For Godrej Consumer, the lather is not in soaps these days

With the hard water of competition taking the foam off suds, it’s time for strategic change at Godrej Consumer Products.

The company, which assiduously built its image as a soapmaker over the past many years, is consciously shedding the frame and morphing into a household-care entity.

A little over two years back, Godrej derived 60% of its revenues from soaps; today it’s halved.

The company, which manufactures Godrej No 1, Cinthol, and FairGlow brands of soaps, is a distant No.2 with a 10.4% market share compared with Hindustan Unilever’s (HUL) market-leading 45%.

Analysts bet that by the next fiscal, soaps will account for only a fifth of its sales and a little over a tenth of profits.

“Godrej wants to grow itself and has realised that the two businesses it was predominant in — soaps and hair colours — are not going to lend the traction it seeks. Household care, on the other hand, can,” said an analyst with a domestic brokerage on the condition of anonymity.

The household care business contributes a quarter of the topline today, but is expected to catapult to 51% by next fiscal.

Godrej officials were not available for comment despite repeated attempts over the past many days.

A series of acquisitions in the household care and hair colours space in last three years has geometrically reduced the salience of soaps in Godrej’s portfolio.

At the same time, bigger rivals such as HUL and ITC are turning more and more aggressive. So much so in last three years, ITC has emerged a serious competitor to both Godrej and HUL.    

Almost a national player today, ITC has racked up a 5% spoils in soaps even as HUL’s has slipped to 45% last fiscal from 60% ten years ago.

But soaps continue to be a cash cow for HUL, totting up a high-teen portion of its profits. The giant is striving hard to regain lost share through a raft of relaunches and increased advertising.
Analysts aver the defocusing by Godrej is a positive.

“Lowering the dependence on toilet soaps is good because it’s an underperforming category … it’s a fairly mature segment having close to 90% penetration. Secondly, pricing power is limited in soaps due to higher competitive intensity. Hair colours and household care is growing faster, so it makes sense to change tack,” said Gautam Duggad, equity research analyst, Prabhudas Lilladher.

The decline is seen par for the industry’s course.

“In the medium and long term, volume growth in toilet soaps will underperform personal care categories; personal care is growing faster than soaps owing to its underpenetration,” Duggad said.

Manoj Menon, analyst, Kotak Securities said in the last six years, even when the industry growth rate for toilet soaps was 3-4%, Godrej managed to grow at 12-13% which gave it a 1% market share increase every year.

“Now the competition is intense,” Menon said.

And the pressure is not limited to soaps.

Headwinds are intensifying in other personal care segments too.
For example, competition in the hair colour business has turned white-hot with players such as L’Oreal, which operate in the premium end of the market, making rapid gains.

Godrej’s presence till recently was in the mass-end, powder-colour segment, where growth wallows in single digits.

On the other hand, the premium, cream-based colourants are cantering at 30% year-on-year because a booming economy has meant consumer uptrading.

All this has meant in just five years, Godrej has lost 10% market share in hair colours; it now stands around 30%.

“After the entry of L’Oreal, Godrej’s hair colour business has seen a decline. There have been efforts by the company to create presence in the premium end but this will take time,” said another analyst from a foreign brokerage, who did not want to be named since he’s not authorised to speak to the media.

The company’s household care business (formerly Godrej Sara Lee) in the domestic market has brands like Hit, GoodKnight, and Jet. Godrej enjoys a 30% market share in this space - the same as competitors Reckitt Benckiser, the maker of Lizol, Harpic and Colin; and SC Johnson, the maker of AllOut and Mr Muscle.

In the second quarter of the last fiscal, soaps were 40% of consolidated revenues. In the same period this fiscal, this has dropped to 23%.

For some quarters now, Godrej’s soaps business has been reporting degrowth owing to high base effect and de-stocking.
In the second quarter, soaps business registered a 10% decline year-on-year. In the first quarter, too revenues from soaps saw a 9% decline in volume and value terms.

Although the company has indicated that the growth in soaps business is expected to revive in the second half, analysts are sceptical.

The contribution is only going to moderate further, is the refrain.