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Building up shelf space... - Views on News from Equitymaster
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  • Jan 4, 2000

    Building up shelf space...

    Henkel Spic, a 51 percent subsidiary of German consumer products major Henkel KgaA is engaged in the manufacture of eco-friendly detergents (surface cleaners and laundry). Henkel has spent the last 2 years introducing its internationally acclaimed products under the Henko brand - Henko Stain Champion, Henko Megastar and Henko bar. Megastar is positioned as a premium detergent and is pitted against Surf Excel and Ariel Microshine. The other brand, White Giant brand, pitted against HLL's Rin Shakti and P&G's Ariel Super Soaker, has been rechristened as Mr. White.

    The company has traditionally had a history of entering into a market only after the initial seeding has been done. It has allowed mass marketers such as Unilever to build the market and only when the market is poised to take off does the company enter the market aggressively. This is primarily since quite a few of the company's products are at a premium end.

    Henkel has followed a similar strategy in India. It successfully launched its 'Henko' brand which is among the highest priced among the premium end detergents, this is despite a high 90 percent penetration level in detergents already existing in the Indian market.

    Henkel created its own distribution network in principal cities and large towns across India. The company expects the Henko brand to become a Rs 1 bn brand by the end of calendar '2000.

    During this period, it acquired the Brisk Streakfree Floor, Glass & Surface Cleaner from Modern Home Care Products. After acquiring these brands Henkel introduced Lime Shot scouring powder. Henkel has also recently launched Lime Fresh Pril utensil-cleaning concentrate, which is Henkel's blockbuster premium brand in Europe, most notably in France.

    This product is in competition with Axiom and Vim liquid. The surface cleaners/glass cleaners/toilet cleaners market in India is rather a nascent one being valued at Rs 470 m, while the utensil cleaner market is a relatively mature Rs.2 bn market, where liquids are fast replacing bars and powders.

    By acquiring the control and product distribution rights of the two divisions of Shaw Wallace - Calcutta Chemicals and Detergents India, Henkel has killed two birds with one stone. On the one hand it has got ready access to several established brands in its existing and new consumer segments and on the other hand it has got ready access to an established distribution network.

    Calcutta Chemicals (Calchem) was a Rs 400 m company with such popular brands as Margo, Neem soap, Neem toothpaste, Tuhina range of skin care products. The other brands are Aramusk soap and Moloy Sandalwood soap. This acquisition will help Henkel to enter cosmetics and soaps - in the popular as well as the premium segment. Detergents India was a Rs 600 m company with Chek, Super Chek and Regal. This gave Henkel an entry into the popular detergent segment and supplements Henkel's international portfolio of premium detergents.

    Henkel has been toying around with the pricing level of these products, which have been introduced in the past couple of years for proper price discovery. Price-corrections and introductions of different pack-sizes will follow, notably in smaller packs, so that products are acceptable to larger number of people.

    Gearing up distribution...

    *-Together with the Shaw Wallace divisions
    it will jump to 600,000 outlets

    As mentioned in the table earlier, Henkel has a direct coverage of 200,000 retail outlets, which are serviced by 27 depots spread across India. There are 22 C&F Agents and 1,000 distributors. With the acquisition of Calchem and DIL its total outlet strength is 600,000. Henkel is looking forward to increasing this by another 200,000 in the next 3-4 years to take it up to 800,000 outlets. Currently Henkel is present in 36 cities in India including the metros. The incremental distribution will be mostly in semi-urban areas. This still puts Henkel behind HLL, but would none the less give it a decent exposure level.

    Henkel is much smaller as compared to HLL, P&G or Nirma. Henko detergents have an overall marketshare of only 4-5 percent, though in the premium segments it claims to have a higher marketshare. Hence, it will remain a price follower for some time to come. As the penetration of detergents is high, this will limit Henkel''s flexibility in hiking prices. Average annual price hikes are not expected to be more than 3-4 percent per annum. The company plans to have a proper mix of premium and mass brands so as not to depend on price hikes to sustain a high ad-spend stake.

    Henkel Spic has adopted a tried and tested stragtegy for entering the Indian market. However its toughest testwill be taking on HLLís clout in the mass market.



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