Its tagline might be “taller, stronger, sharper” but Horlicks has not been sharper when it comes to expansion nor has it been able to grow taller or stronger. In fact, finding Horlicks’ Foodles or Horlicks biscuits in Mumbai is like looking for a needle in a haystack. Retailers say that the distribution has virtually stopped and the products themselves don’t find many takers.
Horlicks entered the noodles category in late 2009, before the likes of HUL and ITC. However, despite its early mover advantage and positioning as a healthy alternative to other noodle brands, Foodles has less than 1% market share in the segment. Even in CY15, when others like ITC’s Sunfeast Yippee made hay following the ban on market leader Maggi, Foodles’ market share barely inched up.
Yippee, meanwhile, grew its market share from 10.78% as on December 2014 to 28.5% as on December 2015, as per market research firm Euromonitor. “Since Horlicks has not invested enough in building brand awareness, it still isn’t the second option. ITC though did pick up some market share during the Maggi ban,” says Harminder Sahni, founder and managing director, Wazir Advisors.
While brand awareness is an issue, the major problem with the company’s Foodles foray is that it is at a tangent to the brand’s core positioning. Naimish Dave, director, OC&C Strategy Consultants says, “Foodles has not done well at all. The need that instant noodles are catering to is not the same as the Horlicks’ base brand.”
That may be, but to reach inflection point at some time in the future, “Horlicks needs to do a lot more to encourage trials and repeat purchases,” says Sahni. “With strong incumbents, it will be a hard and long journey.”
Wrong foot forward
When it comes to biscuits too, Horlicks’ foray hasn’t taken off. While it entered the segment way back in 1992, here too, its market share remains below 1%. Moreover, the segment’s revenue dropped YoY in 2016. Trying his best to explain the less than 1% share even after being in the industry for the last 24 years, EVP, marketing, nutrition and digestive health, GSK Consumer Healthcare India, Prashant Pandey points to Horlicks Biscuits’ No 2 status in the South and leading status in the East in the milk biscuits segment. Historically, the two regions have been Horlicks’ mainstay.
At the all-India level, though, Horlicks is nowhere in sight. Britannia, with 29% market share, Parle (28%), ITC (11%) and Surya Foods (5%) dominate the market.
Like with Foodles, Dave questions the logic of Horlicks entering the biscuits segment. “The issue with brand extension is that if it is done without much thought, it doesn’t help. What is the proposition for entering the biscuits category, which is not considered healthy? Products like whole wheat, digestive, etc, are only relatively healthy. They still contain fat and sugar. Brand extension, in this case, is not consistent with the proposition of the core brand.” Horlicks though thinks otherwise, and also tried to enter the cream segment, to no avail.
In fact, the only extension that has worked for the company is Oats. In five years, Horlicks Oats has garnered a market share of 15.6% at the all-India level in the hot cereals category, as per Euromonitor. In the South, the company claims to have a market share of 18%.
Here, of course, there is a clear association with the ‘health’ factor. But while this extension might have given some fillip to the company’s revenue, the overall contribution to the topline remains small, about 5-6% (according to the company’s FY15 sales data).Like Dave says, is the health plank, which is Horlicks’ strength, also acting as a barrier for extensions? And will future extensions be restricted to Oat varieties?
Low on energy
While Horlicks has much to think about when it comes to brand extensions, growth has been faltering in the health drinks segment too. In 4QFY16, GSK Consumer Healthcare’s revenue grew 1.5% on a YoY basis (adjusting for certain one-offs). While the price-led growth for the company was 5%, there was a decline in volume. The Health Food Drink (HFD) segment reported a revenue growth of 4.5%. But Horlicks reported subdued volume growth in the quarter and Boost’s volumes were flat.
In fact, volume growth at its core malt-based food drink business has been flat for the last three quarters. Responding to a question on whether this slowdown was structural or cyclical, Manoj Kumar, managing director at GSK Horlicks Consumer Healthcare, in a recent earnings call, said, “... mothers had more options on the table besides HFD... So, if we play our penetration strategy well, keep the brand equity relevant and the category relevant through advertising, keep on building innovations in all three tiers — the premium tier, mid-tier and low tier, I think the HFD category can continue to grow. We are confident but we still need to get back to the growth levels we are used to seeing.”
Going by the response, the company’s strategy seems to be to continue its high A&P spends (17% of sales) to convince mothers to get their kids to have Horlicks and find new segments within the HFD space. Besides, the company says if an opportunity presents itself, it would leverage the Horlicks brand to enter newer food categories. “I may not be able to share specific details (on entering new product categories) but I can tell you that we are continuously evaluating expansion opportunities in adjacent categories,” says Pandey.
