GCPL on buyout mode in Africa

Viveat Susan Pinto, Business Standard, 27 April 2015

Nine years ago when Godrej Consumer Products Limited, or GCPL, entered South Africa with the acquisition of a hair colour brand called Rapidol, few anticipated the avalanche of deals that the company would strike in the world's second-largest continent.

Since 2006, GCPL, the Rs 7,583-crore flagship of the Rs 13,500-crore Adi Godrej group, has wrapped up five acquisitions in Africa, higher than what it has done in South America and Asia, its other chosen markets. In all, GCPL has invested close to Rs 2,000 crore in its African purchases.

GCPL Managing Director Vivek Gambhir is clear that the company will not stop here and scout for more buys in home and personal care as it eyes six-fold growth in Africa in the next five years. Its current turnover there stands at Rs 1,200 crore ($200 million).

The question is why is GCPL, which is among the largest players in India in hair colour, household insecticides and liquid detergents, the second largest in soaps after Hindustan Unilever, and owns brands such as No 1, Cinthol, Hit, Good Knight, Ezee and Renew, investing so much in Africa?

The answer lies in Africa's similarities with India, specifically, its emerging middle class, a market that GCPL has traditionally addressed on its home turf.

Familiar territory

GCPL Executive Vice President (mergers & acquisitions and business development in Africa) Omar Momin says, "If you take a high cut-off in terms of comparable income levels in India and Africa, then the emerging middle class in Africa at 330 million is more than India (250 million). If you take a lower cut-off, then Africa's emerging middle class is even bigger at 500 million. Like India, this emerging middle class has a high proportion of young people who aspire for a better standard of living and good-quality products."

There are other similarities too, such as the propensity of Africans to seek value for money, something that Godrej South Africa Business Head Kapil Dev Pillai describes as optimal pricing. "It is important in Africa to get your pricing right. There is also the ability to understand differentiated products and the willingness to pay for that. Innovation, just like it works in India, where if you do something smart, you can see the results, works even better in Africa. Also, like in India, you have to think local in Africa. You cannot transplant a global product into Africa. It doesn't work."

GCPL's road map in Africa mirrors its operations in India: target the emerging middle class with good but reasonably priced products that offer clear consumer benefits. Categories where its attention will be focussed in Africa include hair colour, hair extensions and household insecticides. Hair colour and household insecticides are two areas where GCPL is a key player in India. Clearly, the company can take its knowledge and technical expertise in these segments into Africa and apply them there, say analysts.

However, Gambhir says that the brands will be local. "A centralised approach like that of a multinational corporation where there is one brand across markets will not work in our case. We need brands that have local resonance and relevance; that will ensure sales," he says.

Pushing sales is critical at a time when GCPL has set a high bar for itself in that area. Multinationals such as Unilever, Procter & Gamble and L'Oreal are ramping up their presence in Africa, notably in the hair care segment - a big market. Dry hair, the term popularly used in Africa for hair extensions, wigs and braids, and wet hair, which is the category comprising shampoos, conditioners and lotions, together do annual sales of Rs 18,000 crore ($3 billion).

Gambhir argues that multinational corporations by and large target the top end of the hair market, that too mainly in cities. "We are, in contrast, targeting a wider segment of people across markets. Our ambition, therefore, is to be a true pan-Africa player rather than a niche player. Also, as the shift happens from the unorganised sector to the organised sector, coupled with rising income and prosperity levels, we want to reach newer consumers, as we have in India, with our distribution footprint. These are our top priorities," he says.

There are other challenges as well, such as building consumer awareness, since category penetration continues to be low in segments such as household insecticides. "The life of an African is centred round his or her community. Therefore, it is important to target these groups with innovative marketing, not like it's done in India, where 60 per cent of advertising by consumer goods companies is on television. It doesn't work that way in Africa," says Gambhir.

Spreading the word

So social media, mobile media marketing and outdoor are bigger channels of communication in Africa, says Gambhir, with a strong emphasis on local culture and habits. Indian brands that have made their way into Africa from the Godrej stables have also adapted to these changes. This includes Good Knight, the popular Indian mosquito repellent, which was formally launched in Nigeria a year ago. There, it is sold in large aerosol cans - a product format that works well in that market owing to the constant danger of being bitten by mosquitoes. The company has also used the local idiom to market Good Knight in a bid to improve sales. This includes conducting medical camps, tying up with non-governmental organisations, organising street plays to drive home the message that mosquitoes cause diseases. On the other hand, the more affluent consumers are being targeted through television and digital ads.

Renew, a hair colour range developed in India, is another example of a product transported to Africa. It is popular among white women in South Africa. Gambhir says that he has no plans to take any more products from India into Africa, since it is expensive to market completely unknown brands there. "In the case of Good Knight, our local management teams told us that it would click. The name has enormous relevance and resonance in Africa, which is why we took it there," he says. Renew, on the other hand, has managed to strike a chord with white South Africans, say company executives.

Soaps, a big category for GCPL in India, will not be a priority for the company in Africa. "It is a low-margin business in the region and it is something that we are not targeting. Our emphasis, even as we look to spread our brands across the region, is to look at businesses that give us reasonably good margins. Soaps do not give us that option," says Gambhir.