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When hair style change can hurt sales

Monday, 4 February 2013 - 6:32am IST | Agency: dna

It happens here too — if we sell more Cinthol, then our value growth is higher and if we sell more of Godrej No 1 then volume growth is higher. So these things vary from quarter to quarter.

Adi Godrej believes there’s a huge consumer story unfolding in India’s hinterland. Aspirations and consumption are rising like never before, he told Raj Nambisan and Nupur Anand in an interview. Edited excerpts:

How are Godrej Consumer’s new product launches doing?
It has been beyond our expectations. For example, the response to our hair creme dye has been great, with sales more than current supply. We will launch a lot more of new products and variants since our innovation pipeline is very strong.

Brand extensions or new brands?
Both. We’ll be doing it across the world.

But your African business seems to be a drag…
Not really, we had reasonably good growth in Africa in October-December. Last year same time was the first quarter after we acquired the Darling Company, and we had some exceptional profits in the previous comparable quarter as some very low-cost inventory came into our books. So the base was high. That’s why our profit looks low this time.

But organic growth in Africa was only in mid single digits, lesser than previous quarters..
See, this quarter the volume growth was higher as products sold more were of lower ticket sizes.

So, you are seeing downtrading there?
Yes. There is economic difficulty all over the world. Our main business in Africa is of hair extensions and in that, the lower price point items are getting sold more.

Do changes in hair fashion impact you?
Yes, that’s the case in Africa, where last quarter there was an interchange between weaves and braids and that has an effect on business.

What about in India?
It happens here too — if we sell more Cinthol, then our value growth is higher and if we sell more of Godrej No 1 then volume growth is higher. So these things vary from quarter to quarter.

So, how fast do consumer preferences change?
It’s very difficult to foretell. Frankly, I don’t know the details.

Is rising societal stress good business for you?
What do you mean by that?

More young people are getting grey hair…
I don’t think they are greying faster.

But that’s the popular opinion. You have been in the hair colour business for 3-4 decades. How has it changed over the years?
I don’t think it has changed much. See today, it’s more about youngsters wanting to change the colour of their hair — especially women – than covering the grey strands.

Is the crème colour a cross-pollination product?
Yes, it’s a product that’s very strong in Argentina, where we are leaders and a lot of the sales there is in sachets. So we decided to introduce it in India with some modifications.

What have been the other cross-pollination successes?
Our Indonesian operation is a leader in air fresheners. So we used that expertise, and our earlier knowledge when we had Ambipur (which was sold to Procter & Gamble) to launch Aer now.

Will the creme cannibalise your hair colour powder business?
Some bit. Any new product in the same category will lead to some cannibalisation. But the creme has better margins so it will be good for us.

Down the road, would Godrej Consumer be known more as a hair colour company?
Hair colour is becoming big, but household insecticide still remains the major business.

At 28% growth, has the insecticides business peaked out?
No, we believe there is scope to grow further. Penetration, especially in the rural areas, is still very low and health hazards related to mosquitoes is increasing. This will be a very fast-growing category unlike soaps, which is very well-penetrated. In soaps, we will see more uptrading and so better value growth than volume growth. Going ahead, volume growth in soaps will hover around mid single digits. Even hair colour will remain a volume-led business.

Your soaps volume grew just 2%. Was it because of the new packaging order?
Yes, the new norms came into effect from November so we had to reduce the weight of soaps to conform. But overall soap growth was 50%.

Will your premiumisation strategy help on margins?
Definitely. The other thing that will help is the correction in vegetable oil prices boosting our soap margins.

What is the forecast on raw material prices?
Commodity prices are very difficult to forecast. But we expect them to remain low for another year or so. The last year or two they were very high, in fact, the highest ever.

You must have had gains from falling palm oil prices too?
Yes, from palm oil derivatives, actually. We use it in soaps.

Would you pass on the benefits?
We may not be able to as it is a very tedious task. The MRP of all stock, including the existing ones, will have to be changed, which is a prohibitive proposition. But we will spend more on advertising and make promotional offers.

You visit rural areas. Was there any consumer trend that you have witnessed unfolding…
The most startling trend is how upcountry households are growing in terms of consumption. Fifteen year back, they could barely keep body and soul together. Now their incomes are rising and their discretionary spends are rising and it is amazing as the type and the variety of products that consumers in these regions demand. I think there are two types of big growth coming through. One is consumers going for aspirational products as incomes rise and, at the same time, a lot of non-consumers are becoming consumers of a whole host of products, especially at the bottom of the pyramid.

How much of that is NREGA led?
It’s partly NREGA-led, partly due to better agricultural prices and employment opportunities.

Should educated people try their luck in farms, in hinterland?
Not necessary, I think less and less people should be working on farms. Instead, farm productivity should be increased. I believe there is no unemployment in India, only unemployability. So India is in a very good position, we are not like the Europeans who are very well educated and can’t find jobs. So if we improve governance and economic policy, we will be flying. I tell my grandchildren that in their prime, by 2050, India will be the largest economy in the world. I can’t tell my children that, as they will also be too old. But I keep telling my grandchildren about it.

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