‘We rarely look at local brands …'
Wednesday, November 17, 2021 5:00 PM

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Vinay Kamath

R. Ravikumar

How much would India contribute to your global revenues?

Developing markets 23 per cent; if you were to include eastern Europe, it would be higher. India within that 23 per cent would be one of the largest blocks but in terms of total percentage ... we don't disclose India per se, but it would be one of the largest. Our largest markets would be the BRIC markets for us, not a surprise.

Do you expect this 23 per cent contribution to your revenues from developing markets to go up substantially?

It has. The only time it isn't is when we do an acquisition which is not in a developing market. Even with Durex and Scholl the business is more developed in Europe than it is in developing markets, so it balances out a bit, but if we don't do any acquisitions in developed markets, then developing markets would continue to grow as a percentage of the total business – for the simple reason that it is growing double-digit while Western Europe and America is growing single-digit.

What are your targets for the India business?

We have set a target for profits at a healthy double digit ... say ... 16 per cent on net income basis.

Any acquisitions planned in India for the domestic market?

If you look at our acquisition strategy for the company, we are very much focused on a few things: acquisitions where we need critical mass, which is not India, but mostly South East Asia and China. In terms of health and personal care there are still places where we don't have infrastructure, because health and personal care is mostly pharmacies; and the sales infrastructure in some countries is still missing. So we are looking for some acquisitions in East Asia and Latin America. Then we always look for good brands, such as Durex and Scholl. These are more global in nature than local.

So, will you look at some local brands?

We rarely look at local brands unless we truly believe they have international growth potential. So just buying local brands for local markets we rarely do no matter where it is in the world.

Any fresh investments likely in India as you expand your market here?

We have invested in India on the manufacturing side. We have a large plant in Uttaranchal and we have made substantial investments there and we have two smaller plants. We also had discussed with TTK if there should be any further investments in the joint venture. Going forth, investments in India may happen not just for India because this is becoming a sourcing point for our other global markets.

Hindustan Unilever (NYSE:UL) , Nestle, an arm of P&G (NYSE:PG) , are all listed in the local markets and all enjoy higher valuations than their principals. Why did Reckitt choose to delist from the Indian bourses?

We like to have control over the total business which includes basically the ownership of the business and that's why we did that seven years ago. That's the philosophy we have and shareholders could easily buy the stock in London where the value of the Indian business will be reflected in that.

Indian companies are spending a large percentage of their sales on advertising. Several of them are publicly listed so we know what their spends are. RB is among the largest spenders in India, do you intend to keep spends high for your brands?

Globally we are spending between 12 and 13 per cent on pure advertising, and clearly in the developing markets we could be spending more than that, as there is good growth to be had and return on investment is relatively better. India is not an exception and we are one of the largest spenders in India, among the top three spenders, and we continue to invest heavily in our franchise, simply because a lot of these categories need consumer education on the benefits of the products, which comes from advertising spending.

Buying these two new brands and marketing them is going to be a learning for you as well?

Absolutely, that's exactly what we have been focusing on for the last few months. What do consumers do, why do they buy, where they buy, what is competition like, this is one of the few things we are doing before we decide what exactly to do.

FMCG players in India have gone through a turbulent phase. Some categories such as detergents and soaps brands are losing their pricing power and becoming commoditised. How are your brands placed in the Indian market?

I don't think our categories are commoditised because clearly, they are smaller and we are in categories which we have to build and grow from a consumer point of view. Having said that, clearly all products are in competitive categories as we are competing with the same companies everywhere, whether it is Unilever, P&G, Johnson & Johnson (NYSE:JNJ) — India is no exception. We are in competitive categories, and that's the nature of the beast, that's the industry, so I don't think our categories are commoditised.

Are you looking at a price hike?

In some categories there will be no choice as prices of packaging materials go up, so from time to time there have to be some adjustments. Simply because of the cost increases.

You've always said that Reckitt is very strong on innovation. What are you doing to innovate brands out of India and take them to your global portfolio?

Most of our innovations are done on a global basis. Having said that, it does not mean that we do not modify. A very simple example: If you take Harpic, the sizes we bring into the Indian market are different. Also, if you go outside major urban areas, you cannot go with a 500 ml bottle because you want to penetrate the rural market where people have less spending power ... we have to downsize and repackage our products as well and make them available for consumers who cannot afford. And that's what we do consistently so we have launched smaller Dettol soaps, smaller Harpics … and Veet is another classic example. In terms of body products what we launched here is a completely different form, not so much in terms of formulations but only in sizing, mostly. However, we do change formulations from time to time because local sourcing may require it and we may have slightly different ingredients.

