Mr. Rajnikant explained that premiumisation begins with consumers willing to spend more on what they perceive gives them superior value. In detergents, this is being driven by the market leader’s initiatives to focus on innovation and solid communication of the product proposition (that matics and liquids are better than conventional detergents). Launch of access / low-unit packs in premium brands is also another tool to encourage customers to try out premium products.
Mr Rajnikant has close to 30 years of experience in the FMCG sector across various key functions. While he joined Jyothy Laboratories in October 2013, he was associated with the behemoth HUL for almost 25 years in sales and marketing roles.
Henko has done very well for us and has been growing in double digits since the acquisition. Moreover, profits from the Henko brand have more than doubled since 2012. So far, Henko’s distribution was largely restricted to Modern Trade. JLL has significantly increased the availability of Henko while re-launching the brand on the “care” platform. In order to enhance its reach in both GT and MT stores, Henko has been backing the Rs 10 SKU via higher A&P spends.
Most households in a good part of semi-urban/rural areas and some parts of urban India continue to own semi-automatic machines (65% of the overall market). The rest mainly own automatic top-load machines. Majority of the customers who own semi-automatic machines use popular or mid-segment detergents. Only a small fraction of them use matics and liquids. The logic is quite straightforward – a semi-automatic machine costsing Rs 6-8,000 comes with an EMI of Rs 800-1,000 per month. For this consumer, a specialist premium matic powder (Rs 250 per kg) is a significant cost and therefore a disincentive.
However, increased awareness about using premium detergents for automatic machines for superior results (also keeping machine in good condition) is driving premiumisation in this segment. We could see a meaningful pick up in matics and liquids as customers shift towards using automatic front-load machines due to technological innovation, and scale driving down their cost. Right now, they sell at significant premiums to top load machines.
Launch of access and Rs 10 LUP (low unit packs) for premium detergents turned the tables for the category. Lower and middle-income people started using premium detergent access packs for clothes to be worn on special occasions or office wear. They continue to prefer popular or mid-end detergents for everyday clothes. For Henko, salience of the Rs 10 SKU has increased to low-teens if one looks at volumes.
Apart from smaller SKUs, innovation and better product proposition is also driving premiumisation. For example, most customers have gradually started adopting liquid detergents today because apart from giving a better quality wash, they are priced at similar levels to matic detergent powders.
Liquid detergents (Rs 1- 2bn market) is a minuscule proportion of the overall detergent market (Rs 180-200bn), but like western countries, India is likely to shift towards liquid detergents and pods in the future. Apart from being environment friendly, these newer options also provide better quality of wash. It is also possible for branded consumer companies to create some moat around their offerings, as lot of value addition can be done in the form of adding let’s say softening agents or fragrance, which is not possible in powder detergents. This value-add will be difficult for unorganized local and regional players to replicate.
I think liquid detergents can contribute 10-15% of the overall industry’s sales in the next five years.
The powder-detergent segment is a low capex business – that is why many small players are present in the popular segment of this category. As we move up the value chain, it will be difficult for these players to compete due to technological constraints (for liquid detergent) and higher capex requirements.
Capex for setting up a liquid-detergent plant is far higher than what is needed for a powder-detergent plant which is the biggest barrier for smaller players. This process increases the cost and time.
Popular detergents – which comprise a major chunk (I would say about 60% of the overall detergent category) have historically earned gross margins of 10-15%. However, demonetization and GST have ensured compliance among even small and regional players resulting in a simultaneous reduction in below the line promotions etc. Overall, gross margins have improved in popular detergents to 25% from 10-15% earlier after these two events.
For mid and premium detergents, gross margins are at 35-40%, while for matics, margins are higher at 40-45%.
Strong consumer inducement on matic detergent to encourage adoption and consumption results in gross margins being a tad lower. Once companies do away with offers, margins can move up quite a bit.
*Note: The margins talked about in the para above refer to Jll’s experience in the market
Ujala IDD directly competes with HUL Sunlight and ever since it has launched, the product has received tremendous response from customers due to the better proposition. Ujala IDD has overtaken Sunlight in value terms in the mid-end of the market, and now holds the pole position. We intend to focus only in Kerala for the time being.
I believe that the fabric conditioner market stands at Rs 3.5bn. We have taken a different approach and do not intend to compete directly with the market leader, whose product mainly helps in softening clothes. Our product (Ujala Crisp and Shine) actually helps in making clothes crisper.
We are also working towards launching products that use less water, since this problem is likely to aggravate ahead. Simultaneously, we are ensuring our products are fully ESG compliant. We have already removed phosphate salts (the prime cause of marine pollution) from all our detergent products.
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