GSK_Horlics

Marketing Applications and Practices

Rural expansion on trackThe company continues to customize and tailor its products in terms of quality, price, packaging, etc. in order to increase penetration and strengthen its rural presence. Since the company’s products feature in the “may have” rather than the “must have” category, GSK Consumer has been continuously trying to use the growing Indian rural markets to its advantage and at the same time maintain its brand equity in terms of quality and value. In view of this, the company launched a Rs 20 pack of Boost and has increased the distribution network from 5lac to 6lac outlets. The company is also test marketing Horlicks Asha in Andhra Pradesh and Karnataka which is a low-cost (40% cheaper than Horlicks) health food drink (HFD) targeted at the emerging semi-urban and rural consumer segment. Going forward, GSK Consumer plans to expand its distribution network to cover 7lac outlets by CY2010 end.GSK Consumer continues to focus on rural growth by introducing smallsized product packs, expanding distribution network and launching ustomized products for the rural market

GlaxoSmithKline Consumer Healthcare: Buyhttp://www.thehindubusinessline.com/iw/2008/10/12/stories/2008101250631100.htm

The company’s increased spending on brand-building and launch opportunities from its parent’s portfolio hold promise for volume growth.

FMCG stocks have withstood the market fall better than others, but with the ongoing ‘flight to safety’ bidding up their prices, frontline stocks in the sector are now quite expensive in relation to the rest of the market. GlaxoSmithKline Consumer Healthcare — a mid-sized FMCG company — is an exception to this.At the current market price of about Rs 545, the stock trades at a PE of just about 11 times its estimated earnings for CY2009, at a substantial discount to companies such as Dabur India and Nestle India. Investors can accumulate the stock.Given the limited liquidity in the stock and the risk of further downside for the market, acquiring the stock in a phased manner is advisable.The stock is well suited for an investor seeking a 15 per cent annual return with relatively low downside risk.Extensions drive volumes

With a 70 per cent market share, GSK Consumer Healthcare dominates the nutritional drinks market with brands such as Horlicks, Boost, Viva and Maltova in its portfolio. Distribution of OTC brands such as Eno, Iodex and Crocin on behalf of a group company also brings in stable ‘other income’.Sales growth for the company, which hovered in the low double-digits until 2007, has seen a sharp acceleration this year.Compared to a four-year annualised growth rate of about 16 per cent, net sales expanded at 23 per cent in the first half of 2008. This was aided both by healthy volume growth (about 13 per cent) as well as price increases (about 6-7 per cent).Higher volume growth this year has been driven by product launches such as ‘limited edition’ variants for Boost, Actibase — a specialist nutritional supplement, and brand extensions for Horlicks such as Women’s Horlicks and Horlicks Lite.The company has continued to ramp up ad spend, while using celebrity endorsements to build its brands.Limited down-trading risk

Volume growth may be sustained at higher levels over the next couple of years, given the clear consumer trend in favour of health and nutritional products, and efforts by the company to address a larger consumer base through extensions such as Horlicks Lite (targeted at adults) and Women’s Horlicks.The company’s increased spending on brand-building (up from 9-10 per cent of sales to 12-13 per cent in recent quarters) and launch opportunities from its parent’s portfolio, also hold promise for volume growth.The potential to improve capacity utilisation from the current 75 per cent levels and plans to add capacities over the next three years at an investment of Rs 110 crore, may also help the company capitalise on strong offtake.Despite price increases of 6-7 per cent last quarter, volume growth for the company is at relatively low risk from down-trading (companies moving to cheaper substitutes), given the company’s dominant market shares, presence across price points with its four brands and few competing brands.Input prices offer relief

While sales growth may remain healthy, the company’s plan to increase brand-building spends was expected to lead to slower profit growth over the next couple of years.In the June quarter, the company’s 19 per cent sales growth translated into just a 9 per cent expansion in net profit, as escalating raw material costs and sharply higher ad spend (28 per cent increase against 19 per cent sales growth), impacted net profits.

