Adi Godrej takes a moment to gather his thoughts before answering. The question is about a 1997 research finding on the opportunity in the toilet soaps market. It had been less than a year since the joint venture between Godrej Soaps and the Cincinnati-headquartered Procter & Gamble had been called off. Hindustan Lever, as the company was known then, had over a 70% share of the toilet soaps market and over the past five years, had been facing heat from Nirma, its old nemesis from the detergent industry. At that point, Godrej’s biggest soap brand was Cinthol. “Research indicated that people liked the quality of our soap. We realised there was an opportunity for a good soap at an affordable price,” says Godrej, who is the chairman of the eponymous group. At that point, Lifebuoy was still the largest selling soap in India and with other brands like Lux and Rexona, Lever was sitting very pretty.
Top of the pack
Hindustan Unilever continues to hold sway with two top selling brands
A challenge from Nirma, which had entered this segment in 1992, was brewing. Nirma Bath was in direct competition with Lifebuoy. Godrej needed to get a foothold in this market and the answer was in the form of Godrej No.1, a soap that had been around for many years (it goes back to the 1920s when it was called Godrej No 2 before it was renamed) but had done very little. Even in the mid-1980s, it was priced at ₹6.5 for a 100 gm bar, which was 50 paise more than Cinthol. A decision to relaunch No.1 was taken in 1997 and the brand was in retail outlets the following year. About 17 years later, the soap brand has finally broken into the ₹1,000-crore club. In FY15, sales of the brand touched ₹1,000 crore, an 40-fold jump from ₹25 crore in 2001 and a two-fold jump from ₹500 crore in 2009. With a market share of 10%, it is the third-largest brand by volume (after Lifebuoy and Lux) and the fifth by value, where it has a 7% share.
In this intensively competitive ₹13,200-crore toilet soaps market that grows by barely 3% each year, No.1 has managed to strike the right price-value combination. This has been accompanied by minimal advertising and promotion spend in addition to innovative packaging and keeping the trade happy.
Getting the basics right
In 2001, three years after No.1 was relaunched, the brand was slowly moving but it needed that big push. Sunil Kataria, business head (India and SAARC), Godrej Consumer Products (GCPL), says the objective was to increase consumption. “The 3+1 idea came from there,” he points out. The offer was to buy three bars at 75 gm each for ₹18 with one coming free. For the 125 gm version, the consumer had to shell out ₹30. Other soap brands had, in the past, given away one bar free, though it was always a temporary move to just boost sales. In the case of No.1, there was some thinking that went into it.
According to Kataria, a household typically uses two-three soap brands, which increases the risk of another brand being considered. “The bundle pack meant we had a larger share of the household and also reduced the risk of the consumer moving to another brand,” he says. In the rural market, this bundle (now priced at ₹68 for four bars of 100 gm each) often gets broken and is sold at ₹17 apiece.
Today, No.1 and the bundle pack are synonymous, with 95% of its volume coming from this segment. No.1 was initially launched in a rose variant, followed up by sandal and turmeric the following year to offer another option to consumers. Today, it has eight variants. Kataria maintains that this, too, was done to get a larger share of the house. “Consumers shift between two-three variants. It is important to keep the story simple at the mass end of the market,” he adds.
That was the case with the communication as well. In the early days, No.1 spent a miniscule 1% of its turnover on advertising and promotion (A&P), when the norm was at least 7-8%. Godrej insists that the brand benefited from word of mouth in its key markets such as Punjab and Haryana. “That made a difference in north India since consumers do talk amongst themselves about what they use. The south is big on brand loyalty,” he says. Today, 70% of No.1’s business comes from north and west India.
That said, there was very little money available for advertising. “We could not afford it. We could well have phased out the brand if it did not do well,” explains Godrej. Cinthol today spends over 10% of its turnover on A&P, while it is estimated that No.1 spends around 4%. According to Kataria, the investment in advertising started in 2011. That was the year the brand started being advertised on national TV. “It was on entertainment channels as that is what people in our markets watch,” he adds.
Washing out competition
An important development in the toilet soaps market was in 1992, when Nirma decided to enter it. Nirma’s first toilet soap was Nirma Bath, a mild disinfectant product containing carbolic acid, in direct competition to Hindustan Unilever’s Lifebuoy. The same year saw the launch of Nirma Beauty and over the next five years, the company introduced more versions. In six years since its launch, Nirma had cornered a market share of 16%. It was clear that the battle in the popular segment was getting hotter and HUL, with brands like Lifebuoy, Jai and Breeze, was taking on the Nirma onslaught.
