from these launches and if we hadn’t done these launches in theory out rates would have been as low as 10%,” said Gambhir.

Being the market leader in the household insecticide segment, GCPL would be in a sweet spot if it were to do three product launches and even two succeed, said Harsh Mehta, sector analyst at HDFC Securities Ltd.

“The strategy to do a new launch every quarter is the need of the hour, and Godrej always reads its consumer better and gets the price points right,” said Mehta.

To be sure, GCPL isn’t alone in looking to new launches to beat the downturn. Mehta noted that HUL and Emami Ltd were also seeking to introduce new products and Dabur India Ltd had already done so in the last quarter. “However, we need to give these launches some time to get a foothold in the market. In 2012, Godrej had launched the ₹ 30 hair crème sachets which became a hit as they got the pricing right,” he said.

The R&D centre that GCPL is building in Mumbai, meanwhile, will be operational towards the third quarter of this year.