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However, on this count, a sharp correction in raw material prices, triggered by the commodity price meltdown since July and a benign outlook on input prices over the next few quarters, augur well for GSK consumer’s margins.Milk, malt extracts and wheat are the key inputs, and all three commodities have seen a correction in prices over the past few months.Global milk powder prices have corrected over 30 per cent from their July peak, with a further softening of 16 per cent forecast for the next one year.Wheat prices have also slumped sharply on expectations of a sharp increase in global output; domestic prices are expected to remain soft in the current year, on account of record production and a comfortable buffer stock. Malt prices are also off their earlier highs, though prices are expected to remain at the current levels over the next few months.Though a depreciating rupee may offset some of the benefits from these falls, the correction in prices has still been steep enough to offer some cost savings.In the light of the price increases already taken by the company, softer trends in input prices have the potential to expand operating profit margins for GSK Consumer in the quarters ahead. The resulting surpluses may also be used to finance promotional and brand-building spends, which will also help profit growth over the medium term.



History Notes for Horlicks

Following pointers will explain who invented Horlicks, how they expanded the business of

Horlicks and to do so how they upgraded it.

Horlicks was invented by two British men who immigrated to America, William Horlick (1846-

1936) and his brother James Horlick (1844-1921).

1883 -- On 5th June 1883, the brothers obtained US patent 278,967 for their drink's ability

to mix up in water. Thus, they became the first malted milk to be patented;

1890 -- James went back to London to set up an office there to manage importing their

product from the States;

1906 -- UK demand was large enough to justify Horlicks establishing its own plant there;

1908 -- Construction of the first UK factory, in Slough, Berkshire is completed;

1914 -- James was made a Baron;

1921 -- James died. The company was divided into two. James's sons get responsibility for

all of the world except America; William continues to manage America;

1930s -- Horlicks dropped from the product description the phrase "malted milk";

1935 -- Horlicks opened a factory in Australia to supply Australia and New Zealand;

1936 -- William died, age 90;

1945 -- British Horlicks company buys the American Horlicks out;

1955 -- Up till now, powdered Horlicks had been exported to India for bottling and labelling

there. In 1955, government protectionist policies in India stopped the import of Horlicks.

30 October 1958 -- Horlicks opened a factory in Nabha, Punjab, India to make Horlicks

there. The subsidiary company was called "Hindustan Milkfood Manufacturers Pvt. Ltd."

1968 -- A factory was built in Pakistan;

1969 -- Horlicks was sold to Beecham;

1988 -- Calcium and protein added to the Horlicks mix;

1990s -- In the UK, over 70% of Horlicks was being sold to people over 45 in the early

1990s. Horlicks needed to tap into a younger market so that its customers didn't just die

off. The company launched ads showing younger, working people drinking it;

1993 -- Horlicks added Vitamin C, Vitamin B12, Folic Acid, and Iron to its mix;

1999 -- Horlicks added yet more calcium, so that they could market the product as having

twice the calcium of fresh milk;



Executive Summary

Horlicks is the brand of GlaxoSmithKline Consumer Healthcare (GSK). The company's product

portfolio includes brands like Horlicks, Boost and Maltova. GSK Consumer dominates the malted

beverage market with a 72% share (in volume terms) and which is growing at the rate of around

18-22 percent. Its white beverage brand 'Horlicks' laid the foundation for broadening of the

malted beverage market in India. Horlicks is a highly respected brand; it is the country's sixth

most-trusted brand, having its presence in India since 1930. Its subcategories like Junior Horlicks

& Mother Horlicks also enjoy good brand equity.

The company is continuously working at inventing and re-launching new products. In 2002, the

company's top line declined and margins also came under pressure. The decline of the topline

was because of the de-stocking of the dealer pipeline in the face of stagnating sales. To counter

this decline qualitatively, GSK Consumer relaunched the 'Horlicks' brand and introduced three

new variants during 2003. In CY05, it launched various new variants like 'Mothers Horlicks' and

'Junior Horlicks'. A new product like 'Horlicks Lite' was also introduced in health drinks and

biscuits variety. The results of these launches are beginning to show as sales growth has

remained robust over the last 2-3 years.

The company is successfully managing its working capital. Its debtor days have reduced from 25

days in CY01 to 9 days in CY06. The management expects to continue this efficiency going

forward. On account of limited working capital and capex needs, the company has been able to

generate a sizeable amount of free cash flows, which it has put to good use in the past by giving

out dividends and buying back shares. It also bought back approx 3 m shares at a total

consideration of Rs 1,230 m in 2005.

