Keeping its promise
| Three hundred people leaving an organisation can never be good news. Not even when the departures happen in the wake of a buy-out. |
"You worry about the skills and experience they're taking away, but you aren't sure you can retain them in a new, integrated structure," says the Dabur India group director. |
| However difficult the exodus was, there's no denying that it gave Dabur the edge it needed. Barely six months after it announced the takeover of the three loss-making companies in January, Dabur made another announcement: the new subsidiaries were now making profits, ahead even of the schedule Dabur had chalked out for their recovery. |
| The numbers game |
| In January this year, Dabur India announced its largest acquisition so far: the controlling stakes in three Balsara India group companies. Dabur paid Rs 140 crore for the promoters' stake in these companies (99.4 per cent of Balsara Hygiene Products, 97.9 per cent in Besta and 100 per cent in Balsara Home Products) "" an all-cash deal financed almost entirely through internal accruals. |
| But although Dabur announced its decision to grow inorganically only last year, Balsara's been on its wish list for some time now. So much so that Dabur, along with consultancy firm Accenture, had drawn out a detailed five-year plan for resurrecting the oral and home care products group two years before the deal was finalised. |
| Which was urgently needed, going by the financials. In 2003-04, Balsara had reported sales of Rs 200 crore, with losses of over Rs 8 crore. |
| By the following year, turnover had plunged to Rs 150 crore, while losses had escalated to Rs 30 crore. Dabur wasn't looking for immediate returns on its investment; the blueprint called for breakeven after a year, aiming for sales of Rs 180 crore. Profits could wait until FY07. |
| They didn't. Balsara Home Products recorded a net profit of Rs 1.1 crore in the first quarter of FY06. Compared to the first quarter of the last financial year, turnover increased almost 52 per cent, from Rs 28.5 crore to Rs 43.3 crore. |
| Balsara's oral care range grew 32 per cent compared to last year, while the home care division registered more than 120 per cent growth. Narang points out that the Accenture study had already listed in detail the problems at Balsara "" limited resources, inappropriately deployed; and no benefits of scale. "There were no big surprises. We knew what was wrong and how to set it right," he declares. |
| The people paradox |
| The biggest issue was, of course, people. Dabur already had 2,300 people on its rolls, while Balsara had 600. Given that the new structure didn't have room for duplication something, obviously, had to give. Dabur didn't retrench anybody, but close to 300 people have quit since January. |
| A number of people quit citing locational constraints "" Balsara is a Mumbai-based company, while Dabur is headquartered at Sahibabad, near Delhi. Still, some areas were integrated smoothly. |
| Balsara's R&D team was seamlessly absorbed into the larger organisation "" while Dabur had no experience in home care, making that division's contribution invaluable, the oral care research division possessed skills that complemented Dabur's own team. |
| The manufacturing facilities didn't pose too many problems, either "" it helped that neither organisation is unionised. Decisions about Balsara's three plants "" at Silvassa (Dadra & Nagar Haveli), Kanpur (Uttar Pradesh) and Baddi (Himachal Pradesh) "" were taken easily. The Kanpur factory was a small scale factory, with just 10 workers. |
| So the decision to stop manufacturing there didn't cause too much disruption. And since at 100 workers, the Silvassa plant was clearly overstaffed, about 30 were shifted to Baddi "" a new factory, with just eight employees "" thus solving two problems. |
| The trouble lay with sales. Points out A Sudhakar, vice president, HR, "We had to account for an estimated Rs 180 crore of extra turnover through domestic channels."And given the two distinct distribution networks already in place, Dabur's HR team had its work cut out. |
| While the decision was taken to aggregate the smaller business into Dabur's infrastructure, suitable modifications were also necessary. Dabur's original distribution was along two verticals: Line 1 for health care and Line 2 for personal care. Now, with new product portfolios coming in, a third line was created that looks after home care and all oral care (including Dabur's range) products. |
| Dabur's consumer care frontline now has 400 people, of whom 120-odd are from Balsara. "Balsara may not have got the required focus if we had continued with just two lines," Sudhakar adds. |
| Following Dabur policies at Balsara did mean some expense. Salaries were hiked to bring them in line with the Dabur structure; and external consultants were brought in to conduct detailed assessments of all employees and redeployments were made on the basis of their recommendations. Since Line 3 covers Dabur and Balsara products, and is managed by employees of both organisations, substantial re-training in selling techniques was also required. Using the "train the trainer" module, about 55 managers conducted workshops for sales staff across the country. "We've invested in several thousand manhours of training," says Sudhakar. |
