Retail News Update » Godrej

FMCG firms take to brand valuations

admin — Thu, 17 Jan 2008 12:04:25 +0000

A few months ago, Godrej Consumer Products (GCPL) wondered why its Cinthol brand was growing slower than fellow soap brand Godrej No 1. In its quest for the answer, it embarked on a valuation exercise and came up with a revelation.

The potential value of its top five brands – Cinthol, Fairglow, Godrej No 1, Ezee and Godrej Powder Hair Dye – was Rs 3,900 crore. Their realised value at that time was pegged at only Rs 2,600 crore.

This had a significant influence on Godrej’s strategy. The thing to do was to take steps to ensure higher performance through more “consumer offers”, like advertising to customers, than “trade offers”, which are to retailers.

“The guidelines suggested by the exercise will help us keep adding value to our brands,” says Hosehdar Press, the company’s executive director and president.

GCPL has also decided to publish a detailed report on the exercise in its annual report.

Brand valuation measures mainly two criteria – the potential profitability of the brand and non-financial factors like brand recall as compared with competitors.

In India, such exercises have been undertaken mostly by large conglomerates, such as Tata, since it is easier to quantify the royalty to be charged from group companies using the corporate brand name.

However, of late, companies across sectors, especially fast-moving consumer goods and telecommunications, have been valuing their individual brands.

In the FMCG sector, brand valuation used to be popular mainly among multinational companies. However, sources say a clutch of home-grown entities are taking the route.

Among these companies are Marico, Dabur India, Sun Earth Ceramics (the maker of Sonora tiles), Cholayil (the maker of Medimix) and personal care services firm VLCC.

Disclosing the value of brands enables companies to have better investor relations and consumer perception. It also helps in tackling corporate litigations considering the rise in trademark cases, say companies.

For Surya Foods, the maker of Priyagold biscuits, this exercise was a precursor to the initial public offering. The value ascertained by the company for its brands was Rs 1,200 crore.

“We undertook the exercise to give a better picture to our potential consumers, distributors and retailers about the value of our brands,” said B P Agrawal, the company’s managing director. The company will use insight from the exercise to implement expansion plans nationwide.

Experts say brand valuation is more than a mere marketing tool: it has become a key management application.

For multinational companies such as Coca-Cola and PepsiCo, brand valuation is central to the strategy, which determines their marketing spend for each brand and gives them a competitive advantage. It is also a significant contributor to enterprise value.

“For Indian companies to partner the International Financial Reporting Standards (IFRS), brand valuation is crucial,” says Sanjiv Agrawal, partner, Ernst & Young.

“It helps companies to take key corporate decisions like selling a brand, setting up a joint venture, an acquisition, or towards improving brand performance. It’s also a check on the performance of their brand managers,”

“With more companies getting listed, or heading abroad to raise capital, and a flurry of mergers and acquisitions, global accounting standards expect companies to be transparent about their business operations, which includes listing brand valuation figures in financial statements,” said Unni Krishnan, managing director of Brand Finance India, a global brand consultancy company.

“There is also a growing realisation among companies that cutting costs is not the only way to create value. While brands are intangible assets, they are central to businesses like in the FMCG sector and, therefore, cannot be left unaccounted for,” he said.

Australian food, beverages to hit Indian supermarkets

admin — Mon, 01 Sep 2008 18:12:06 +0000

SYDNEY: From Australia’s iconic vegemite to virgin olive oils, snack foods to gourmet sauces, and wines to fresh juices, quality Australian food and beverages are coming to Indian supermarkets this festive season.

Three Indian supermarket chains, SPAR, Hypercity and Nature’s Basket, and Indian import and distribution company Epicure Foods, have spent 10 days in Melbourne, Tasmania and Sydney to source quality Australian products for their fast-growing stores.

Cookies, confectionery, cereals, canned vegetables, juices and other products from 22 Australian companies are already on SPAR’s shelves in Bangalore.

“Many Indians are travelling the world and looking for international brands back home. About 35 to 40 percent of snack foods are imported,” SPAR Max Hypermarket India’s business manager Satish S V told media.

SPAR expects to import up to A$1 million (US$ 863,000 or Rs 37 million) worth of Australian products over the next year.

“Each of SPAR’s new stores will have two permanent gondola ends continually selling Australian products,” New South Wales (NSW) Minister for Primary Industries, Energy and Mineral Resources Ian McDonald said.

The supermarket officials have met over 45 Australian companies and experienced first hand what Australia has to offer.

“There is a general understanding in India that Australian food is clean, green and healthy,” Australian food consolidator Bemco Australia managing director Helen Pilakis told IANS.