Market share

As shown in the figure below Horlicks has the largest market share in its category of 54%

compared to its major competitor Bournvita, it has larger market share than other brands of GSK

for ex- Maltova/Viva and Boost. Horlicks' market share of the Rs 2,305-crore (Rs 23.05 billion)

milk beverages market is above 50 per cent (source: The Nielsen Company). Cadbury’s Bournvita



coming second with 16%, according to research group Nielsen Co. Horlicks dominates the south

while Bournvita’s strongholds are in the north and west.

(Source for the dia: http://www.webadvise.org/news/news/Business/gsk.html)

Horlicks and India

In India, the overall malted beverage penetration is still around 10% of the population, which is

indicative of immense potential for this market. By far, the biggest market for Horlicks is India,

where it has traditionally been marketed as 'The Great Family Nourisher.' New products have

been developed specifically for India, such as alternative flavors and special formulations for

young children and breast-feeding mothers. Claims by GlaxoSmithKline India in 2005 that

Horlicks encourages growth and alertness in children, however, caused some controversy .

Junior Horlicks 1-2-3 is a large extension that is specially designed for pre-school children.

Horlicks is also available in biscuit forms. In 2005, Horlicks Lite was also introduced targeting

older consumers and does not contain any cholesterol or added sucrose. In addition, the

company has introduced Cereal Bars under the name Horlicks NutriBar exclusively for India.

Promotions strategies

1. Claims are often made by malted milk drinks such as Horlicks that they assist sleep, (but

these claims are unfounded. At most, they help to stave off hunger overnight, which can

lead to sounder sleep.)

2. In 2008 it signed up with the movie 'Spiderman 3' to promote its Chocolate Horlicks and

the idea did click.

3. "Horlicks is Now Proven to make kids Taller, Stronger* and Sharper"-

Horlicks sold in India has been scientifically designed to help meet the requirements of

essential nutrients in children, such as iron and vitamins that aid iron absorption. From the

available data, it has been seen that children in India are not getting enough of these

vitamins and minerals from their daily diet. Further, research shows that these nutrients


http://www.webadvise.org/news/news/Business/gsk.html


are very important for school age children for their attention, concentration and memory

as well as their physical performance and growth. Thus, Horlicks used this survey data and

promoted it as a beneficial supplement for children to aid not only their growth, but also

enhanced attention and concentration.

GSK tests cheaper Horlicks avatar for rural India consumers

To increase the market share of Horlicks GSKCH played a gamble in Nov. 2009. It introduced a

new variant of Horlicks called ASHA which tastes slightly different and is priced at Rs85 for a

500g pack, or close to half the price of the original. Over 18 months, Ramakrishnan’s(marketing

manager GSKCH) team worked to create a product that would be an alternative to consumers of

local cereal mixes of uncertain quality such as ragi or finger millet malt and satoo—a porridge

mix of oats, barley and millet. Hyderabad-based SKS Microfinance, the largest microfinance

institution (MFI) in India, distributed about 75,000 Asha from Horlicks samples for an undisclosed

fee via 16 of its branches across Andhra Pradesh. GlaxoSmithKline (GSK) has used street plays

and cinema screenings to get villagers to taste the product. The firm, which also sells health

drinks Boost and Maltova, participated in about 60 village fairs across Andhra Pradesh to

generate awareness about the brand.

For GSK, the idea is to get rural consumers to buy Horlicks on special occasions, say four times a

year, and to buy Asha at least six to eight times a year.

Ahmed has been credited with charting a high-growth path for the firm with a slew of launches,

including last year’s introductions—snack bar Horlicks Nutribar and ready-to-drink flavoured milk

Chill Dood. About a month ago, Asha from Horlicks was extended beyond Andhra Pradesh to

Karnataka. If the experiments in the two states yield positive results, including proving that it

doesn’t eat into the parent brand’s sales, it will be rolled out nationwide in about six months to a

year.

Rivals know beating Horlicks in the market place is a tough act

Nestle has stopped making Milo and new entrant Dabur India has decided to stay clear of

Horlicks and pitch its Chyawan Junior against GSK Consumer Healthcare's other beverage brand,

Boost.

