Monday, August 24, 2009

Regional Brands in India gaining over the larger brands??

In many product categories one can see the emergence of very strong regional brands at the number two or three slots. In last decade or so we have seen these regional players taking the fight to the more experienced marketing companies. These small and medium brands have been giving sleepless nights to their multinational counter parts , be it a Cavinkare or Jyothi laboratories in the south , or a Ghadi detergent in UP or Wagh Bakri tea in the west . The sluggishness of slowdown only adds to the growth of these smaller players. The thought was actually triggered by the recent success achieved by santoor in becoming the number three player in the highly competitive soap market, though even Godrej's No1 is also claiming the number three slot in the market according to some reports. A recent report also shows that HUL has been losing market share in the shampoo market to companies like Dabur. And from almost nowhere Anchor toothpaste has also emerged as the number three player in the highly competitive toothpaste market which has deeply entrenched players like colgate... Other strong regional brands are,Ahmedabad-based Paras Pharmaceuticals,

North-based Surya foods with its Priya brand of biscuits, Emani.....

India in my understanding would predominantly be a market of regional brands, because the regional differences within the markets is too great to be catered to by a single national brand, though the phenomenon is yet to manifest itself fully due to the lack of economies of scale at these levels, but in the future as these regional markets mature so would brands catering to them.

Regional Apparel Cos Quicker In Store Rollouts

Driving a revival in the country's apparel business after a tough year is a slew of regional brands mushrooming in smaller cities and towns across the country that are now attracting the attention of private equity players. Brands such as Liverpool Retail India's Barcelona, Vir Retail's John Hill and Nahar Group's Cotton County that sell outfits at less than one-third the price of national brands are opening stores faster than the cautious national brands.

These brands operate in the Rs.150-600 price band, working on low margins and fast stock turnover. Their marketing efforts are mostly localised and they woo new consumers into the organised sector through discounted offers like 'buy one, get three'.

"National brands retail at a mark up of around three times, which is channelised into branding. We pass this on to the customer while retaining net margins of 8-10%," says Kailash Gupta, MD of Ahmedabad-based Liverpool Retail India. While national players focus on per-store profitability and saturate metros before targeting tier II and tier III cities, these regional brands bet on scale and dress up smaller cities with Westernised brand names.

"Several regional brands are challenging the might of big players within the value segment where a significant proportion of Indian demand exists. Many of them will soon grow into national players and capture share from established brands," says Baqar Naqvi, associate VP retail & consumer goods at Technopak. Bangalore-based Indus Mandhana group's venture Vir Retail launched 50 John Hill stores for menswear and womens' wear in three months across small cities from Belgaum and Gulbarga in Karnataka to Bharuch and Baroda in Gujarat. Driven largely by the franchisee model, it is also working out a leaner store size to address specific labour pockets in the country.

Liverpool Retail's Barcelona digs deeper into rural India across towns such as Palampur and Mehsona. "Franchisees are also keen on partnering the discount model as the scale enables us to take back unsold stock and deploy it in markets where it would sell," said Sachin Sahni, Vice President of the Rs.200-crore Cotton County brand which has 600 stores. Nahar Group's Cotton County opted for the 'buy one, get three' model to tap into the mass market through an entry-level brand.

Now, many of these brands are looking to sell equity stakes to private equity companies and through public offers to raise money for further expansion. "There is significant private equity interest in them as they are multiplying presence with more rapid topline growth than others today," says Mr Naqvi.

The Rs.180-crore Liverpool Retail intends to raise Rs.50 crore through the PE route and has IPO plans for 2010. Cotton County will fund its plans with the Rs.120 crore it received from Sequoia Capital India last year. The rapid growth of Koutons Retail India on the national radar with 1, 400 outlets are reflective of the zeal of emerging players today. ESS AAY Fashion India's Allen Cooper and Lee Solly brands too have grown from cities such as Hissar and Sundernagar to Amritsar, Jamshedpur and even New Delhi.

