The fifties and beyond
Though multinational companies (MNCs) were allowed to operate in India, only HLL had a manufacturing base at the time of India's independence. For other global MNCs, the domestic market was too small to bother about. Colgate and Nestle were there, but they were mainly into trading. Though the sixties saw many MNCs setting up their manufacturing base in the country, it was not a clear-go for FMCG majors. For, the government policy, modelled as it was on a socialistic pattern with strong emphasis on self-efficiency, remained protectionist to the core.

Cut to 1978. That was when the new government earmarked several product categories for the small-scale sector. The MNCs then were asked to choose between slashing their equity stake to 40 per cent, or forget India. IBM and Coca-Cola opted for the latter and quit India. Only Unilever stayed put with HLL around. Unilever managed to retain a 51 per cent foreign stake by complying with the government conditions of minimum 10 per cent export and 60 per cent turnover from priority sectors. It got into the business of fertiliser and chemicals to meet the conditions for staying on in India. HLL stayed on.

Lopsided growth
HLL might have stayed on, but the FMCG sector in India has had a slow and lopsided growth. After so many years, quite a few product segments in the industry still remain unrepresented, and most segments under-represented. Barring personal care and hygiene, no other product segment has had an explosion of players. In food products, for instance, there are only three major players - Pillsbury, Annapurna and Captain Cook. Ditto for vegetable oil where again there are very few players.

What is the reason? One foremost reason has been that the FMCG sector never got the centrality it deserved. Why, the FMCG sector has been a victim of a definitional dilemma in India. Says Michael Fernandes, senior engagement manager, McKinsey & Company: "In India, we never had a strong definition of the FMCG sector." All these years, the FMCG sector in India has been looked upon as an MNC-dominated and high-price sector, which sold only luxury goods to the rich. Even the government seemed to share this view, as its regulations reflected.

Result: most MNCs looked elsewhere. Says Fernandes: "When the MNCs prioritised India opportunities versus that of the world outside, they found that doing business here was difficult. It did not make sense for them to make huge investments in India." There were other reasons as well, which made India an "extra tough" market in the eyes of the MNCs. The need for localisation was much here. It still is. The market too was not open enough to allow free entry and exit.

The dramatic nineties
Things however began to change post-reforms during the nineties. The floodgates were opened. And MNCs with saturating home-markets who were hungrily looking for markets elsewhere rushed in. Categories within categories were created in products such as hair-oil and skincare, and many new product categories were also created. Untouched facets of the Indian consumer were explored. The FMCG players had in front of them not only a vast untapped market but also a market that was fast growing. Income-levels were rising. A new class of upwardly mobile was emerging. Television and, satellite and cable television were helping the market to grow further in rural areas by changing aspirations and lifestyles.

The canvas did widen for the FMCG players, but so did the challenges. Rules of the game changed. Strategies, in their true sense, came to the fore. Quite unlike in the past, companies began looking for ways to expand their product-portfolios and distribution reach. Acquisition of brands became the order of the day as it gave the players easy options of attaining growth in the FMCG sector. That is true of the MNCs who are known for their deep pockets.

HLL, for instance unleashed brands in a way it had never done before. Just in a span of four years (1992-1996), it gobbled up Tomco, Kwality and Kissan. Lakme was bought off lock, stock and barrel in 1995. HLL's gameplan was to leverage Lakme's distribution channel. But, problems remained. HLL's traditional distribution network, although one of the largest, was not tuned to market cosmetic products.

Rivals were not sitting idle either. The Indian arm of Colgate-Palmolive bought off the entire oral hygiene business of Hindustan Ciba Geigy for Rs 1.31 billion, taking over Cibaca Top and Cibaca Flouride toothpaste brands, and Supreme, Standard Angular and Deluxe Transparent toothbrush brands. This purchase consideration was much more than twice the turnover of these brands acquired.

The idea was simple: one, the acquirer pre-empted rivals from acquiring the brands and helped to consolidate its position. And two, it increased marketshare. For Colgate its marketshare more than doubled from 33 to 68 per cent. It was increasingly becoming a marketshare game. Small gains made in marketshares were significant in a market characterised by intensifying competition and polarisation. Finally, it strengthened the distribution network.

Coping up with competition
Connecting to more customers became crucial. But, getting an insight into customers' preferences, both in terms of taste and price also became very crucial. More localisation became imperative. Players such as HLL responded quickly and offered consumers need-based products including ready-to-cook chappatis and imli variants of Kissan sauce.