Product line of Horlicks



GSK Consumer Healthcare is using the brand name of Horlicks to get into new categories. In the

last few months, it has launched biscuits for children, a nutrition drink for women, an energy bar

and chilled milk and in each case, GSKCH has striven to create a distinct and appealing image.

More could follow in the days to come.

Nutribar-

The Horlicks brand has gone in for a category extension with this launch. Nutribar is a cereal bar

which contains cereals and multi-grains. Nutribar is being positioned as a healthy solution to

hunger. The brand is targeting the health conscious young generation. Reports suggest that this

is a product specifically made for Indian market.

Horlicks Biscuit-

Horlicks Biscuits has been growing in popularity ever since it was launched in 1992. Horlicks

Biscuits are available in two flavours - Standard & Elaichi - and it has also lived up to the Horlicks

promise of 'great taste' and 'nourishment'.

Horlicks-

It underwent a revamp in 2003 with the introduction of flavors like Vanilla, Toffee, Elaichi and

Chocolate to satisfy the discerning palate along with its original taste.

Junior Horlicks-

It was launched in 1995; GSK Consumer Healthcare had positioned a product exclusively for

children between the ages of two and five. The Junior Horlicks brand has grown to become an Rs

150-crore (Rs 1.5 billion) brand now.

Horlicks Lite-

The target segment consists health conscious adults and diabetics.

Mother's Horlicks-

The target segment consists pregnant and breast feeding women.

Women’s Horlicks



Women's Horlicks is India's first health drink designed specifically for women's nutritional needs.

It targets a hitherto untapped segment as identified by GSKCH (GlaxoSmithKline Consumer

Healthcare), namely, health conscious urban working women, in metros and mini-metros, leading

hectic lives balancing career and family. Women's Horlicks seemed to have all the elements

necessary for success. And yet, at present, sales appear to be flagging, a seeming contradiction

that presents an intriguing case for analysis.

The target segment therefore consists of health conscious urban working women, in metros and

mini-metros, between the ages 19-50, leading hectic lives focusing on career and family and

hence not able to take care of themselves in the bargain. Women's Horlicks is designed to

specifically address the health needs of women providing 100% of the daily requirement of iron,

calcium, folate and vitamins B2, B6, B12, and C2.

Reasons Behind the Failure of Women's Horlicks

Women's Horlicks appeared to have a hit combination - a winning brand, a double-edged

promotional campaign, an excellent distribution system already in place, courtesy the other

Horlicks variants and a well-established brand name. In spite of these advantages, it has not

been able to make an inroad into the Indian health drinks market. This failure could be attributed

to a number of strategic causes. The results, from 50 respondents, are shown in Exhibit 2.

Exhibit 2. Is the price of Women's Horlicks justified?



Price

The product is perceived to be expensive by the customers surveyed. Women's Horlicks is

available in a 200 gm jar, which costs Rs.100 while traditional Horlicks is priced at Rs.124 for 500

gm3. This disparity in cost might be due to the special formula that is used to prepare Women's

Horlicks but primary research showed that the consumers perceive the price difference

negatively. The fact that the retailer's margins for this product is higher compared to that of

similar products seems to further validate this perception. It can also be interpolated that at all

stages of the value chain the margins might be in a similar range. This translates to an

expensive product and results in lower sales.

Packaging

Moreover, one of the most important facts discovered through the primary research was that

when customers opened the container for the first time after purchase, they were disappointed

with the amount (volume) of Women's Horlicks in the container. They felt cheated and swindled.

In other words, the container for the product was disproportionately large for its actual content.

This only served to add to the existing perception that the product is over-priced and deterred

future purchases of the product.

Taste

Women place an enormous amount of emphasis on taste even for health product as can be seen

in Exhibit 3. Now, Women's Horlicks and regular Horlicks are fairly similar in taste; therefore,

women inadvertently do not perceive a difference between the two products and hence do not

find any justification to buy the more expensive product.



Exhibit 3 Most Important Feature of Health Drinks

Place

The combined effect of all these factors has led to sales figures significantly lower than predicted

and with no signs of improvement in the near future. Possibly due to this lack of demand,

Women's Horlicks is not easily available in all supermarkets and retail stores, further

exacerbating the situation. Even where available, it is usually relegated to the bottom shelf,

resulting in minimal visibility.

