Dabur's elixir

The past couple of years haven't been too good for the fast-moving consumer goods (FMCG) industry. As consumer durables and lifestyle products gain in popularity, this sector has borne the brunt.

Consequently, the industry is in the grip of a severe downtrading. Companies have resorted to drastic price cuts across product categories in a desperate bid to survive (remember the recent shampoo and detergent wars?).

Leading players in the industry have reported stagnation in their turnover and a severe dent in profits.

ORG-MARG data for FMCG growth in 2003-04 shows degrowth in some key segments.

For instance, in shampoos, while the market dropped 3.8 per cent in terms of value, volumes actually grew by 5.6 per cent. Similarly, in toothpastes, while volumes fell 5.2 per cent, the drop in value terms was larger, 12.4 per cent.

Add the steadily rising prices of raw materials, energy and freight, and it's not hard to understand why the FMCG sector is reeling.

Signs of the downturn are visible in company results as well. The first quarter results for 2004-05 aren't encouraging.

Hindustan Lever's sales, for instance, dropped by 4.5 per cent, while profit after tax plunged 45.78 per cent compared to the first quarter last year.

And while Nestle India's sales have remained more or less stagnant, net profit has fallen 36 per cent over the same period.

But one company's managed to buck the trend. In a letter to its investors towards the end of July, Dabur India said its numbers for the June-ending quarter had shown significant growth (see chart).

There was an improvement in the quantity as well as the quality of the numbers "" while consolidated (Dabur India and its subsidiaries) sales were up by a little less than a quarter, both profit before and after tax had almost doubled.

How did Dabur beat the odds? Foresight and planning is probably how Dabur India officials would describe it. Three years ago, the Dabur India think tank started drawing up a survival strategy in anticipation of a slowdown in the FMCG sector.

Of course, even it couldn't have predicted the downturn would be so severe, but the strategy shift was a move that would make Dabur more aggressive and risk-taking than ever before. Well prepared for the rigours ahead.

Identity crisis

Since its inception 120 years ago, Dabur India had established its presence in a huge range of segments, from healthcare to consumer care, ayurvedic medicine to oncology, digestive pills to hair oil.

That may have been good for the bottomline but it eroded the brand's identity "" it was no longer clear what Dabur stood for in the consumer's mind.

Some time in early 2002, in association with consultancy firm Accenture, Dabur India undertook an exercise to understand its brand equity.

The results of Project Vision weren't startling, but they gave the company a starting point. The key finding: Dabur's brand perception was that of a "herbal specialist".

And the herbal equity was substantial across small towns as well as big cities.

It didn't take Dabur long to realise the opportunity ahead. Consultants estimate the size of the herbal FMCG market globally at around $40 billion. And it's the fastest-growing product category within FMCGs.

In the past Dabur products had come to be associated with the 35-plus age group.

With almost half of India's population below 30, it would appear as though Dabur ran the danger of missing the mass market.

The "herbal" tag, though, carried tremendous value with younger consumers. Besides, herbal products could span the entire FMCG sector, from personal care to health-care products.

Growth drivers

Dabur had a readymade platform to leverage for growth. It now had to find the right growth drivers.

"We decided to set the scale high, targeting at least a strong double-digit growth," Dabur India CEO Sunil Duggal says.

The trouble was, while Dabur's product range was huge, it was not comprehensive.

For instance, although it had a fairly significant presence in hair care with both Dabur and Vatika brands "" Dabur Amla is the world's largest-selling hair oil "" skin care was still a slow-growth area. Besides, Dabur's Gulabari (rose water) didn't have a youthful brand image.  Similarly, although Dabur had a toothpowder, it didn't have a presence in the toothpaste market. At best, it was a marginal player in the Rs 2,000-crore oral care market.  

But before Dabur could consider new product development, it had to realign its brand architecture. "Our first priority was to get our brand strategy right," says Dabur India Director P D Narang.

