"We believe in strong cross-category brands"

Written by Alokananda Chakraborty | Updated: Jul 14 2009, 09:07am hrs
VS Sitaram
VS Sitaram, chief operating officer, Dabur India, has his hands full. Last month, the company completed acquisition of Fem Care Pharma and now he is rolling out an aggressive expansion and new product development plan for the Fem business. But the task of expansion may not be easyon the one hand there are MNC brands with deep pockets and low-priced Indian competitors in the segment, on the other, there is this emerging threat from private labels to deal with. Here, he talks to Alokananda Chakraborty of FE about the way ahead for Dabur.

Its been a year since Dabur Foods was merged with Dabur India. What kind of business synergies did you realise from the move

To begin with, the merger has helped us unlock operational efficiencies for Daburs food business, while offering us a unique opportunity to combine the strengths of a foods company with those of a profitable fast moving consumer goods (FMCG) business to create a strong health and wellness company. We have improved the distri-bution reach of the food business following the merger and the benefits are visible now. The fruit juice business, for instance, is growing ahead of the industry average and we expect this to continue.

You havent yet leveraged the Fem Care brands acquired last year. Going forward what would be your strategy with Fem Care Why did Dabur pay a substantial premium for Fem when the economy was headed for a slowdown

While Dabur had signed the agreement to acquire the Fem Care Pharma promoter holding in end-November 2008, the transaction was completed only in end-June 2009 after receiving all the regulatory approvals. Starting this month, Fem Care Pharma is a subsidiary of Dabur India, and we are rolling out an aggressive expansion and new product development plan for Fem.

The acquisition brings to Dabur a portfolio of well-known household brands that enjoy a pole position in their respective categories, offering us a strong platform to enter newer product categories and markets. Also, Fem brands fit in well with Daburs growth plans, both for India and the international markets. So there is a lot of scope to scale up the business rapidly. This acquisition gives us access to the 20,000-strong parlour network of Fem that will be an additional source of revenue. Dabur has started investing on the Fem brands. As a first step, we have signed cine star Preity Zinta to endorse Fem bleach and hair removing cream. We are also developing new products under the Fem brand, details of which cannot be shared.

Given the benefits that will accrue from this deal, we dont think we paid a substantial premium for the transaction. With the Fem acquisition, Dabur has become the third largest skin care company in India. We are preparing to expand our presence in the skin care marketthe fastest growing FMCG category in India todaywith a three-pronged strategy. The first pillar of this strategy will be our in-house brand Gulabari, which will continue to offer a range of mainstream skin care products with the benefit of roses. The Gulabari skin care range was first introduced last year and the brand has shown a 40% growth since launch. This range would be expanded with a host of rose-based skin care products. The second pillar will be the Fem range of fairness bleaches. The third will be a new skin care brand well introduce shortly.

The company has a presence in categories ranging from mosquito repellents to juices. Which is better: A few power brands nurtured to offer huge returns, or a wide array of products that contribute meager sums but add up to a reasonably good total

Our strategy is quite different from the global FMCG players that believe in building leading positions in individual categories. We believe in building strong cross-category master brands. So we have a portfolio of ayurvedic and herbal products that straddle several categories. We have also built powerful niche positions in categories such as mosquito repellants with Odomos, and now fairness bleaches with Fem. So, while we may not have a large position in large categories, we surely have large cross-category brands with ayurveda and herbal as the common thread that builds back to the strength of the master brand.

Our brand architecture today includes four master brandsDabur as the master brand for natural healthcare products, Vatika for premium natural hair care, Hajmola for digestives, and Ral for fruit-based beverages. Fem will now be the fifth master brand.

Dabur isnt the leader in any of the product categories where it has a presence: It is No 4 in shampoos, No 3 in toothpastes and nowhere in the reckoning in toilet soaps. Does that trouble you

No, it doesnt bother us. Whats more important for us is to establish powerful positions in key consumer categories that help us drive profitability. We have managed to drive profits and growth in several categories on the strength of the powerful brands. For instance, Daburs Vatika has been the fastest growing shampoo brand three years in row. Vatika has been reporting an average of 34% growth year-on-year for the past three years, much ahead of the industry average of around 14%. Another example of this profitable growth can be seen in Daburs toothpaste brands that have also been growing ahead of the industry average. Dabur Red Toothpaste has become a Rs 100-crore brand within five years of launch, a big achievement in the FMCG market. Dabur is a dominant player and the leader in several categories such as fruit juices (with Ral and Ral Activ), health supplements (with Dabur Chyawanprash and Honey), Amla-based hair oil (with Dabur Amla controlling over 72% share).

You have been on a product launch spree for the past few years. How long would you give a new brand to break even

New product launches have always been core to Daburs growth strategy. The company has launched as many as 30 new products and variants in the previous fiscal, a year that saw many other players slam brakes on new launches in view of the rising input costs. And these launches have been across categories and geographies. Last year Dabur entered new high-growth categories such as skin care (with Gulabari), light hair oils (with Vatika Enriched Almond and Dabur Amla Flower Magic), hard surface cleaners (Dazzl) and malted food drink (Dabur Chyawan Junior), to name a few. The success of our new launches can be gauged by the fact that they accounted for 20% of the sales growth reported in the 2008-09 fiscal. This year, we are confident their contribution to our sales growth will jump to 30%.

Traditionally higher-margin categories, such as foods, are now under threat as large retailers are launching private labels. Do you see private labels as a serious threat

Foods account for over 13% of Daburs domestic FMCG business, and this business is growing at 20% year-on-year. Dabur operates in the market for packaged fruit juices and culinary pastes, and private labels are not so much a reality in this segment. Also, private labels tend to operate in the cheap and cheerful area. Our strategy, on the other hand, is to offer differentiated products. We do global sourcing for our juices and a high degree to product profiling to ensure that the tastes suit the Indian palate. And the other key differentiator is the nutritional benefits that our products offer.

Remember that FMCG categories that could get affected more is home care where a number of key retailers are introducing their own brandsbe it in air fresheners, toilet cleaners or floor cleaners. Also, private labels have been more popular in generic categories such as rice, atta etc. But when it comes to health products, foods or personal and beauty care items, consumers have been loyal to branded items and will continue to remain so. That said, we are closely monitoring the emergence of private labels even in these categories and we treat them as competition, like any other rival products in the market.

Commodity prices have gone up sharply in recent years. What is Dabur doing to cap costs and safeguard operating margins

Even in the previous fiscal, when commodity prices had shot to a high, Dabur India had managed to keep its costs low through a mix of initiatives that included strategic stocking.

Also, the diverse nature of our product mix ensured that the real impact of the inflation on Dabur was much lower that the rest of the industry. This, coupled with judicious price increases, helped us maintain our margins in the previous fiscal.