And all these had become important, but not so much for lesser domestic FMCG players. These players had lesser worries, lesser stakes. At least, that is what they thought. Pre-empting rivals, for instance, was not as much a concern for them as it was for the big daddies. Says Harsh Mariwala, managing director, Marico Industries: "Competition was there. But it was not our first concern."

What Mariwala says reflects the state of mind of pure Indian FMCG players. Call it complacency, lack of confidence, aggression, or even vision. Whatever, but the end result was that they could not and did not think of leadership. Had they thought about leadership, there would have been much stronger and many more Daburs, Nirmas and Maricos. Says Mariwala: "Yes, we could have done much more than what we have done."

Few domestic players thought of leadership as a pursuable goal, except perhaps Nirma. Their ability to think big was reined in by their financial inadequacies, but there is enough proof to suggest that they were not very innovative. They could not perceive leadership as something beyond having deep pockets. Sure, deep pockets allow FMCG players to extend product portfolios, launch new products and extend the ongoing ones. For, all these entail massive costs on research and development, advertisement and promotion.

Building a solid distribution network too calls for massive investments. Indian FMCG players, unlike their foreign counterparts, could not take chances with new brands, just in case they failed. But more than their financial handicaps, it was a mindset that was responsible for the laid back attitude: they were complacent, anti-change and anti-growth. This mindset clouded their vision and strategy. Dabur has been a slow-changer to date. Some of the McKinsey recommendations such as exiting from non-core businesses have met with strong objections from some members of the promoter family. Family feuds, so typical of Indian corporates, left domestic FMCG majors with little time for marketplace battles and strategising.

Is Nirma an exception?
Nirma, however, was different. It was willing to take bets and beat the untrodden marketing path. With its ingenious thinking, it surprised even a rival like HLL. Says McKinsey's Fernandes: "Clearly, Nirma has been a strategic play. Call it superb consumer insight or a flash of brilliance, Nirma has been successful in upgrading its product, package it and offer the value of a branded product. Nirma has used its advertisements to support that." Marico too has been successful, but in other product segments. Especially its health proposition has worked quite well. Manikchand and Silviniya shampoo are other smart plays, especially the latter which surprised its MNC rivals with its sachet offer.

Well-conceived ideas do work. The fact that such ideas were few and far between is a different issue. As competition stiffened, strategising became more and more important. So also the realisation that strategising is all about conceptualising. Marketing and advertising came later and only have a supportive role to play. Says Fernandes: "It is the proposition which is important. No amount of fancy and glitzy advertisements can do the trick." This was increasingly being understood by the domestic FMCG players.

Understanding the consumer
True, MNCs had both good product propositions and deep pockets to back them. Their parents' wide product portfolios ensured that new products kept hitting the Indian market. Players such as Cadbury redefined the basic tenets of the chocolate confectionery industry. It not only launched new varieties and flavours, but in fact helped to change the consumption patterns.

Consider the case of Cadbury's exercise in positioning its chocolate as a snack food. Others such as Procter & Gamble (P&G) and SmithKline Beecham chose to be different, for reasons best known to themselves. They decided to introduce new products through their 100 per cent subsidiaries instead of their already existing Indian subsidiaries. In P&G's case, though the move was aimed at shielding it from high costs of product launches and brand building, it might deprive the Indian arm the opportunities of leveraging P&G's global brands and high growth areas.

Matching aggression
For long, Indian FMCG players have remained low-decibel advertisers. It was only Nirma which was a deliberate low-decibel advertiser. It still is. Such has been its corporate philosophy. It does not even figure in the 1999 top-ten list of advertisers which had Dabur at number two and Marico at four. When practically everybody else have hiked their ad-budgets, Nirma continues to gain volumes by passing on the cost-benefits to consumers. Nirma has proved that ultimately what matters is understanding the consumer. Which is more a positioning than a marketing ploy. Another Indian major to have reaped hefty benefits from its innovative positioning is Dabur. Says Namit Nayegandhi, an analyst with the Mumbai-based Motilal Oswal Securities: "Dabur, through its herbal positioning, proved more than able in fighting off competition."

