“Rural is where the action will be”

Dalip Sehgal, managing director, Godrej Consumer Products Ltd (GCPL), is a hard-nosed FMCG executive. He?s one of the few, in fact, who understands the business inside out. Not surprising, given that he was associated with Hindustan Unilever Ltd (HUL) for 28 years where he worked in various capacities including heading sales at the national level as well as taking charge of the personal care division at the company. He was also responsible for media buying, consumer and market insights as well as business research at HUL. In addition, he has a good understanding of rural India having worked on Project Shakti, the latter?s rural programme to uplift the poor. He?s been part of the Godrej Group for over a year-and-a-half. He began as managing director and chief executive officer of Godrej Hershey Ltd in February 2008 subsequently taking over as MD, GCPL, in April this year. While steering the company, which is into personal care and hair care, Sehgal has a number of things on his mind in order to scale up the Rs 1,396-crore entity (consolidated net sales for the year ending March 31, 2009). Excerpts from an interview with FE?s Viveat Susan Pinto.

What is the status on the proposed acquisition of the 49% stake in Godrej Sara Lee Ltd by GCPL?

It is on track. We are awaiting the approval of the court concerning it. Once that is through, the 49% stake in the joint venture will start reflecting in GCPL?s books. The Godrej stake in the joint venture company Godrej Sara Lee Ltd was held via two companies?Godrej ConsumerBiz Private Ltd, a 100% subsidiary of Godrej & Boyce Manufacturing Co Ltd, and Godrej Hygiene Care Private Ltd, a 100% subsidiary of Godrej Industries Ltd. Godrej ConsumerBiz held 29% in Godrej Sara Lee, while Godrej Hygiene held 20% in the JV. There was a need to consolidate this stakeholding, which is how the GCPL board approved acquiring 49% stake in Godrej Sara Lee in May, this year. Subsequently, the merger of the two companies Godrej ConsumerBiz Ltd and Godrej Hygiene Ltd started. We are currently awaiting the court?s approval to the amalgamation of these companies into GCPL. Once that happens, the 49% stake will start reflecting in GCPL?s books.

What is the addition to GCPL?s turnover as a result of this acquisition?

The JV (49: 51) has a turnover of about Rs 900 crore. So the Godrej share of 49% translates into a turnover of about Rs 441 crore, which will start showing in GCPL?s books once the merger is complete.

Are you looking at inorganic growth to scale up your FMCG business?

Internationally, we are looking at categories that are core to our business. In Africa, for instance, hair colour and hair extensions are areas we are looking at. Besides, we are also planning geographic expansion. The inorganic growth route would obviously help us there. Possible targets could be in Africa, Latin America and Asia. In India, we are looking at areas where we can leverage our category expertise in personal care and hair care. In addition, we are strengthening our supply chain and distribution.

Most companies today are focusing on the rural market to drive sales. What?s GCPL?s penetration there?

Rural is where the action will be. We cover 15,000 villages at the moment. The intent is to take it up to 50,000 in the short to medium term. Let me tell you that HUL is still way ahead of most players as far as rural penetration is concerned. It covers four lakh villages via direct sales and through its Project Shakti. Most companies manage to achieve just about 50,000 to 1 lakh villages in terms of coverage. If we can touch even about 50,000 that would be great.

What about organic growth?

There is scope for organic growth in the categories we operate in. We have more than just soaps and hair colour in our product portfolio. We have talcum powder in personal care. We have a fast-growing deodorants business under Cinthol. We have a specialised laundry business in Ezee. Even within soaps and hair colour that are two of the largest segments for us, there is a lot we are planning to do. In hair colour, for instance, which contributed 22% to our overall sales in the first quarter this year, we have segmented the market along three lines. Nupur, which is our mehendi (henna) brand, sits at the bottom end of the market. The next one is Expert, our powder hair colour brand, which is a mid-market product, while at the top end is Renew, also a hair colour brand. Nupur was relaunched this year on a natural product platform thereby giving us the scope to expand this franchise.

Mehendi has a tendency to dry hair. So we have added nine herbs to the mehendi to retain moisture content in the hair. This property change has given us a larger canvass to play on. There are more products we could launch in the natural space under the Nupur brand name. In the powder hair dye domain, where Expert sits, we have a range of colours now, other than the standard black. Renew, positioned at the top end of the pyramid, keeps us on the ball in the hair colour market. Customers who pick up a Renew want a good product at a competitive price. We offer that.

How important are price points in influencing demand?

I would say extremely important. Customers associate a certain value with different price points. There are certain price points you absolutely cannot tamper with. Our philosophy is that we want to offer quality products at affordable prices, which is why the Rs 5 and Rs 10 price points are very important to us. That?s a rule of thumb for our soaps portfolio. Even in the hair care business, Nupur is priced at Rs 5 and Rs 10. In Expert, the sachet is priced at Rs 10. Renew, on the other hand, is priced at Rs 40?four times that value. Yet, at the top end, this is the most competitive product because we are clear about we want: we wish to target middle India.

With these prices, the pressure on volume would be pretty high?

IT is, which is why we are training our guns on the rural market now. We have been growing at a CAGR of 15% in terms of toplicne for the last five years. We would like to improve on that. This can be achieved with a combination of things: Building our hair colour portfolio, improving market share in the soaps segment and looking at categories that are related to our core business. Deodorant, for instance, is one such area that we have identified. There could be more, of course. The role of our international business is also crucial here. We would like to grow our business in Africa, sustain growth in the UK etc.

Tell us about specific marketing initiatives that you undertook to counter the effect of the downturn?

We have this huge ongoing initiative involving barber shops and salons. These are not your A-list salons but ones scattered all over the places in rural and semi-urban, even urban areas. We have some 50,000 of them on regular coverage. What we do is provide a kit to them that has a shaving cream, soap, talcum powder, hair colour etc. This barber pack is sold in the shops.

The second part of the exercise is to help these people with branding and merchandising. By associating with us they get an opportunity to jazz up their shops, get branded aprons, coasters etc.

The third part is to do with training. We help these people with styling, hair cutting etc. It works because these then go out and recommend our products and services to their customers.