News: Indian consumer goods makers look beyond soap, tea

(RTR 04/09/2006) Mumbai - Indian consumer goods firms are looking beyond their traditional strongholds in packaged tea and soap and tapping emerging trends in health and personal care in search of bigger profits in an increasingly competitive market.

"The consumer goods space is seeing buoyancy, with younger consumers, higher disposable incomes, and the growth of organised retail," said Hemant Patel, an analyst at Enam Securities.

"But some categories like soaps are highly penetrated, while others like detergents are seeing pricing pressure," he said.

Tata Tea Ltd. the world's second-biggest branded tea maker, last month said it would buy 30 per cent of Energy Brands Inc., which makes Glaceau vitaminwater, for $677 million.

Leader Hindustan Lever Ltd. has launched a water purifier and a skin cream for men, while tobacco giant ITC Ltd. has rolled out foods and fragrances and is investing more than $1 billion on its rural shops and distribution centres.

India's branded retail sector, estimated at about $6 billion, makes up only 3 per cent of the total market, but is forecast to grow at 25-30 per cent a year over the next four years, with plush department stores and malls springing up across the country.

That has encouraged Marico Ltd., Godrej Industries Ltd., Dabur India and Emami to foray into areas including men's grooming and ready-to-eat food.

Hair oil major Marico has rolled out skin care centres and is testing baby care products, while Dabur has added packaged foods and beverages and Emami has a skin cream for men.

"Their bread-and-butter products provide the cash flow initially, and while immediate profitability is difficult, as a long-term strategy it works," Patel said.

Revenue from Marico's Kaya centres more than doubled in the fiscal year to March 2006 and Marico expects new products and services to make up one-fifth of its total revenue shortly.

"Increasing urbanisation, a focus on wellness and healthcare and a shift to services is encouraging concepts like Kaya," said Marico's Chief Financial Officer Milind Sarwate.

Soaps and detergents make up more than 40 per cent of Lever's revenue, while ITC's non-cigarette businesses -- including hotels, paperboard and foods -- now make up about half its net turnover, up from less than a third a few years ago.

Lever posted its first profit rise in six quarters in June 2005 after a fierce price war in shampoos and detergents with the local arm of Procter & Gamble.

Tata Tea's revenue now comes nearly entirely from its branded tea business (86 per cent) and plantations.

NEW BEGINNINGS

Tata Tea's purchase of Energy Brands -- the largest overseas equity investment by an Indian firm not controlled by the government -- came on the heels of the purchase of Czech tea firm Jemca this year and U.S. herbal tea maker Good Earth last year.

The latest move gives Tata Tea, which has been exiting its low-margin plantations business in India, a segue into a fast-growing, high-margin segment. The U.S. enhanced water market -- bottled water with added ingredients such as vitamins -- is forecast to grow to $8.6 billion in 2010.

"It is a lateral leap from the black tea segment -- growing at a benign 2 -- to a vibrant market with an estimated growth rate of 25 per annum through 2010," Patel said.

Lever, which has often been criticised for a lack of new growth drivers, has also extended its Ayush ayurvedic skin care range to therapy centres that also offer yoga and massages, and is expanding direct selling networks in urban and rural areas. Ayuverda is a traditional Hindu system of diet medicine and yogic breathing.

"There are new channels of sales, new product categories and new consumer segments that are emerging," said Dalip Sehgal, Lever's executive director of new ventures and marketing services, listing the reasons behind recent initiatives.

Today, its Shakti direct selling rural network covers 100,000 villages and contributes 15 of Lever's rural sales and 40 of rural growth.

But not all its new initiatives have succeeded.

"We will only take forward those that meet our topline and bottomline goals," Sehgal said in his office, where a statue of Ganesha, the Hindu god of beginnings, looks on a row of newly-launched products.

"But even if two to three of these is a blockbuster, that's good."