What percentage of your products here are outsourced?

Not much. Very negligible ... it's around 15 per cent. And that's very standard globally, India is not really an exception. We have acquired a few plants in India, as you know, and so we produce most of the stuff ourselves. So that we have full control over the quality of our products. That's really important in order to convince the consumer to stick with us.

Do you have any India-specific products?

We have some local brands too. Colin and Cherry Blossom will be classic examples, for which we have local innovations. However, as the world is becoming a smaller place, we will increasingly focus on our 19 power brands across the globe, accommodating some differences locally. Airwick is a classic example. If you go from Western Europe to East Asia, you cannot have the same fragrances. Because the fragrance a Japanese consumer likes is not liked by European consumers. And Indians come in the middle. They also have some specific fragrances that they like. For example, Lavender is not basically for India.

Because they don't know lavender as a plant. Because you don't know its history. If you go to France or Germany, it will be one of the most popular fragrances. So we may launch the same product but with some adjustments. This is why we have our R&D labs in India as some products might require some modifications.

How does India compare with Chinese market for you?

India is much bigger for us. We have a strong business in Brazil, India and Russia. But China is very small simply because we entered China very, very late.

You've been quoted as saying that 35-40 per cent of your net revenues today come from products that have been developed over the past 3-4 years? That's remarkable, what happened to all the old blockbuster brands; have they been replaced by these Johnny-come-lately brands?

Well, they don't go away, we just don't count them any more for innovation. If you look at certain categories … let's face it Dettol bar soap doesn't go away, it stays, it doesn't disappear from the portfolio. But what happens is that the growth comes out of adding innovative products to the portfolio. In India, it's a combination of launching new brands and coming up with new products in existing categories. If you look at Dettol we've launched liquid hand soap, sanitisers, these weren't there earlier.

Which are the products which have become blockbuster brands?

We've grown pretty much across the portfolio so we can't say that it's one brand that's contributing to growth. Dettol continues to grow very strongly in the market and clearly we have gained share, so even brands that have been around for 50 years have been growing nicely.

That's because principally we strongly support them with innovation and distribution in rural areas and we fully support our brands. So, it's a combination of support which makes consumers aware of the benefits of the brand and how they should use it, expansion into more distribution points and bringing better products to the party.

For most consumer products, rural market contributes at least 50 per cent. How is that for you?

It is clearly a growing part of the business. It is going to be one of the key growth drivers for most of our brands. Not for all, but if you take Dettol, the rural market is becoming increasingly important for us. If you take some of our high-end products, which we recently launched, clearly we did not launch in rural areas. We launched them in major urban markets and we go to A- and B-class consumers. Then gradually as the business grows we will expand it to more and more distribution points outside of the cities. But this is not just an India story. Even in Brazil, we started in major metropolitan areas and gradually expanded from there as we educated consumers on the use of those products.

You have been CEO of Reckitt from 1999. It's been a turbulent period for the corporate world. What is your philosophy of leadership?

Well. I don't think a company just depends on its CEO. It's a team effort. It's very obvious. What makes the company very, very strong is the hunger to win. But not just hunger to win ... but also to achieve and to come up with new ideas. At the end of the day we all exist because consumers appreciate our products. We deliver top-quality products and they like the products. And we continuously come up with better products and to provide better consumer experience. This is one of the core strengths of the company that makes us successful. And we are going to stick with that because part of our strategy is to continue to innovate and invest in the business. That's why we are successful. We generally do not give any knee-jerk reaction to the market because it's not good this year and better next year ... we have basically stuck to what we thought is right to do and is right for consumers.

So would you say yours is pretty much a hands-off leadership?

Hands-off? (Laughs) My colleagues would not agree with that..

But you say you allow people to innovate ... and you back them …

Yes ... because you are still very much involved with it. Because you are part of the team. Like I said, this is not a one-man show. You have to be close to the business and consumers at the end of the day.

For example, your Freshmatic came out of innovations by one of the company's managers; it had a lot of opposition but finally it became a blockbuster brand ....

Yes. That is very correct. These types of products do exist in office buildings. But the product is very different. It is not very much suited for consumer use. But there was an idea, and this is what we allow. We allow people to come up with their own ideas. Again we may argue that it is right or wrong. But we try to create an environment in which people can actually pursue ideas. It's the job of the top management to allow people to pursue their ideas.

(Source: )
(Source: Quotemedia)


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