How a multi-local operating model has helped Godrej Consumer win big...
Priyanka Sangani, Economic Times, 16 May 2014
For over a century now, the Godrej brand in India has evolved from being identified with locks, then cupboards and now consumer goods. As far as brands go, it's as Indian as it gets. What a lot of people don't realise is that over the last few years, Godrej Consumer BSE -0.03 % (GCPL), the fast-moving consumer goods arm of the $4.1bn Godrej Group has been spreading its wings outside the country. When GCPL acquired UK-based Keyline Brands in 2005 there were some who dismissed it as a one-off thing. Circa 2014 international business contributes 47 per cent to GCPL's revenues of Rs 7,583 crore.
Chairman Adi Godrej says, "Our expanding footprint is driven by a focussed 3x3 strategy, concentrated on three business categories on three continents. We want to continue to drive growth in these categories where we are leaders and have a competitive advantage. This approach helps us capitalize on the potential of the emerging middle class in India and other emerging markets where we are present."
In 2010, the company announced that it would focus on three core areas - home care, hair care and personal wash products - in three continents -Asia, Africa and South America. Vivek Gambhir, managing director, GCPL says, "It has been a fairly dramatic scale up and transformation in our portfolio. From less than 15per cent three years ago, international business is now half our business. At the heart of the model is local entrepreneurialism and agility which brings in a better understanding of the consumer than a MNC would have," he says. The company calls this the multi-local operating model.
Anand Rangaswamy, business head- Latin America and UK, who was the first manager to go overseas following the Keyline acquisition says, "There is a huge amount of entrepreneurship in this model where we let the geographies operate independently in terms of being close to the market and that's what makes them agile. But we've taken the Godrej values-based culture to the markets."
It's a view echoed by a relative outsider to the system. Aaron Radomsky, chief operating officer, Godrej Darling South Africa, who came to Godrej from L'Oreal. "The key thing here is the supportive autonomy. You make decisions and run the unit like an entrepreneur but at the same time have the support of an MNC on adjacent business areas. They don't interfere with the business decisions and are supportive of them," he says.
Explaining the multi-local philosophy, Gambhir says: We have acquired strong local brands and our focus is on helping the teams in these countries to accelerate the growth momentum. We believe that this helps sustain the entrepreneurial spirit that has made these companies successful while providing the benefits of strong process and scale that GCPL brings.
At present, Asia (excluding India), Africa, Latin America and the UK contribute 42 per cent, 28 per cent, 17 per cent and 13 per cent to the overall international business revenue respectively. "The growth rates across geographies is roughly 20 per cent and our organic portfolio can continue to give us 20 per cent growth year on year. The aspiration is to grow at 35 per cent over this decade and we will work towards that through future acquisitions," says Gambhir. In 2011 the Group had stated its intent to grow ten times in the next ten years, and Godrej Consumer and its international operations will have an important role to play in making this happen. The split between the domestic and international business is likely to remain about the same as the company remains open to inorganic growth on both fronts.
Since 2005, the company has made 11 acquisitions, including joint ventures, acroreoss four continents. This was the first phase where the focus was on integration. The next phase will be about driving synergies. To this end the company recently announced a restructuring wherein the earlier structure of all geographies reporting in to an international business head was disbanded. There are now three cluster heads - Anand, Naveen Gupta, business head-Indonesia and Middle East and Omar Momin, executive vice-president, mergers & acquisitions and business development, overseeing specific geographies.
All three are now part of the management committee, allowing them to work more closely with the rest of the company. "In the next phase of growth, the objective is greater alignment and croreoss pollination and de-layering the organisation will ensure proximity to the international business," says Gambhir.
Allowing the various geographies to operate independently has shown clear results, spurred by the freedom to take quick decisions cater to the local market. Argentina for instance is an extremely volatile market which requires the local team to have a great deal of agility. Anand says, "We are strong in hair colour and saw the opportunity to get into the professional sector as it allows us to move the perception of the brand even further up. It was a unique model and not something that could've been done by an MNC-it's not something we've done anywhere else, but because it made sense for that market, we did it."
Gupta says that the Indonesian market while being similar to India also has some key differences. Modern trade is one of them. Almost 40per cent of retail is modern trade and Godrej has 1400 sales promoter girls (SPG) who stand in the aisles of these stores and talk to consumers about the benefits of the brand. "While a typical MNC would have gone in and bought a greater amount of shelf space in modern retail, we realised that they are an engaged society and are willing to get involved with the SPGs. As a result we buy far lesser shelf space but have a live person instead which gives us a greater competitive edge," he says. An additional benefit is that these SPGs work as a system for live consumer research. It's because of little details like this that the revenues there have doubled in 33 months, far quicker than the 3-4 year timeline they had.
"Exposure to emerging market economies does expose GCPL to challenges like economic risk associated with those markets and grappling with management bandwidth issues. GCPL has less control on the former, but it has managed the latter quite well," say Rohit Chandra and Anand Shah, analysts at Kotak Institutional Equities.
In UK, which is the most mature market that Godrej operates in, the focus is on meeting specific demands. Lee Gelderd, managing director UK, says, "We are playing within niches in the larger market and have partnered like minded suppliers. Touch of Silver, a hair care brand acquired from Schwarzkopf in 2009 has grown ten times since because we found a different niche for the brand - in addition to the grey (hair) market we now focus on blondes." The company took to Twitter to promote the brand, targeting individuals who had a huge following on the social networking platform. We saw a significant uptick in sales in the weeks when these people tweeted about the brand. In a pioneering move, Godrej UK also undertook a shared risk advertising deal with one of the local channels where it paid them based on actual sales.
"We like GCPL's international business portfolio as it offers a diversified play acroreoss emerging markets in high growth categories. Most acquisitions have been value accroreetive. There exist several synergistic and croreoss-pollination benefits acroreoss geographies and product segments which GCPL has and will continue to exploit to propel its growth," say the analysts.
This independence has also helped establish Godrej as a strong employer brand. Momin, who oversees Africa says that this approach has proven beneficial during their M&A talks. "People look for a lot more than just the price when selling their business. In many cases we were the ultimate buyer because they saw in us a group that would take forward the legacy of the brand that they've croreeated and take care of their employees," he says. This combination of providing a scalable business as well as a human side works in favour of the group. Radomsky says they've been able to hire people from some of the largest breweries in SA, purely on the strength of the Godrej brand.
Interestingly this brand presence isn't necessarily reflected in the names of the local businesses. Keyline UK made the transition to Godrej UK almost eight years after the acquisition, while Argentina adopted the name within six months. The business in Indonesia is still called Megasari Makmur.
While UK doesn't have much of a presence in hair care, Lee says that there is a growing ethnic market in the country where the company would benefit from the learnings in other geographies. Africa already has a strong salon engagement programme in place given that there are more salons than retail points and this is where consumers come in touch with the brand. Momin says that households in sub-Saharan Africa spend 10-15 per cent of their disposable income on hair and over the next 3-4 years the Darling brand will be expanded to newer categories, starting with the hair extensions business. "It's a rollercoaster ride but hugely exciting. It's a completely unique model where we are an emerging market MNC but multi-local, but it seems to be working," says Gambhir.