India Detergent: Goldilocking
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Vol 6. Issue 3. 1 - 31 MAY 2019 | For Private Circulation Only pg 4. India Detergents: Goldilocking Premiumisation pg 33. Interview – Mr. Rajnikant Sabnavis pg 35. Indian Economy – Trend Indicators pg 37. Valuation Summary Ground View - Previous Issues GROUND VIEW Vol 6. Issue 3. 1 - 31 MAY 2019 MANAGING DIRECTOR & CEO IT SERVICES Vineet Bhatnagar Vibhor Singhal Shyamal Dhruve EDITORIAL BOARD Manish Agarwalla INFRASTRUCTURE Kinshuk Bharti Tiwari Vibhor Singhal Deepika Bhandari DESIGN, ILLUSTRATION Chaitanya Modak LOGISTICS, www.inhousedesign.co.in TRANSPORTATION Vikram Suryavanshi EDITOR Roshan Sony MEDIA, CONSUMER DISCRETIONARY 1st February 2018 Issue 1 1st April 2018 Issue 2 RESEARCH Ankit Kedia AUTOMOBILS Saksham Kaushal METALS Vipul Agrawal Vikash Singh AGRI INPUTS MIDCAP Deepak Chitroda Deepak Agarwal Akshay Mokashe BANKING, NBFCs Manish Agarwalla REAL-ESTATE Pradeep Agrawal Vaibhav Agarwal Sujal Kumar Dhaval Somaiya CONSUMER STRATEGY Vishal Gutka Anjali Verma Preeyam Tolia Neeraj Chadawar CEMENT TECHNICALS Vaibhav Agarwal Subodh Gupta st 1st November 2018 Issue 4 ECONOMICS PRODUCTION MANAGER 1 September 2018 Issue 3 Anjali Verma Ganesh Deorukhkar Aditi Mohol EQUITY SALES & EVENTS ENGINEERING, Rosie Ferns CAPITAL GOODS Jonas Bhutta SALES & DISTRIBUTION Vikram Rawat Ashka Gulati Archan Vyas HEALTHCARE, Jignesh Kanani SPECIALTY CHEMICALS Sneha Baxi Surya Patra Amarinder Sabharwal Mehul Sheth Rishita Raja CORPORATE COMMUNICATIONS Zarine Damania FOR EDITORIAL QUERIES PhillipCapital (India) Private Limited. No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400 013 1st January 2019 Issue 1 1st February 2019 Issue 2 [email protected] 2 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 3 Letter from the MD CONTENTS There is less than a fortnight left for the 17th Lok Sabha elections results, which will decide the destiny of Indians for the next five years. Mr Market is more worried about a hodgepodge government forming, rather than whether it would be a Congress or BJP-led one. A stable central government will ensure continuity of economic policies and allow FMCG companies to make further inroads into and drive premiumization. The incumbent government’s actions – including GST and demonetisation – have encouraged formalization in India, which historically boosts demand of branded and premium products, because the price difference between mass-market products and premium products narrows with formalisation. Premiumization is generally 4. COVER STORY: seen as a ‘win-win’ scenario for both consumers and INDIA DETERGENTS: companies – the former improve their lifestyles while Goldilocking Premiumisation the latter improve their margins. It is likely that after elections, formalisation is likely to become even more stringent (in spirit as well as letter) with stricter implementation of the E-way Bill and other moves. For this edition of Ground View, our analysts Vishal Gutka and Preeyam Tolia dived into the bubbly and frothy world of detergents to see what is driving premiumisation, what it will look like in the future, and challenges ahead. To understand the dynamics, they talked to umpteen urban and rural households, met washing machine technicians, detergent distributors, and contract manufacturers across India. The subject is particularly interesting because premiumisation in detergents has forged ahead even as other FMCG 33. INTERVIEW: Mr. Rajnikant Sabnavis categories have lagged behind. COO of Jyothy Laboratories, talks of the premiumization theme playing out in the In this GV edition, Vishal and Preeyam also interviewd laundry detergent segment. Mr. Rajnikant Sabnavis, COO of Jyothy Laboratories, to understand the premiumization theme playing out in the laundry detergent segment. Mr Rajnikant has close to 30 years of experience in the FMCG sector across 35 . Indian Economy: Trend Indicators various key functions. 37. PhillipCapital Coverage Universe Vineet Bhatnagar Valuation Summary 2 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 3 COVER STORY BY VISHAL GUTKA, PREEYAM TOLIA pg. 6 PREMIUMISATION IN DETERGENTS Premiumisation – still a long way to go _____________________________________ pg. 12 PREMIUM DETERGENT & WM ARE HIGHLY CO-RELATED Washing machines driving premiumisation _____________________________________ pg. 18 SOFT WATER IS THE PANACEA OF DETERGENT PROBLEMS India’s hard-water problem and premiumisation _____________________________________ pg. 21 AT A TIPPING POINT What ails liquid detergents? _____________________________________ pg. 23 PRICE WARS - BOON OR BANE? Can competition spoil premiumisation? _____________________________________ pg. 26 CRYSTAL GAZING The future of premiumisation _____________________________________ 