Anchored to value addition in toothpastes

Shyam G. Menon MUMBAI, Jan. 18 THE Shah brothers at the helm of Anchor Health & Beauty Care Pvt Ltd constantly remind you that there is more to `brand fatigue' than just a picture of exhaustion. "It happens when you don't pay attention to your customers and your product," Mr Atul Shah, Joint Managing Director of the company said, his brother and Managing Director, Mr Sanjay Shah, nodding in agreement. They should know for Anchor toothpaste has grown amidst de-growth for competition and the segment, offering a value proposition amazingly overlooked by established players. AC Nielsen figures (moving average total) for end-September 2002 show the rural toothpaste market fell by 10.7 per cent, but Anchor grew by 51.8 per cent even as Colgate and HLL declined. In urban markets, total sales dipped by 8.6 per cent but Anchor grew by 62.1 per cent with reversals again for Colgate and HLL. More important, Anchor placed second in sales, ahead of HLL, in Gujarat and Rajasthan. The brothers see it as a mere bonus that came by while they focused on the product. Audacious, but it fits the Anchor story as encapsulated in Mr Atul Shah's observation the customer always knew Anchor, just as he did a Colgate. For years, Anchor was synonymous with electrical switches. Its 70 per cent market share built on growing electrification, touches 500,000 retail outlets. Trust came naturally because Anchor dealt with taming potentially dangerous electricity. With that to lean on, all it needed was a good product differentiator for its foray into toothpaste and thereby the FMCG business. In the mid 90s, when work on Anchor toothpaste began, only 15 per cent of the Indian population used toothpaste, Mr Shah says. A dominant concern, in a predominantly vegetarian country, was the nature of ingredients used. Of the three main inputs calcium carbonate, dicalcium phosphate and glycerin the latter two were cheaply had from animal sources. The Shahs found alternative sources in vegetable oils and mines. The end product, similar in looks to mainstream toothpaste to differentiate it from herbal varieties, was certified by the Vegetarian Society of London with further endorsement by the British Dental Health Foundation on its ability to keep teeth stronger and whiter and gums, healthier. There was however a problem. It was a costly toothpaste to manufacture. But given the need to establish it, the Shahs traded margins for volumes, pricing the product less than competition, a toothbrush packed free alongside and offering twice the usual dealer margins. By end-97 Anchor toothpaste was national.

Mr Sanjay Shah admits Anchor took a hit on profits initially, but points to value addition even in the toothbrush. "It costed Rs 15 and we were the biggest consumers here of Dupont's tynex nylon for the bristles. Besides, efficient brushing needs a sturdy toothbrush," he said. Interestingly, the Shahs don't adhere to a benchmark RoCE. "It can lead to the fear of failure and prevent us from pursuing a business," Mr Atul Shah said, citing as example the brand building effort in toothpaste. Today, he says, Anchor's Rs 150-crore toothpaste business is in the black. Sales grew and high volumes helped negotiate down the previous raw material costs. Also, the product sold for more reasons than just vegetarian; Kerala returned good growth while the trend in fish-loving West Bengal was a positive 194.8 per cent for end-September. By late 2002 competition too was stamping `vegetarian' on toothpaste packs. If Anchor's was a toothbrush, others offered alongside ketchups, soaps and dental insurance. It raises the question when businesses the size of several hundred crores do so and even undercut Anchor, how long can the latter sustain the game it started? Not to forget, the Rs 600-crore Anchor group must not hurt its core electrical business. In reply, Mr Shah is a trifle brave. First, the market knows who set the trend and who is imitating. Second, competition can't sustain its act for long. Third, with rising sales Anchor has improved its economies of scale (of 5.1 million FMCG outlets, 3.5 million sell toothpastes and Anchor which reaches a million aims to catch up) and is increasing its product range, whereby lost margins are recouped and dealers incentivised to hold on. Already into confectionary, Anchor is slated to debut in personal and body care products in 2003. As in toothpaste and electricals, here too the Shahs insist they will bring value, produce at their own plants, expansion funded from internal accruals. Ambitious. But the Shahs may have the teeth for it.