Sales are low, especially in comparison with other Horlicks products. Thus, despite its high

retailer margins, retailers are not enthusiastic to carry the product at their stores, implying that

lost sales aren't significant. enough i.e. they don't expect sales to increase significantly.

SWOT Analysis

Strength

1. It’s current no 1 position in the market.

2. Variety of product targeting different segments.

3. Trusted brand.

4. ‘Health’ is the central idea for all the products of Horlicks.

5. All the products of Horlicks belongs to different categories which will not kill market of it’s

own products.

Weakness

1. Customer perceived value of Women’s Horlicks.

2. Price of Women’s Horlicks.

3. Packaging of Women’s Horlicks.

Opportunities

1. Making Nutribar individual brand without the endorsement of Horlicks.

2. Creating functional food category with the help of Nutribar. (Functional foods are those

health foods like energy drinks, cereals and cereal bars which contain health promoting

ingredients.)



3. The market for functional foods in India is estimated to be around Rs 1700 crores and is growing very fast.

Threats

1. Cheaper version of Horlicks that is ASHA may damage the brand.



GAS

Companies like Nestle and GlaxoSmithkline Consumer Healthcare (GSK) are now taking a different route and launching

products specifically for rural markets. GSK (maker of Horlicks), for instance, has launched Asha — a low-cost variant

(40 per cent cheaper than Horlicks) for rural markets only. Asha tastes slightly different and is priced at Rs 85 for a

500-gram pouch pack -– close to half the price of the original.

Nestle, too, recently launched Rs 2 and Rs 4 products — Maggi Masala-ae-Magic and Maggi Rasile Chow, products

which be first marketed in areas with low purchasing power. Maggie Rasile Chow has been developed especially for

the rural/semi urban markets to provide low-cost, light meal fortified with iron. Masala-ae-Magic is a taste enhancer

containing iron, iodine and vitamin A. Shivani Hegde, general manager (foods), Nestle India, says these products were

developed to address the widespread concern about micro-nutrient malnutrition in India.

Anand Ramanathan, sector analyst from KPMG, confirms the shift in approach. “Till recently, most FMCG companies

used to treat rural markets as adjuncts to their urban strongholds and rural consumers as a homogeneous mass

without segmenting them into target markets and positioning brands appropriately. However, it is beyond doubt that

the rural markets are not dumping grounds for low-end products basically designed for an urban audience. The

winning strategy instead is to focus on their core competency such as technological expertise to design specific

products for the rural economy.”

In the past, Britannia (with Tiger Iron Zor), Coca-Cola (with Vitingo) have distributed micro-nutrient enriched products

for low-income group through partnerships with NGOs as CSR activities. But these were not-for-profit ventures.

Analysts believe these products have a bright chance of doing well in the rural markets. “Access to rural markets is

through three routes -– firstly addressing the right need, secondly availability and thirdly being affordability. Consider

Asha, there is a definitive need for giving something extra to the child (in terms of nutrition) that is currently being

fulfilled through home-grown methods of providing wholesome food to the kid. Asha, an affordable health drink

additive, is surely well placed to be a winner if the company can distribute the product well and reach out the rural

masses,” believes Naimish Dave, Director, OC&C Strategy Consultants.

Analysts are hopeful of the success of such products as rural markets have tremendous potential. The purchasing

power in rural India is on a steady rise and the market has been growing at 3-4 per cent per annum adding more than

one million new consumers every year. It now accounts for close to half of volume consumption for FMCG companies.

Moreover, India is now seeing a dramatic shift towards prosperity in rural households. A National Council for Applied

Economic Research (NCAER) study reveals there are as many ‘middle income and above’ households in the rural areas

as there are in the urban areas. There are almost twice as many ‘lower middle income’ households in rural areas as in

the urban areas.

Further, the proportion of the rural population that is dependent on agriculture has declined from 75 per cent in 1994

to less than 67 per cent and the share of agriculture in rural GDP has declined to 48 per cent from 60 per cent in 1994.

In rural areas, people have been shifting away from agriculture to areas such as trade, construction, transport and

communication. Those employed in the non-agricultural sector have around 2-2.5 times earnings of those in the



agricultural sector. Given the potential, rural market-specific products ware bound to work for these companies,

experts say


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