P&G's India Push Offers Growth But Comes With Hurdles

22nd Jun 2010 16:34

By Anjali Cordeiro Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Piyush Bhatt, a grocery shop owner in Pune, India, has seen more shoppers reach for Gillette razors, Tide detergent and Pantene shampoo, one indication that Procter & Gamble Co.'s (PG) recent push in that fast-growing market is helping sales. Yet Bhatt won't carry P&G's Olay or Pampers in his 400-square-foot "supermarket" that carries everything from frozen chicken to cosmetics. His reasoning: The cream is pricey for his shoppers, and diapers take too much space in his store. Bhatt's reaction highlights the challenges and possible success that P&G faces as it tries to grow its presence in the world's second-most-populated country after China. Facing a consumer spending slump in the U.S. and Europe, P&G recently began an aggressive battle to lure Indian consumers by cutting prices on such iconic brands as Pantene and launching a marketing push behind others like Pampers. But the Cincinnati company still faces obstacles in its drive to grow faster in India: It still lags rival Unilever NV (UN, UNA.AE); local price cuts and investments could eat into profits; and small grocers are still slow to carry some of its offerings. That hasn't dimmed the company's ambitions for India, where the $24 billion consumer packaged goods industry is growing at 12% a year, according to Nielsen Co. "As P&G reaches its next billion consumers, a lot of them have to come from India," said Sumeet Vohra, P&G's India marketing director. But India also highlights the challenges of emerging markets, where consumer companies are accelerating their investments. P&G officially set up in India only about two decades ago. It is now trying to take on Hindustan Unilever Ltd. (500696.BY), the Indian subsidiary of Unilever, which has dominated the local market for decades and is responding with its own promotions and distribution push. "This is a market that we own, and we are not going to cede anything. If it comes at the cost of short-term profitability, we will find ways of recouping that," said Gopal Vittal, executive director for home and personal care at Hindustan Unilever. "We've been here 75 years and we are not going away." Detergents have been an area of promotional battles. A few months ago, P&G launched a more affordable detergent variety called Tide Naturals and later increased packet sizes on that brand without raising prices. Hindustan Unilever slashed prices on one-kilogram packets of Rin detergent powders from 70 rupees ($1.50) to INR50 earlier this year and relaunched Wheel, its lower-priced brand. Price competition has risen in U.S. supermarkets as well. But in India it can serve an added purpose: getting consumers to trade up or try new categories for the first time. P&G gained a big foothold in the Indian razor industry through its Gillette acquisition, but many Indian men still use the local barber. It recently brought down prices on some razors to attract new users. In the last six years, P&G has made strides in many areas by grabbing share from smaller competitors and even Hindustan Unilever. But it still lags its Anglo-Dutch competitor in key areas. In shampoos, for instance, P&G has grown its share to 25% from 15% over the past six years but is still below Hindustan Unilever's roughly 46%, estimates Manoj Menon, an analyst at Kotak Institutional Equities. In detergents, he estimates it has a share of 8% to 9%, compared with Hindustan Unilever's 37%. Now, recent price battles between the companies could turn into "near-term pain [on profits]," Menon said. P&G's Vohra said his company ensures price changes are "financially sustainable" by finding offsets like cost reductions. For the past eight years, the company's sales in India have been growing at 20% a year and have reached $800 million annually, he said. Hindustan Unilever, which additionally has a food business, had sales of roughly $3.8 billion in its recent fiscal year. Sharp differences in income make marketing daily goods a tough proposition here. India has a growing number of affluent consumers, but millions still survive on daily wages. Many mothers have never used a disposable diaper. To explain the benefits of diapers to mothers, P&G is sending thousands of marketers to hospitals and door-to-door. "Most mothers use [Pampers] when they go to a party, a temple. We are trying to convince them to use it overnight so a child can enjoy uninterrupted sleep," said Vohra. Vittal's company will have marketers going in vans to nearly 40,000 rural villages this year, using DVD players to show villagers the company's brands and giving live demonstrations on using products like diapers. Hindustan Unilever sells Huggies diapers in India through a joint venture with Kimberly-Clark Corp. (KMB). Bob Black, who oversees emerging markets for Kimberly-Clark, said the company may eventually introduce some of its wipes in India. To get consumers to trade up, Hindustan Unilever has launched Cif surface cleaners and Comfort fabric conditioners. But Indian consumers remain a tough sell. Ratna Chalvade, who makes a living cleaning homes, said she won't switch to shampoo from soap, though Pantene prices have come down because it's still too pricey for her. -By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200; [email protected] (END) Dow Jones Newswires June 22, 2010 11:34 ET (15:34 GMT)