The visit, organised by Bemco with support from the NSW Department of State and Regional Development (DSRD), follows a successful “Taste Australia” promotion held in Bangalore last November that introduced Indian consumers to more than 120 new food and beverage products from 22 Australian companies.

Most Australian products are targeted at India’s growing middle class, with huge disposable incomes, looking for ready and convenience driven products.

“Revolutionised retail with more shelf space is opening a new market where Indian customers are constantly looking for something new,” says SPAR’s senior category manager Nanda Kishore.

“At the moment, Australian dairy products can’t be imported into India, but buyers are hoping things will change by the year-end. We are looking at options for importing dairy products,” Kishore added.

Many Australian companies are producing food targeted at people with special dietary needs. Real Foods feels there is a market in India for its gluten-free rice cakes.

“Indians today are looking for gluten-free products and have a much broader flavour palate. Our expertise is in making six varieties of corn thins, thinner than normal rice cakes, which can be eaten as a snack, replacing a sandwich, or as a meal,” the company’s market coordinator, Charlotte Marbus, told media.

Another Australian company, Sweet William’s (William’s) makes vegan, gluten and nut-free, halal, kosher and sugar free chocolates.

“With high incidence of diabetes in India, people are looking for sugar-free chocolate bars. However, the prohibitive aspect of our product is the 60 percent customs duty on chocolates,” the company’s marketing and sales manager, Carol O’Halloran, told media.

Godrej-owned Nature’s Basket has already placed an order for salad dressings and sauces, cereals, honey, olive oils, biscuits and crackers.

“The products should be on our shelves by Diwali. Many of these products would be ideal for gift hampers over the festive season”, the company’s operations manager Sudhir Kadav told media.

“There is a wide range of cuisine available in Australia and we have noticed that retailers can ask manufacturers for specific products tailored to their specific markets”, Kadav added.

Supermarkets are looking at products that cater largely to the much travelled Indian clientele, non-resident Indians and the large number of expatriate Indians.

Mumbai-based HyperCity’s category managers for ready, gourmet and instant foods, Shweta Mohile and Y V Rao, said their company was looking at unique products, Australian Leatherwood honey, Macademia nuts, shortbreads, which can capture a niche market.

As Australia becomes more aggressive in its exports to India and the Indian retail market grows, Epicure Frozen Foods and Beverages managing director Sanjay Tandon and CEO (Operations) Murali Shankar said in the coming years, Australian products would be represented far more in their product range.

FMCG cos ride the fast lane on stable prices.

admin — Sun, 07 Jun 2009 12:53:39 +0000

The fast-moving consumer goods have started moving off the shelves faster in the past two months on stable prices, tempting companies to boost promotional activities and offer products at multiple price points. Key product segments such as soaps, detergents, toothpastes, biscuits, snack foods and soft drinks saw volume growth of more than 20% in April-May 2009, with companies ploughing back savings from lower commodity prices into brand building, consumer discounts and promotions, coupled with improved distribution strategies. In fact, most players have taken a break from their two year-old practice of raising prices since input cost pressures have come down.

The growth rate this year is expected to be volume-led. “Since April this year, we are witnessing an upturn in growth rates. Post-election results and a stable government assuming office, sentiment across corporates, trade and consumers has turned positive,” said Parle Biscuits executive director Arup Chauhan.

These companies are also investing significantly in distribution and tailoring their products and prices to specific geographies as demand picks up in both urban and rural markets. “Both urban and rural growth numbers are encouraging and we are recording our strongest growth in recent years. Buoyed by the overall political stability and expected fiscal stimuli, consumer confidence has picked up remarkably,” said Godrej group chairman Adi Godrej. Rough industry projections estimate growth at 30% in 2009-10. The industry recorded 17-18% volume growth in the last financial year.

Dabur has delivered its best organic growth in a decade in 2008-09 and is optimistic about continued strong performance. “New products contributed almost 20% to the sales growth during the last fiscal and we expect this contribution to go up to 30% in 2009-10,” Dabur COO VS Sitaram said.

Outlining key drivers that have led to growth at Dabur, Mr Sitaram said focus on rural markets in key states, coupled with sharper brand strategies, increasing competitiveness of brand propositions and investment in sales force with the introduction of category-focused teams in top markets worked for the company. Dabur ended 2008-09 with a 17.5% growth in net profit and gross sales of Rs 2,834.11 crore, up 18.3% over the previous year.