4 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 5 INDIA DETERGENTS: GOLDILOCKING PREMIUMISATION The GV team travelled across India along to the next level – increasing and met key stakeholders of the penetration of automatic washing detergent industry (distributors, machines, easy financing of machines, washing machine OEMs, customers, hard-water problem aggravating washing technicians, and marketing not abating, higher household executives) to understand what is electrification, and development of driving premiumisation. India’s US$ superior formulated products that 50bn consumer market story is littered consume less water and cause less with buzzwords such as ‘Demographic damage to the environment. FMCG Dividend’, ‘Under-penetration’ and companies are also getting their ducks ‘Premiumisation’. While to some in a row and working in close touch extent, the Indian consumer story has with consumer durables companies already played out, it is still miles away for product development, customer from its full potential due to hurdles such as adequate job creation, which education, and innovation capabilities. mellows demand for aspirational and Some consumer durables companies premium products. Two recent events are even launching their own premium – demonetisation and GST – have detergents, including laundry pods. changed the consumer story and enabled organised FMCG players to flex Challenges exist. Consumers are not their muscles and accelerate the process easily opening up their wallets to of premiumisation across categories. purchase premium detergents and are finding ways (the great Indian jugaad) The Indian consumer remains highly to make do with regular detergents. value-conscious and will consume Another looming threat is technological premium products only if they tick innovation – what if making hard all boxes on price-value-proposition water soft becomes easy (premium parameters. Premiumisation within detergent not needed) or waterless detergents has taken a considerable machines become viable at a retail lead over other FMCG categories, as level? To answer all these questions customers find that these detergents and more, this issue of Ground View offer the right bang for the buck. delves into the squeaky clean world Consumers have already moved up from bars to powders over the past few of detergents, checks how sustainable decades, but FMCG companies are now the premiumisation trend is, tries to trying to push them up the premium get a feel of how customers perceive ladder a notch – to matics and liquids. premium and normal detergents on the price-value chain, and also looks at In general, things seem to be coming challenges that FMCG companies might together for pushing premiumisation face in their premiumisation journey. 4 GROUND VIEW 1 - 31 May 2019 1 - 31 May 2019 GROUND VIEW 5 PREMIUMISATION IN DETERGENTS Premiumisation – still a long way to go While people have moved from bars to popular detergents, there is still quite a ways before they adopt matics and liquid detergents Kumud Gosrani, 48, lives in Chella village on Awareness of detergents’ the outskirts of Jamnagar City, Gujarat, home to the world’s largest petrochemical complex. She detrimental effects on shifted to better quality detergents due to medical hands and skin in rising reasons. “I was diagnosed with a nail infection in 2015. The doctor told me to either use gloves while washing clothes (if I wanted to continue with my usual detergent) or to switch to a better STEP 2 quality detergent.” She says that once she started using branded detergents such as Wheel, she Premium STEP 1 feels ‘comfortable’. “Better quality detergent (read detergents Local to branded national brands) improved my life. Not only do my clothes come out cleaner but my nails are getting better,” she said happily. Locally manufactured products are believed to be very harsh on skin due to their high soda-ash content Others have made the shift because they are compared with branded products. As a result, tired of the effort that has to be put in while using most households in India – in rural areas and small bars. Sujata Jain, 42, a native of Jabalpur, Madhya towns – are moving to branded detergents. Those in Pradesh said, “I have moved on from using bars to semi-urban areas (tier 3-4 cities) have taken the lead Rin powder (mid-end product) as the effort needed in making a switch from bars to popular or mid-end detergents. Customer appetite for premium (or aspirational products) remains quite high. They get ‘hooked’ once these are made affordable (for e.g., available in Rs 10 sachets) and accessible (increased distribution reach) Kumud Gosrani said using a local detergent powder led to a nail infection, but her situation is improving after switching