Originally published in "The Economic Times" dated November 05, 2009

The Future of Brands in India?

Why do regional brands (which used to be easy to contain in previous decades) behave like pesky visitors and refuse to go away? What impact will the seemingly conflicting retailing trends of home-delivery and modern trade have on selling and distribution strategies and structures? Do we strengthen the core offering of the brand or do we proliferate the brand to compete with the innumerable new players in the category? Seem like familiar questions we hear at an increasingly frequent rate? They are. Two fast growing trends on the Indian marketing landscape will do more to impact business strategies in the next decade than most others. Indeed, organizational responses to these trends will determine future survivors on the Indian brand scene. Trend One: The End of Dominance The opening economy and overwhelming media explosion have stimulated consumer desires in fascinating ways. The unbridled proliferation of branded offerings in diverse categories from televisions to cell phones and chocolates to watches has truly empowered the Indian consumer. The days of the glorious choice between the sturdy Ambassador and the 'cute' Premier Padmini seem lost in a soft focus like memory of times when the end of 'Chitrahaar' on Doordarshan prompted a profound sadness because the next episode was a week away. This fragmentation of benefits and the rapid growth of several categories has made it possible for several brands with differentiated offerings to be economically viable even with small market shares. In sum, this trend, which is still in its infancy, will mean the end of dominance of the single brand which used to often define the category. How then do marketers respond to this fundamental shift in category dynamics? Let's examine these new players. One or more of four characteristics are typically displayed: creating innovation niches (which are usually not attractive for large players;eg.Medimix ayurvedic soap), delivering enormous value (benefits almost similar to the dominant brand but at a significant lower price points; eg. Chik and Nyle shampoos), preferential trade tie-ups(eg.Handyplast) and hit-and-run tactics in price-offs and promotions(most small players). While these new players meet specific consumer need gaps, they are not necessarily creating strong brands. And therein lies the avenue for established brands to address this threat and ride the trend successfully. Three essentials need to be executed to avoid being swamped by a multitude of these niche opportunists. One(and the most neglected one), a strengthening of the consumer-brand relationship by redefining

the role of the brand in the consumer's life. This of course is far easier said than done. When faced with an onslaught of several nimble competitors, the promotions and discount mindset goes into overdrive. True these have a place in the scheme of things but by making these actions the only choice, the battleground shifts clearly in favour of the other guy.What is required is a strengthening of the brand beyond the short term allure of a promotional offer.And the understanding of consumers lives beyond the category and purchasing context has been proved to be a compelling starting point. Brands which have imbibed this well (Dettol, Thums Up) have turned in a consistently superior performance over a sustained period of time. Two,it is critical to delink the brand from the product format to be able to sustain relevance. Witness the strong association of Tortoise mosquito repellant with the coil format. A strong brand which lost dominance when the format shifted to mats. Third, with the market being fragmented into several benefit-led segments, the choice of the right niches to compete in becomes crucial. Here is where a superior understanding of market and consumer trends can help identify those opportunities which have the greatest chances of future success. The financial evaluation paradigm needs to expand beyond a pure assessment of the cost of entry and payback to encompass the cost of not entering the segment. Of course it is neither wise nor profitable to proliferate your brand into every possible area where a competitor has an offering.Hence by constantly increasing brand relevance and choosing the right segments to extend your brand, it may be possible to make your brand an exception to the end of the dominance era. The end of dominance has been accelerated by another significant factor the rise and rise of regional brands! Regional brands and their success have done enough to cause boardroom despair, stock market impact and the denting of many a corporate reputation. What explains their success in a classic David vs. Goliath battle? Apart from the identification of a consumer opportunity (which can be fairly quickly addressed by large, competing brands), regional brands have a singular success mantra: FOCUS! Essentially, limited brand width and unlimited geographical depth. Regional brands which have held their own against brand behemoths are unencumbered by a desire to rule the world. They realize their core strengths and create impregnable barriers across the value chain. Their stable usually consists of between one to three brands and the theatre of operations is restricted to a few key states. Within the markets they operate in, however, their distribution strength is unparalleled. An interesting feature of strong regional brands is a focus on product attributes and functional benefits. Because they ride on regional habits and practices, which is often divergent from the mainstream, the need to spotlight uniquely relevant ingredients assume significance. A look at toilet soaps, cosmetics, food and detergents demonstrates the point. This is also more true of FMCG categories. In order to address the reality of regional brands it is not enough to match functional benefits. When the lethal combination of strong functional benefits, value pricing and deep distribution works against the national brand, its time to create a competitive edge someplace else. And this lies in understanding the cultural space which is unique to the market. Companies which place their brands in the most relevant and compelling cultural and life space are most likely to succeed. Hence the mindset