Contrary to Dave’s stance, Pandey says the core proposition of Horlicks is nutrition, and all innovation will be guided by this factor. This year, he says, the focus is on driving innovation in the HFD category. The segment, though, has seen a lot of it already. Since 1995, there have been several extensions including Junior Horlicks (1995), Mother’s Horlicks (1997), Horlicks Lite (2005), Women’s Horlicks (2008), Horlicks Immunity (2016) and Horlicks Growth+ (2016).
While segmentation is important for a large brand like Horlicks to keep its growth going, industry experts believe it is time for Horlicks to look beyond the buzzword. “They need to go beyond just product innovation and come up with a coherent strategy to protect their multiple frontiers,” says Arvind Sharma, former chairman, Leo Burnett, the agency that handled Horlicks’ rival Complan’s advertising mandate.
Within the health drinks segment, the management for years has been focusing on developing its chocolate flavour to make inroads into the North and the West. As a suburban mother of a 9-year old and vice president, marketing of a child day-care centre run for corporate employees, Jyoti Bhatia puts it, “While children are fussy about drinking milk, when the colour of milk is brown, it is more agreeable with their taste buds.”
Going by this thought, Horlicks started playing with flavours other than the regular malt one in 2003. This was also in response to slowing growth. In FY02, the sales of GSK Consumer Healthcare declined 12% to 754 crore. Horlicks was then re-positioned from a brand addressing mothers to a brand communicating to kids, which veterans like Sharma believe didn’t help their cause. “Post-2011, Horlicks had to re-position itself again as a brand addressing the mother,” adds Sharma.
Explaining why getting the taste right was important to make inroads in the two regions, Kumar told analysts in a recent call, “If you look at the history of how we were working in the North and West, we were trying to actually establish base Horlicks here. And that was a very uphill task because the consumer taste is towards brown chocolate. Then what happened is we launched Chocolate Horlicks to counter that, but our taste was a little bit different from the type of chocolate-based drinks consumers were used to.” But now, he adds, during a blind tasting, with the latest innovation, launched in October, the consumers didn’t give a negative feedback.
While it has taken years of trial and error, the company has managed to move the needle in terms of market share in the two regions. “Over the last three years, Horlicks has gained market share of 1.5% in North-West,” says Pandey.
While there is little doubt that the North and West are potential growth drivers for Horlicks, “The cultural belief in these parts is that bacchon ko doodh pilao, ghee khilao, makhan khilao, toh bacche tandrust rahenge,” Sharma says. “Horlicks has not done that segmentation to prove its relevance in that market.”
Adding to this line of thought, Sahni says, “North is a milk drinking society and kids are habitual to drinking milk as it is. They don’t need too much coaxing or flavours and supplements. Mothers, too, are convinced about the natural goodness of milk and may not be inclined to add supplements.”
However, some experts feel that Horlicks needs to strengthen its distribution network in the region to gain market share in both health food drinks as well as food categories. “Retail spend is skewed towards the North and West. About 60-65% consumption comes from there. Here, penetration of modern trade is not as high as in the South. Traditional channels like paan shops don’t typically stock GSK products. Different categories need different channels to drive volumes,” says Ankur Bisen, senior vice president, retail & consumer products division at Technopak Advisors. He adds that kirana stores and paan shops are where biscuits and noodles are typically stocked.
BK Rao, deputy marketing manager at Parle Products, concurs. “Your product needs to be available in the right kind of outlet,” he says, adding that for Horlicks, launching a separate brand for biscuits would have been a better idea. “Your main focus is health food drinks and then you sell biscuits. So, even distributors lose focus because they know that bulk of the revenue is going to come from the drinks and not biscuits. So, it ends up becoming a failure. But, if you come up with a new brand altogether instead of a brand extension, there is a higher possibility of being successful.”
While that is something that GSK will have to mull over, like all FMCG brands, Horlicks has also tried to get its pricing and product mix right in rural areas. The company has been using small sachets to gain new customers here.
But market observers believe that a sachet strategy can be risky as it would be difficult to build brand loyalty with consumers, especially by claiming high-science benefits. “They need to change their communication strategy while addressing the unorganised workers/daily wage earners. Apart from this, they need to also calibrate their small packs. Would a single-serve or weekly-serve pack be a better strategy for consumer retention?.” Sharma says.
Horlicks, too, has been debating the question. It has done a lot of trial and error to figure out the right pricing and product mix for rural parts. In March, Horlicks launched a 10 pack, when it already had a 6 sachet pack in the market. There are no numbers available yet to see how many rural customers upgraded to the 10-pack. But according to Pandey, after test marketing Horlicks Asha (a 500 gram bottle costing 85) in Andhra Pradesh and Karnataka, the company decided not to scale it up. But, wouldn’t the relatively higher priced Asha have contributed more to margins? It’s just one of the many questions that Horlicks needs to figure out to regain its health.