Still, this year's wage bill is likely to be 50 per cent lower than last year's. While the departures have meant huge savings in staff expenses, recruitment costs also came down across the group, since Balsara people helped fill vacancies in group companies. "Everything worked out much better than we planned," says Dabur India CEO Sunil Duggal. Brushing up ops That's especially true of the operations. Charanjit Mohan, executive director, operations, Dabur India, says he was worried when the acquisition was announced. "If, on a scale of one to 10, Dabur is eight, Balsara was just four," he remarks. There were several problems. Wastage was costing Balsara close to Rs 3 crore every year; there were no standard operating procedures for process or finished good checking; and quality control was lax. Even the factory layouts were sub-optimal: too many buildings, leading to waste of power and man and materials movement. Changes were quickly introduced. Kanpur was converted into a C&F agency; Silvassa now manufactures mainly for Balsara's private label business and Dabur International, taking advantage of its proximity to ports. Even at Baddi "" which was commissioned only last year "" some capital investments were put on hold while quality and sourcing were upgraded. The biggest overhaul was in the purchasing strategy "" previously, critical raw materials such as sorbitol and calcium carbonate were purchased through direct negotiations. Dabur introduced e-sourcing at Balsara, extending the Ariba system of reverse auction it uses to Balsara as well. The result has been that procurement costs have dropped by 6-7 per cent. In fact, the scale benefits from combining procurement and manufacturing processes have helped both outfits. For instance, the Dabur combine now accounts for 11 per cent of the demand for toothpaste tubes, up from 4 per cent pre-acquisition. "Our bargaining power has gone up tremendously," points out Mohan. Marketing mores And not just in procurement. Given its considerable bargaining power with media buying houses (Dabur spent more than Rs 170 crore on advertising last year), Dabur was able to negotiate far better rates for Balsara advertising. "We've budgeted Rs 40 crore for Balsara. But its worth is closer to Rs 60 crore, given the discounts," points out Narang. But first, some reorganisation was needed. Given its limited resources, Balsara could really focus on only one brand in a year. It picked on Promise. That wasn't the best decision under the circumstances: a white toothpaste, Promise is an undifferentiated product competing in a market dominated by Colgate and Pepsodent. Balsara's other oral care brands, on the other hand, stood a better chance of carving out market share for themselves "" while Meswak is a premium herbal toothpaste, Babool straddles the economy and herbal platforms. Dabur's immediate focus is, therefore, going to be on Meswak and Babool, and the high margin, high growth home care products. The first step has been to form a consolidated network that effectively covers the entire country "" while Dabur's strengths are in the north and east, Balsara is popular in west and south India. And the new Line 3 reaches deeper and wider into Indian markets than Balsara did "" while Balsara concentrated on larger towns with populations of between 1 and 5 lakh, Dabur goes further into rural India, reaching towns with populations of even 5,000. Advertising has also been upped for Balsara products "" including Odonil and Sanifresh, which haven't appeared on TV before. Actor Vivek Oberoi has been signed on as brand ambassador for the oral care range and new creatives are being planned for all products. The Dabur logo has been included on the Balsara oral care products and consumer promotions are also being planned. Already, Meswak's price has been slashed by Rs 10 to help bring in volumes, while toothbrushes are being offered free with Babool. The home care range, though, will remain independent of Dabur, given the lack of synergy. "There will be no overt Dabur connection," says Duggal. Instead, consumer sampling exercises will form the bulk of the marketing activity. The sales team will target queues outside theatres and stadiums and offer samples of Odomos, emphasising the need for out-of-home protection from insects.
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| The acquisition of Balsara made strategic sense for Dabur, given its relatively new repositioning as an FMCG company. |
| While Balsara's toothpastes' business would possess obvious synergies with Dabur's own growing oral care business, the home care business would provide an easy entry into one of the fastest growing FMCG categories. Dabur estimates the oral care market is worth about Rs 2,500 crore, growing at close to 10 per cent a year. |
| Home care, too, is a Rs 2,000 crore market and Balsara's brands are well entrenched here; in fact, air freshener Odonil and insect repellent Odomos are almost generic for their categories. |
| The other brands are strong players as well; Sanifresh is the second largest toilet cleaner brand, after Harpic, while Odopic is a popular dishwashing liquid and surface cleaner in the western markets. |
| Given the extremely low penetration levels of home care products (under 20 per cent, according to Dabur), this was a segment waiting to be tapped. |