After much brainstorming, it was decided to reassign all Dabur India FMCG products to five "power brands": Dabur, Vatika, Anmol, Real and Hajmola. Dabur was made the master brand for all healthcare products such as Chyawanprash and honey.  Vatika would be the herbal beauty brand with a slightly upmarket image. Unwilling to discount the brand and drive it down the value chain, the company came up with Anmol, its offering for the value-for-money segment of the personal care market. And while Real was the master brand for foods, Hajmola was appointed the flagship for digestives.  Smile time  Once the brand architecture was in place, Dabur shifted to launch mode. In 2003-04, for instance, the company introduced at least eight new products, as well as fresh variants for some existing brands.  Among the new launches, the biggest success story so far has been Dabur Red Toothpaste, which was launched in April 2003.  Dabur already has a highly successful tooth powder "" sales of Dabur Lal Dant Manjan grew by 9.6 per cent in 2003-04, where ORG MARG data suggests that aggregate toothpowder sales decreased by 8.1 per cent.  Still, the oral care market is clearly immature. Close to 30 per cent of the population uses neither toothpowder nor paste, relying instead on ash and neem branches.  Even as this segment will gradually switch to toothpowder, Dabur anticipates that some consumers will upgrade from powder to paste.  Dabur Red Toothpaste is clearly targeted at that segment. And it's working.  Within a year of launch, it's already become a Rs 40 to Rs 45 crore brand and the company claims it has captured more than 1 per cent of the overall market.  The brand is now likely to be extended to a gel toothpaste also. More variants, and even brands, could follow. Dabur's also scanned the toothpaste market for a possible acquisition. But, says Duggal, "We have found no worthwhile offer so far."  Meanwhile, Dabur's taking care not to cannibalise Red Toothpaste. Its other oral care brand, Binaca (acquired in the mid-1990s), has been kept exclusively for the toothbrush market. In any case, Binaca is outside the company's master brand architecture.  Real gains  Before the foray into toothpaste, though, Dabur had already taken some significant decisions in the hair care and foods segments.  Aggressive promotion of the Vatika brand, fresh packaging as well as advertising have made Vatika the fastest-growing brand of the company: Vatika hair oil is the fourth-largest and Vatika shampoo the fifth-largest brand for Dabur India. Duggal and his team are now planning to extend the brand to new categories like body wash, which at Rs 4,500 crore is the largest segment of the FMCG market.  Foods is another sector that came in for special attention. In fact, a few years ago Dabur hived off its foods division into a 100 per cent subsidiary.  Dabur Foods markets fruit juices, cooking pastes, sauces and tea. And although it shares a number of services with its parent, Dabur Foods is considered important enough to have a separate marketing team.  The company's flagship product Real juices has emerged as the leader in the natural fruit juices market with a 50 per cent share of the market and a turnover of Rs 65 crore.  The change within  In 2003, a major organisational reshuffle took place within Dabur. The pharmaceuticals business was de-merged and transferred to a new company and Dabur India began a new avatar as a pure FMCG player.  Consequently, Dabur India's activities were also realigned as domestic and international operations.  The domestic businesses constitute the consumer care division, the consumer healthcare division and subsidiaries, including Dabur Foods. International operations are carried out by the umbrella subsidiary Dabur International Limited and Dabur Nepal Pvt Ltd.  The consumer care division was created by the merger of the erstwhile personal care products and healthcare products divisions.  The division is responsible for health supplements (Chyawanprash), digestives and confectionery (Hajmola), oral care (Dabur Red toothpowder and paste), hair care (Dabur Amla hair oil and Vatika) and baby and skin care (Dabur Lal Tail and Gulabari). Not surprisingly, it is the prime driver of Dabur's growth and contributed 84 per cent to Dabur's total domestic sales, including foods, last year.  The healthcare division includes products from the erstwhile Ayurvedic specialists divison and a set of over-the-counter products. The foods division, which is a 100 per cent subsidiary, markets the Real juice range, Hommade pastes and sauces, and tea.  Go global  But it's the action on the international front that deserves more attention.  Once Dabur decided to claim the herbal specialist platform, it formed a conscious business strategy to leverage that advantage and enter new markets across the globe.  After all, not only was the Indian diaspora familiar with Dabur India and its products, there was a rising awareness about the goodness of herbal products in comparison to their synthetic counterparts. But significantly, Dabur decided that the opportunity would be best exploited by taking market development into its own hands, rather than leave it to a distributor.  As a first step, last year Dabur India acquired the distribution business of its franchisee in Dubai. The $ 5 million acquisition of Redrock Limited meant that its manufacturing facilities at the Jebel Ali Export Processing Zone and Sharjah were added to Dabur's existing units in the subcontinent.  The acquired company was subsequently renamed Dabur International, and it has also taken charge of Dabur Egypt and the manufacturing facility in that country.  All investments in global ventures are to be made by Dabur International.  Accordingly, in the past year, subsidiaries have been established in Nepal, Nigeria, Bangladesh and Pakistan. International business added Rs 128 crore to Dabur India's turnover in 2003-04. Narang is hopeful of raising it to at least Rs 170 crore this year.  Dabur is planning a dedicated production line for healthcare products, with certification from the USFDA, to feed the overseas markets. Dabur India is also in talks with pharmacies and stores in the United States and the United Kingdom to stock its products at "ethnic counters".  Head south  Meanwhile, in the domestic business, Dabur noticed that sales were concentrated in the north and west of the country.  Dabur India's presence in the south was minuscule in comparision "" the region contributed only 8 per cent of the company's sales last year.  "A clear way to grow for us was to focus on the southern sates," Duggal points out. Thus, last year, the company decided to ramp up its southern sales from 8 per cent of the total to 15 per cent in three years. According to Duggal, the company is on course to hit 10 per cent this year.  Dabur India has set up a special cell within the company for boosting sales in the south with a core marketing team.  At the moment, the company is investing more in developing the southern market, mainly through intensified point-of-sale promotion, better stocking practices and so on. In the next stage, it will customise the labels of its products as well as the commercials for the region. Finally, even products will be customised to suit the tastes of southern customers. The company is unwilling to divulge details.  Better housekeeping  Duggal also had to ensure that the topline growth does not come at the cost of the company's profits. A separate set of growth drivers for profits had to be set in motion.  Better supply chain management was crucial. Consider the numbers: Dabur India procures raw material worth almost Rs 500 crore every year. It markets over 600 SKUs through roughly 2,100 stockists and over 6,00,000 retail outlets.  As a first step, Dabur consolidated its sourcing base for all group firms, including foreign operations, in a bid to benefit from economies of scale. Then, the company switched to e-sourcing.  Last year, Dabur procured Rs 210 crore worth of raw materials through e-sourcing.  Dabur has benefited significantly from its focused improvements in supply chain management.  At the end of 2003-04, the company had reduced its cash cycle from 39 days the previous year, to minus five days. And, according to Duggal, the company has been able to shave off almost 6 to 7 per cent of its cost by moving about 70 per cent of its purchases to e-procurement.  "We are now looking at further efficiencies by looking at the global platform for e-sourcing," he adds.  Dabur has also taken advantage of tax holidays being offered by Uttaranchal, Himachal Pradesh and Jammu and Kashmir, by locating new production units in these states.  Some of the shopfloor initiatives taken in the past year include Kaizen, energy audits and implementation of stringent wastage control norms.  Consequently, wastage on the shopfloor has improved by over 19.1 per cent in 2003-04, compared to the previous year.  In due course of time the company has been able to bring about savings of at least Rs 100 crore, through a combination of such measures, Duggal claims.