with which to approach these markets needs to be product, price and distribution convergence with regional brands (where efficiency is the watchword) and communication and imagery divergence (or, simply put, differentiation). To get this right is by no means an easy task as brands have to go beyond conventional research techniques to truly understand cultural insights which provide relevant windows for the brand. For brands which do this in the most impactful and meaningful way, regional brands are no more than a minor hiccup. A striking example of a company (brand?) with a superior understanding of the cultural space is Asian Paints. Decades after embedding their brand into the Indian fabric ( with strong regional insights remember Pongal?) they continue their prolific run with Har ghar kuch kehta hain and, now, Har rang kuch kehta hain.The tragedy is that, in most cases, the response of the large players usually follows a predictably disappointing pattern : a refusal to recognize the threat in its initial phase followed by an overreaction and overuse of financial muscle to simply squash the small fellow to ultimately, a belated recognition that a more measured response based on deep consumer understanding is the right path. Pity. Trend Two Conflicting Retailing Trends While the media is heralding the arrival of the Modern Trade format in all its glory, an insidious but growing trend will help define the retailing environment of tomorrow Home Delivery. Home delivery has been around in our cities and towns for decades with grocery dominating the format. Severe competition as well as the launch of the pizza culture has made available everything from medicines to fruits and vegetables, at the push of a telephone button. The indelible impression of a footpath based fruitwallah taking an order from a nearby apartment dweller is the definitive image of an India which lives in several centuries at the same time. Implications for brands are an outcome of a nuanced understanding of the differences between these two seemingly conflicting trends. Seemingly conflicting, because while these appear to be antipodal, the fundamental cause is the ever increasing desire of consumers to have a more experiential life and 'fund' the time required for this by minimizing the routine. Hence home delivery can be largely seen in categories where the shopping experience holds no real joy - mass FMCG products like staples and categories where purchase evaluation or the experience is either not necessary or downright avoidable. The demands of modern trade, on the other hand, are very different. The increased physical and sensory interaction of consumers with brands demands an experiential nirvana if it is to be love at first sight (or bite, for a food brand!).The role of packaging, the sampling strategy, the look, feel and placement of the brand in the modern trade retail space, all become critical, competitively, given the multiplicity of brands. Categories which dominate are largely experiential - fashion, music, branded (non staple) food and consumer durables. Traditional marketing with its disproportionate focus on advertising would indeed be the mainstay of brands in the Home Delivery space. Here the primary role of advertising is to create strong bonds with consumers. In the case of brands in the Modern Trade format, advertising needs to do more - it has to create strong bonds and invite consumers for a closer look. Brands in the Home Delivery format could expect to retain dominant share over longer periods of time as dislodging than would be that much

more difficult in the absence of a first hand 'consumer evaluation' experience. The Future Whether it is successfully responding to the entry of smaller, more nimble new players or regional brands; whether it is proactively addressing divergent trends in the retailing space, the primary competence demanded of marketers is a quality of consumer understanding that goes beyond the conventional and a perfect positioning of the brand where it matters the most - not in the market place but in the life of the consumer!