But, most domestic FMCG companies took time to take new product launches seriously and match MNCs' aggression in the marketplace. But when they did it, it was in style. Says Nayegandhi: "Most domestic players like Dabur, Marico and Nirma have extremely strong brands. These companies have in recent years placed a great deal of importance on brand building and marketing."

Value for money
Ever since the global recession of 1991-94 which hit consumer-spending hard, value-for-money has become the buzzword for FMCG companies globally. These FMCG companies embarked upon major restructuring and cost rationalisation exercises as business continued to become fiercely competitive. Several packaging innovations were also resorted to.

India was no different. There was a paradigm shift towards value-for-money products and, to some extent, towards the rural market.

What Nirma did all these years suddenly became the buzzword for many FMCG players. Price cuts became inevitable to keep the marketshare from shrinking. Sometimes, the cuts touched ridiculous levels. Economic recession hit the urban pockets badly and forced companies to train their guns on rural India which was witnessing a major change in its aspiration and lifestyles and even had an income that translated into increasing volumes.

Companies such as HLL, Colgate and Britannia who already had a strong rural focus, stepped up the gas further. HLL unleashed its "Operation Bharat". Britannia pushed its Tiger biscuits to every nook and corner of the country, while Colgate went about wooing the rural masses by offering low-priced products in convenient packaging. Those who could not do it on their own went piggyback on somebody else. P&G, whose distribution is largely urban, chose to leverage Marico's retail reach.

P&G and SmithKline Beecham, nonetheless, are interesting cases. With small product portfolios like theirs, they have been able to achieve what others could not and proved that what you need is a good product, marketed effectively and sold at the right price.

Acquisitions all over
Of late, an interesting trend in the Indian FMCG sector has been brand acquisitions. This represents a growing awareness among the Indian FMCG players to realign their product portfolios. Says Nayegandhi: "That is more to do with the trend in restructuring product portfolios." FMCG players are talking today more and more of product "fits" while discussing brand acquisitions. It is not just acquiring anything and everything as it was in the past.

Forget brands, protect those who make them. Yes, though there will be some amount of brand acquisition, the real worry of the domestic FMCG players is to protect the makers of their brands from poachers. The real challenge for all FMCG players, however, is in holding on to the human talent that makes brands rather than the brands themselves. FMCG marketeers are known to be the best marketeers globally and have takers in industry as distinct as telecom and cellular, even insurance. HLL has learnt it the hard way.

Plan of action
With domestic consumption close to Rs 80,000 crore, the FMCG sector today is one of the largest in the country. In terms of size and importance, it is only going to grow. Notwithstanding experts' pronouncements that there would be enough room for everybody to co-exist, the name of the game is going to be competition and more competition. One of the biggest challenges facing the Indian FMCG industry is this: get to the next level of innovation. "You need strong local product ranges," says McKinsey's Fernandes.

So, the key to success in the Indian FMCG industry lies in: cutting costs, investing in brand building in the form of marketing, advertisements and promos, providing good price points and aggressive pricing, offering products such as packaged atta and milk that add value and convenience and protecting their human talents from poachers.

Alongside, FMCG players need to go in for new initiatives. Consider HLL for instance. The company has made it clear that Internet is going be its key delivery vehicle which would expedite its distribution and sales efforts. Sure, Internet is going to change the way FMCG companies strategise and do business. With reasons. Internet presents vast opportunities to FMCG companies in the areas of logistics, interface with consumers and value chain.

Consider Internet's role in logistics. FMCG players can leverage Internet to extend their logistics network beyond the traditional expensive EDI-based solutions. Says Fernandes: "It is a huge value-driver for an industry with such a wide reach and a huge SKU complexity."

This would start from connections between the factory and C&F and then move on to more complex networks reaching out to key urban distributors and wholesalers. And over time, even to rural wholesalers and retailers.

As far as interface with consumers is concerned, Internet can work wonders here. Over time, successful e-marketeers can leverage the Internet to develop user-communities, which are invaluable in creating loyalty and in testing products. What more, FMCG companies can come together to form e-purchasing portals and increase their purchasing power and ability to find smaller suppliers.

Fine. All these call for a productive partnership between the FMCG industry and the government. Experts see this as an emerging opportunity. A partnership between the government, which wants to drive Internet penetration into smaller towns, and FMCG companies who want to ride off a shared infrastructural network to enable superior logistics and drive product communications. Such a partnership can jointly drive the Internet network deeper into the Indian heartland.