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Acquisition of Companies and Brands FMCG Sector Nitin Kochhar

Acquisition of Companies and Brands FMCG Sector Nitin Kochhar

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Published by: babu12654 on Nov 16, 2009
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Acquisitions of companies and brands – FMCG Sector 
Written by: Nitin Kochhar (nitin.blogger@gmail.com),http://www.fmcgmarketers.blogspot.comINTRODUCTION
Growth is Life
” is not just a punch line of Reliance, but it’s what every business/sector/ company strives for. And FMCG sector/ companies are no exception tothis.The sector saw a slump between ’02 and ’04 but has made a quick recovery. Wehave seen a transformation in the percentage growth of FMCG sector from singleto double digit growth. This definitely shows us signs of good times. Let me giveyou some statistics.1.According to latest HSBC Report (ET March 10, 2006), FMCG isprojected to grow by over 60 per cent till 20102.Total size of the FMCG sector will rise from around Rs 56,500 crore in ’05to Rs 92,100 crore in ’10.What is running this sector in the past few years? There exist only two growthpaths– Organic (Innovation) or Inorganic.We have seen FMCG behemoths like P&G to be proponent of organic growth.Recently (April 27, 2006), global CEO of P&G AG Lafley said “Organic growth ismore valuable because it comes from your core competencies. Organic growthexercises your innovation muscle. It is a muscle. If you use it, it gets stronger.”On the other hand, in 2005 Dabur India announced the acquisition of BalsaraHygeine and Home Care businesses. The CEO, Sunil Duggal mentioned thatBalsara's acquisition is certainly not the last one and there may be more strategictakeovers in future. And now after one year, I see a new article in economictimes on April 26, 2006 – “Dabur India eyes acquisitions”.So after briefly hearing the different viewpoints from the CEOs of FMCG majors,can there be a unique strategy for FMCG companies to grow. Obviously, theanswer is No. But in recent past we have seen a skewed trend towardsacquisition of companies and brands by FMCG companies and opting for theinorganic route. In this paper I will give reasons with several case studies to whythese companies are following this path.
Reasons for Inorganic growth by FMCG companies1. Cheap Exercise:
Building a brand from grass-root level asks a lot. Just thinkof small FMCG player who can dare to give a fight or even stand still in front of Home and Personal Care juggernaut, HLL. Do these small players have thefinancial capacity to build a new brand and get a decent market share? It reallyasks a lot. Also, riper is the product category, more it is difficult for other FMCGplayers to enter that space, because of huge competition.Acquiring brands from other companies will not require them to spend exorbitantmoney on brand building to get the space in the mind of the consumer.It’s not only saving money on brand building but cost savings as well.
expected revenue gains and cost savings of $14-16 billion from the merger with
, due to elimination of overlapping functions and a planned 6,000 jobcuts.
2. Time Constraints:
Do you know how much time it takes to launch a newbrand from scratch? Are the FMCG companies ready to afford time to do theinevitable market research, understanding the consumer behavior, pilot testing atselected places etc? Also the market is very dynamic and the needs of theconsumers keep changing. Taking a longer organic route, the fresh innovativebrands initially may get outdated with market needs.
3. Product Related:
Diversification of existing product portfolio andcomplementing current product portfolio are the two reasons to go for inorganicroute. It is the quickest way to increase a company’s basket. It gives a straightlicense to step into new product categories.
3.1 Dabur’s acquisition of 7 brands from Balsara
: DIL's acquisition of thethree Balsara group companies has given them access to seven establishedbrands toothpastes Promise (unique clove oil positioning), Babool (valuesegment) and Meswak (premium segment), Odonil air freshener, Odopic utensilcleaner, Sanifresh toilet cleaner and Odomos insect repellent. Balsara’s herbaloral care range is a good strategic fit for Dabur, as their products are alsopositioned on the herbal benefits.
3.2 Godrej bought Keyline’s Brands:
The deal gave GCPL an easier route toenter the skincare segment through Keyline brands such as Endocil, Inecto,Skyhydra and Aapri. So now GCPL is not just soap and hair colour. Its kittyinclude Erasmic shaving products, Cuticura talcum powder, Adorn & Nulon. Theyhad been looking at the Nihar brand of hair oil as it fits into Godrej's portfoliosince it is has been marketing the Anoop brand.
3.3 Marico
acquired skincare company Sundari LLC, two aromatic soap brandsin Bangladesh and Nihar coconut oil from Hindustan Lever.
3.4 Wipro Ltd 
acquired the Chandrika soap brand with long-term lease rights for marketing the product in India and the SAARC region. Chandrika is the secondlargest selling brand in south India after Medimix. Also this would align withWipro’s strengths in markets like Andhra Pradesh, where Santoor soap brand isalready the market leader with a market share of 17 per cent.
3.5 P&G's acquisition
has given it access to Gillette's portfolio comprisingshaving products, Oral-B toothbrushes and Duracell batteries, among others.This has helped P&G to upgrade from household products like soaps, detergentsand cleaners, to a company that is into "lifestyle" products in the personal careand grooming segments. Gillette's basket of hi-tech shaving systems for men andwomen, powered tooth-brushes and male grooming products will complementP&G' set of brands in the beauty, personal care and feminine hygiene segments.Gillette will also add more high-margin products to the P&G portfolio, making for more robust profit margins than its rivals.
3.6 Tata Group's tea business acquired Good Earth
to leverage potential for growth in the specialty tea sector of the US market and elsewhere in the world.The experience and skills of Good Earth and Tetley complement each other welland will combine to have a strong position in the US tea industry.
4. Size/ Scale related:
There are different parameters which lead to increase insize/ scale of an organization with inorganic route. They are:
Increase Turnover/ Profits
Increase Market Capitalization
Increase Market Share
Presence on world map
4.1 Increase Turnover/ Profits
: Every CEO is worried about the top/ bottom lineand acquisition is definitely an option to boost them.
CMD, Adi Godrej said that through Keyline’s buyout, their sales turnover will go up 20 per cent and profits should increase 10 per cent. GCPL’s 35%revenue coming from hair color brands and five times bigger hair color market inUK than India will definitely give a pump to sales and profits.
saw a growth of 10%growth immediately in revenues.

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