With summer setting in, the beverages segment too is witnessing higher sales. PepsiCo is recording a 30% growth in the current quarter against 12% in the same quarter last year. “The beverages arm has been clocking unit case volume growth of 30%, with both carbonated and non-carbonated drinks posting healthy growth,” said PepsiCo India chairman & CEO Sanjeev Chadha. Rival Coca-Cola’s India division has been posting unit case volume growth of 31% — its highest since the pesticide controversy in 2003.

To address healthy rural demand and a cautious urban consumer, companies such as Hindustan Unilever (HUL), Nestle, Procter & Gamble, Godrej and Dabur are shifting focus to volume growth and making higher investments in mass brands. HUL, which had been focusing on premium high-margin products, is now sharpening its mass-products strategy.

Foods companies such as Nestle, Britannia and Frito-Lay have introduced multiple price points to prevent the consumer from downtrading. Latest ACNielsen numbers indicate that low-priced packs are growing faster than bigger ones.

Big bazaars score over kiranas

admin — Fri, 23 Jul 2010 06:59:24 +0000

EARLYthis year, when escalating prices were crunching household budgets, modern retailers were more responsive in cutting or holding prices of day-to-day products than traditional retailers, thanks to their ability to check operational costs bargain hard with suppliers and launch private labels.

According to a study by The Nielsen Company, modern retail dropped prices by more, or increased them by less, for more product categories than traditional retailers, or kiranas, between the last quarter of 2009 (Oct-Dec) and the first quarter of 2010 (Jan-Mar).

“The power of modern retail lies in the scale and efficiencies which we have built over the years,” says Kishore Biyani, CEO of Future Group that operates retail formats such as Food Bazaar, Big Bazaar, Pantaloon and KB’s Fairprice stores.

The Nielsen Shop Census study compared prices of 47 commonly used items including toothpastes, washing powder and confectionery. Modern retail dropped prices by more, or increased them by less, than traditional retailers for 29 product categories while traditional retailers did better in 18 categories.

It collected data from 16,000 stores (11,000 urban and 5,000 rural, in both modern and traditional retail) in 462 towns and 1,427 villages.

During this period, the rate of inflation, as measured by the Wholesale Price index, was hovering around 10% and food inflation was more than 12%.
In the past two years, modern retail has been able to significantly cut operational costs related to real estate rentals, energy costs and increase persquare-feet productivity of employees leading to savings in people costs.
They also launched private labels to get a better grip on selling prices and profit margins, and some savings were passed onto customers.

Higher collaboration with small and medium suppliers as well as distributors of large FMCG companies helped them cut costs in transportation and logistics.

Efficiencies of scale helps one source the goods closer to the manufacturer says Mr Biyani. In 2009, Big Bazaar sourced 26,000 tonnes of rice, 4 crore pieces of clothing, 20 lakh suitcases, 36 lakh mixer-grinders, 45,000 manufactured beds, 20 lakh bedsheets and 19,000 LCD TVs. Each of these figures will be higher by a minimum of 30% for the year 2010, he says. “Such large sourcing allows us to get better prices directly from manufacturers and producers.”

Big Bazaar is the largest player in the segment contributing over 33% of modern retail sales. Other top retail formats competing with traditional kirana for essential purchases include Reliance Retail, Aditya Birla Retail’s More and Spencer’s Retail.

Kumar Rajagopalan, CEO, Retail Association of India, says strong sourcing power helps modern formats offer better prices. “They have done away with the extra level of intermediaries,” he says.

Meanwhile, grocers too are working on protecting their turf by leveraging on their strengths such as customer relationships, home delivery, credit facilities and expanding their product portfolio.

Top FMCG companies such as Hindustan Unilever, Procter & Gamble Marico and Godrej have begun adopting kiranas, teaching them category management and effective merchandising to counter big retailers and their private labels.

Bharatiya Udyog Vyapar Mandal (BUVM), the biggest national-level association of mom-and-pop stores, has formed city-centric associations that negotiate directly with manufacturers such as Unilever and P&G and do away with any middlemen.

This helped kiranas offer 5-20% discounts on MRP of branded products like detergents, shampoos soaps, oil and atta.

“When prices rose due to inflation some kirana stores offered customers the option of paying in instalments apart from extending them credit for a month,” says Vijay Prakash Jain, secretary general of BUVM that comprises 17,000 state and district-level associations across 27 states.

Interestingly, kiranas managed the prices of items such as detergent bars toilet soaps, shampoo, packaged tea and iodised salt better than modern retail, according to the Nielsen study.

Currently, traditional retail, both grocers & chemists, constitute over 95% of total sales in the country.

Modern trade at just 3-5% of the total national industry sales, had grown aggressively at over 35-40% contributing to over 15-25% sales for most consumer goods companies last year.