Local challengers Some of the most successful FMCG brands in 2002 came, not from the stables of a Hindustan Lever and a Colgate, but from obscure regional players such as Kaleesuwari Refineries, Parakh Foods, Anchor Switchboards and Kanpur Detergents. Over the past couple of years, brands such as Gold Winner and Gemini in refined oils, Anchor White in toothpastes and Ghari in detergents have managed to sustain double digit growth rates, even as the market leaders have struggled to hold on to single digit growth rates for their brands. Yes, the comparison is unfair, as the local brands had a minuscule base to start with. But these brands have demonstrated it is not impossible for a new challenger to break into the traditional bastion of one or two large FMCG players. Traditionally, large FMCG categories in India have been dominated by just one or two players, who rule the roost by dint of their sheer financial muscle and distribution reach. But, of late, successful regional brands have been finding chinks in their armour. And how! Aggressive pricing In the edible oils market, as national players were forced to hike their selling prices in response to rising commodity prices, both Gemini and Gold Winner have used aggressive pricing to woo consumers away from the national brands. Packed tea too, has seen similar trends. The limited differentiation in grocery and the flexibility offered by a restricted area of operations have stood these companies in good stead. Anchor White, among the few debutants in the toothpaste market to garner a significant share, first wooed the retail trade with high distribution margins, and then used rock-bottom prices to lure consumers into trying the product. Though none of these companies can match the market leaders in adspend, they have used focused regional and local advertising to draw consumers' attention to their brands. The mushrooming of local and regional media has undoubtedly helped the local players milk the most from their ad budgets. Banking on `power' brands

While the local brands have been adding to their brand portfolios, the market leaders have largely stayed off new product launches. In keeping with its "power" brand strategy, Hindustan Lever's marketing strategies in 2002 revolved around rejigging and relaunching established brands such as Lifebuoy, Rin, Surf and Vim. The company phased out brands such as Sunlight in detergents, and Jai in toilet soaps, so as to focus better on its 30 power brands. The strategy appears to have worked, as brands such as Lifebuoy and Rin have moved into a higher growth trajectory after the relaunch. In fact, HLL's "power" brand strategy has found a few followers in the FMCG market, with companies such as Godrej Consumer also announcing plans to focus on a clutch of key brands. Streamlining adspend While the "power" brand strategy has helped the leading players put their marketing prowess behind their most important brands, it has not really helped them save on adspend. For most FMCG companies, advertising and promotion spends in 2002 grew faster than their sales. In high penetration categories such as soaps, detergents and toothpastes, marketing efforts of the players revolved around persuading existing consumers to use more of the product or to upgrade to a higher-priced brand. The slew of "100 gm free for every 150 gm" offers in toothpastes and the series of promos on the 2 kg packs of premium detergents were both intended to induce existing consumers of a product to pep up their usage of the brand. Companies operating in relatively low-penetration categories such as chocolates, shampoos and skin creams tailored their marketing strategies to bringing in new users, through scaled-down versions of their brands in affordable pack sizes. The low-priced Chocostik, a liquid chocolate in a small-sized pack, launched by Nestle India, has helped pep up the company's topline and is now a large contributor to the company's revenues. Nestle India is now trying out a similar small-sized Rs 5 pack for Maggi noodles. Shampoos have been among the few FMCG categories to register a positive growth rate in 2002, and growth in this category has been driven mainly by sachet packs and by scaled-down 50 ml bottles priced at less than Rs 10. Overall, the FMCG slowdown of the past three years has served a useful purpose. At one level, it has made sure that the dominant players in the market no longer enjoy unlimited pricing power, as they have in the past. There now appears to be a greater effort on the part of the players to hold selling prices and look at their own operations to save on cost. At another level, the emergence of the regional challengers has made sure that consumers of FMCG products have a few more choices in their purchases of essentials.