By this time, Nirma was already manufacturing linear alkylbenzene, a key raw material in detergent manufacturing. Trouble came from Wheel, a brand that was growing impressively. Nirma’s numero uno status was now vulnerable and the company took its eyes off the toilet soaps business to focus on detergents. According to Godrej, Nirma got distracted. “By getting into the manufacture of raw material, it was now moving from consumer products to a play in commodities. They did not pay enough attention to soaps,” he says. Vishwadeep Kuila, founder of Brand Vectors, a marketing consultancy, thinks Nirma’s detergents business took a serious turn after Wheel began consolidating. “More importantly, the company could not arm-twist the distributors anymore on the soap business. Nirma’s focus was now back to detergents and its soap business suffered,” he explains.
The dynamics of the soap business were also changing and that was no more evident than when the carbolic version, still dominated by Lifebuoy, faced volume pressure. This was in line with the shift in consumer preference and the desire to use a better product. “Lifebuoy was moving to a different format. From being a carbolic soap with 51% TFM (total fatty matter, with a higher proportion being better for the skin), the attempt was to position it as a soap with 80% TFM,” says a former HUL executive from the soaps business. Godrej No.1 has had 76% TFM since its relaunch.
Lifebuoy’s TFM initiative, which started in late 1998, also had brands like Jai and Breeze not getting enough attention. Both these brands were in the same price range as No.1 and most of Nirma’s portfolio range (₹6 for 75 gm and ₹10 for 125 gm). “A big space in the soaps business was hastily vacated and that opened up the market,” adds the former HUL executive.
It was here where No.1 got a chance to shine. At that point, Jai and Breeze were together a ₹400 crore business for HUL, with Lifebuoy clocking ₹700 crore. With Lux at ₹600 crore, these big brands accounted for around ₹1,700 crore. Today, Lifebuoy and Lux are still the largest by volume, though No.1, in third place, sells more than them in key markets. “We have a 25% share by volume in Punjab and around 23% in Haryana. UP is our biggest market, where we have a 17% share,” says Godrej.
Prateek Srivastava, co-founder, Chapter Five Brand Solutions, a brand consultancy, says, “Beauty is a large segment in the north and Lux was the gold standard. Consumers, though, were always looking for an affordable option.”
Getting it right on distribution was critical, though it wasn’t going to be easy. GCPL was not a novice in the soaps business, but the hitch was that No.1 was taking the rural route, where competition was intense. As the former HUL executive puts it, “It was very difficult to get a retailer in rural India to stock more than two brands. Managing wholesale was the only way.”
The focus for the first decade included offering retailers incentives and creating loyalty clubs, which involved overseas trips and gifts in kind. “The objective was to go beyond money,” Kataria says. That said, GCPL ensured that the wholesale margin was also enhanced. Retailers would get a discount on picking up more quantities of the soap and that discount would normally not be passed on to the consumer. Much of this coincided with HUL not always being willing to offer a high margin to the trade.
Responding to a query from Outlook Business at a recent press conference, Sanjiv Mehta, MD and CEO, HUL, said the company has the advantage of a large portfolio. “We do a lot of in-store activities with retailers. It’s important to not be just transactional but to take a longer term approach,” he added.
In 2011, as the advertising for No.1 went national, an interesting thought process emerged. “It was now clear that there was an opportunity for it to become a large personal care brand. If we had done well in soaps, the equity could be extended,” recalls Kataria. There were some baby steps taken by test-marketing No.1 shampoo in 2007, though it ended there.
Late last year, No.1 was extended to the ₹1,600-crore face wash business. The rationale was simple. “The penetration levels in this business are just 13-14%,” says Kataria. Compare this to soaps, detergents and matchsticks, where it is almost 100%. The strategy has been to launch it in two formats — tubes and sachets — and price it competitively. The 50 ml tube costs ₹35 while other players charge around ₹50. In the case of a 15 ml sachet, it costs ₹10, which to Kataria is a magical price point. “The cheapest offering before we came in was ₹15,” he says. The largest brand is Himalaya, with a market share of over 20%.
The target group for this will be those who already use No.1 soap. According to Kataria, within this audience, face wash usage is quite low. “Our focus will be on the markets in the north and west, which are the biggest for No.1,” says Kataria. Starting May this year, the face wash sachet is being offered free with a bundle of No.1 soap.
The big challenge could be in getting new users. “The middle and upper middle class consumer does not look at the price. It will not be easy for No.1 to get that class of consumers,” adds Kuila.
In the time to come, the brand wants a greater part of the national market, especially the south, known to be a very difficult market. The ₹40 bundled pack of four soaps at 100 gm, launched in 2008, has taken off. It coincided with the slowdown and benefited from consumers downgrading across categories. “Obviously, we would like more people to use No.1 over time,” sums up Godrej. The move to face wash proves that the company’s got its game face on, but will it glide through?