Published : July 09, 2018 05:45 AM
The race to acquire GlaxoSmithKline's consumer nutrition business is underway. Reports name companies like ITC, HUL, Nestlé, Mondelēz, PepsiCo, Danone, Coca-Cola and Abbott as being in the fray. The brand on everyone's mind is GSK's malt-based milk drink Horlicks.
We asked a panel of marketing experts: Which is the company (or companies) to which acquiring Horlicks will make the biggest strategic difference? It could be in terms of any aspect of the business - product portfolio, distribution, diversification, etc.
To rephrase, for which company will it be strategically most important to get Horlicks in? And why?
Shripad Nadkarni, founder, Fingerlix, a fresh food start-up (ex-Coca-Cola, Johnson & Johnson)
Nestlé: HFDs (Health Food Drinks) are the missing link for Nestlé. Back-end milk supply chain strength has not translated into front-end consumer success. Milo was a very late entrant with the most compelling consumer need states already occupied by firmly entrenched competitors like Horlicks, Boost, Bournvita, Complan and PediaSure. Extending the Cerelac brand to older children is fraught with risks as children usually shed brands completely as they move on to new life-stages. The acquisition of Horlicks could fill the missing gap in Nestlé's portfolio.
Coca-Cola: This is a tricky phase for the Coca-Cola company as their core business of carbonated soft drinks is under tremendous strain, both from sluggish growth as well as the 'perception of being unhealthy' issues. The healthier drinks portfolio, like juices (apart from a well established Maaza), value-added waters and other functional beverages, will take time to plug this need. In this context, the acquisition of Horlicks could give Coca-Cola the heft to kick-start the functional drinks segment. The distribution might of Coke could also be leveraged to create innovative new offerings under the Horlicks brand, in areas such as Ready-to-Drink as well as fruit combinations. And finally, the access to the dairy supply chain that Coke would inherit could add a completely new pillar to its future innovation capabilities.
Lloyd Mathias, brand marketing expert (ex-HP, Motorola & PepsiCo)
Horlicks is a strong and entrenched brand that generations of Indian consumers have grown with. In addition to its robust brand and significant heritage as a nutritional drink for school-going children, it has great distribution and can be purchased from pharmacies/chemists, supermarkets and groceries alike. Given this, I think the two companies that could benefit the most would be Nestlé and ITC.
Nestlé because it will perfectly complement its portfolio. Nestlé already has many offerings targeting nutrition and snacking, including the malt milk beverage Milo. By adding Horlicks to its portfolio, they will be able to bridge their baby food range (Cerelac) and their confectionery range, by having a significant product offering for five-to-12-year olds. Nestlé could use Horlicks and Milo as dual offerings, like Coca-Cola in India had a dual cola strategy with Coke and Thums Up, thereby increasing their overall share in the health beverage segment.
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Moreover, Horlicks can enrich Nestlé's dairy portfolio; they may be able to introduce Horlicks-enhanced milk products. Also, Nestlé's distribution will help get Horlicks into many more stores, besides getting it into Nestlé's tea-coffee dispensing system. Lastly, Nestlé may have the benefit of Horlicks in some of its international markets.
ITC because Horlicks would help add a "health" angle to the company's food portfolio which includes snacks, ready-to-eat meals, fruit juices, dairy products and confectionery. Also, Horlicks being a 'must-have' in many chemist outlets, ITC could ride this to its advantage. More importantly, it will complement its offering to the school-going segment. Also, given ITC's focus on growing its non-tobacco businesses, Horlicks provides a great opportunity for inorganic growth and the chance to increase its leadership in India's branded food business.
I did have Amul, Danone and Unilever in my shortlist but I think Nestlé and ITC may benefit the most.
Vani Gupta, brand marketing expert (ex-PepsiCo, Unilever, RB)
Horlicks is a brand that has a huge legacy in the country. However, its sales have been stagnating. Given that 80 per cent of Horlicks worldwide sells in India, it is really a 'local' star. Even in India, 75 per cent of its sales comes from the East and South of India. A hyperlocal star!
At 400 million USD (estimated sales), its valuation could be at least in the three to four billion USD range? Who could want it so much? I think two kinds of companies could be serious buyers: Companies that could logically extend to adjacent categories like nutrition and health foods - Pharma companies could fit here. And companies looking to expand into new segments - like CavinKare, ITC, HUL, that currently do not play this category... but given that they are strong consumer companies with deep pockets and innovation capability, they could build a big business around a new product platform.
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CavinKare from South India has the Cavin's range of milk, curd, paneer, butter, milkshakes, buttermilk, and lassi. A health drink in its portfolio will boost its sales significantly. "Horlicks by Cavin's" is a possible brand presentation. The brand can easily ride on CavinKare's distribution to kirana stores. Ready-made Horlicks drinks from Cavin's can use the cold chain already established the company. But can they afford it?
Another possibility is ITC. Earlier this year, it launched milk pouches in markets of Eastern India, again a stronghold for Horlicks. They too have the distribution muscle to expand Horlick's sales, and the innovation capability to develop more relevant variants for Horlicks. They could afford it.
On the pharma side, a Cipla which is a pure-play Indian company could pick up the brand and expand to an adjacent category very rapidly. However, like CavinKare, they have an affordability problem; their India sales are about USD 200 million.
And conversely, there is an Abbott which has the deep pockets globally, to make this play. Its India business is about 400 million USD, and a Horlicks can double that. Given the fact that they are chalking out plans for expansion, should they ignore such a possibility that gives them access to massive consumers and distribution?
Horlicks is a very big star in India that requires new direction and possibly re-invigoration both in terms of brand love and innovation. But in terms of growth, the sky's the limit.
Rashmi Berry, CMO and managing partner, BrandStory Consult, a strategic branding & marketing consultancy
While there are a number of companies said to be in the fray for Horlicks, to my mind Nestlé and Danone stand to gain the most. Based on internal strengths, both global organisations have identified health, nutrition and fortification as the growth path and have expertise in the domestic health food drinks market.
As levels of health awareness rise in India, consumers are paying more attention to the 'health/nutrition' benefits versus the 'taste' benefits of health food drinks. Especially when it comes to their child's nutrition, consumers rely on an 'expert' influencer, who in this case could be the family doctor, pediatrician or chemist. PediaSure has capitalised on this. Here, Danone, with its success with Protinex, has an added advantage both on the distribution side as well as when it comes to the relationship with influencers.
It goes without saying, if the sale goes through, the organisation that acquires the brand will need deep pockets, strong R&D and marketing strength - to reinvent the brand, product formats, and may be the product formulation. This is because the category faces increased competition from perceptually more 'health focused' alternatives from the likes of Patanjali and Sri Sri Ravishankar to shakes, syrups, tablets and health bars by niche and mass brands alike.
Jagdeep Kapoor, chairman and managing director, Samsika Marketing Consultants
The two companies that I think would benefit strategically from acquiring Horlicks could be Nestlé and HUL, in that order. Both already have a strong food brand portfolio each. Nestlé already has a well entrenched network of food, including chemists and kirana outlets. Their pedigree in foods and beverages is well known. It (Horlicks) will be a good fit in their portfolio in terms of segmentation and target audience at the consumer, and trade, level.
Though HUL has greater strength in toiletries, personal care products and detergents, they also have a decent food portfolio. Their distribution strength and desire to enhance their food portfolio could be a reason to acquire (Horlicks).
MG Parameswaran (Ambi), brand consultant and founder, Brand-Building.com
If you ask me about strategic fit... ITC makes a lot of sense, because they are making a huge play in foods. They understand how to manufacture food products, how to distribute them, how to make them profitable; they understand brand building. So to me, ITC Foods makes the best strategic fit for Horlicks. ITC is already pretty big without it, but with Horlicks they can emerge as one of the largest food business players... they might not be able to grow as big as Amul, but can definitely challenge Nestlé India.
Danone is nowhere and would want to ride on Horlicks. It's a big bet for them. From being a nobody in India, Danone could use this to become a somebody.
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