OVERVIEW

Starting as a one-product, one-man outfit from a 100

sq.ft room in 1969, Nirma became a very successful
company within three decades. The company had multi-
locational manufacturing facilities, and a broad product
portfolio under an umbrella brand – Nirma. The
company's mission to provide, "Better Products, Better
Value, Better Living" contributed a great deal to its
success.
Nirma successfully countered competition from HLL and
carved a niche for itself in the lower-end of the
detergents and toilet soap market. The brand name
became almost synonymous with low-priced detergents
and toilet soaps. However, Nirma realized that it would
have to launch products for the upper end of the market
to retain its middle class consumers who would graduate
to the upper end. The company launched toilet soaps for
the premium segment. However, analysts felt that Nirma
would not be able to repeat its success story in the
premium segment.
In 2000, Nirma had a 15% share in the toilet soap
segment and more than 30% share in the detergent
market. Aided by growth in volumes and commissioning
of backward integration projects, Nirma's turnover for
the year ended March 2000 increased by 17% over the
previous fiscal, to Rs. 12.17 bn.
FAILURE
The Image among the Elite
Nirma's image among the elite has not changed.
The elite still feel that it is a poor man's brand.
In the past it had to face serious allegations
about the detergent affecting clothes and also
the user's hands. Nirma has tried to get into
upper segments of the market but with little
success. "Premiumness" defends Hiren Patel "has
always been misinterpreted as a function
ofprice"27. Nirma is trying to redefine the
concept by associating it with a quality at an
affordable price. Getting into the premium
segment is essential for Nirma, if it wants to
grow further. The urban market is saturated and
so is the rural one. The way Nirma can grow is
going up the value chain, making Ariel like
products.

Soaps Market
The other point of doubt is whether Nirma can
ever hope to alter the rules of the soaps game.
Unlike detergents, soap is a personal use
product. Some customers form deep
psychological associations with their brands.
What's more, it is a market where HLL has
etched the segmentation patterns in stone (by
price, by scent, appeal and by brand
personality). Can Nirma win by playing by HLL's
rules? Worldwide floral beauty, health, freshness
platforms, account for most of the soaps sold.
What Nirma has done is to produce high fatty
matter soaps but with the right scents, but
priced a rung below, thus creating a sub-
premium segment. The rest of the game is in
managing the geographical diversity of consumer
preferences. If the North prefers pink colored
soaps, in the south it's green that sells.

AN OUTFIT STILL RUN BY FAMILY AND

FRIENDS

Most of the top management at Nirma are the

relatives of Karsanbhai Patel. The Patel family
owns more than 70% equity in Nirma Ltd. The
Patel family believes that it's a folly on the part of
the market to believe that promoters cannot be
professionals.

A Part of the Backward Integration Exercise

has turned out to be Ineffective
Nirma had diversified into the production of soda
ash as backward integration strategy. The
company has an installed capacity of 4.2 lakh
TPA for Soda ash. However, the comp any could
utilize only 49% capacity during the FY01.
Backward integration in Linear Alkyl Benzene
(LAB) and Soda Ash has improved the margins of
the company. The installed capacity of soda ash
in India is in excess of domestic demand. Even
though the imported soda ash is cheaper, the
imports are limited due to the nature of the
product being hygroscopic and bulky in
transportation. The reduction in import duty on
soda ash from 35% to 20% in the budget 2001
has adversely affected the performance of the
company.

.
 Competition in the Industry
The competition in this industry is basically
between Nirma and Hindustan Lever
Limited.There are other players like
Godrej soaps, P&G and Henkel Spic. Of late,
direct marketerAmway has also been able to
corner substantial stake in the market. Other
than these players,there are also, local players
(like Ghari and Double Dog in UP and
Maharashtra, Friendly Wash in Western India) in
every territorial market. At an all India level what
makes it a two-way fight is the fact that no other
company has the kind of geographic reach that
these two companies have.
When Nirma introduced a laundry detergent
targeted at low income Indian families, HLL, the
Indian subsidiary of Unilever, reacted in a way
typical of many multinationals: they did nothing.
"That is not our market," HLL executives
rationalized. "We need not be
concerned."37Nirma's Return on Capital
Employed (ROCE) for the project was upwards of
121%38. This convinced HLL that it needed to
take a closer look at the low-income market.
Elementary market research showed that there
was an opportunity to create a detergent of
reasonable quality, catering to the traditional
washing methods used by women from low-
income families.
Following Nirma's lead, HLL invested in process,
packaging, distribution and pricinginnovations to
make that detergent, dubbed "Wheel," a reality.
This drove production costs toa minimum.
Rickshaws were used to transport finished goods
to the thousands of local stores that would sell
them. In villages, murals of colorful appeal were
used for advertising the newHLL product. The
results were astounding: "Wheel" quickly became
HLL's largest seller by volume. HLL's ROCE on its
traditional high-end detergent line was in the
neighborhood of22%; ROCE on the low-income
line approached 93%39. Unilever was quick to
leverage thisnew insight in Brazil; its "Ala"
detergent is currently selling through more than
10,000 outletsin that country. The major lesson
HLL learned from the Nirma experience was that
no nicheshould be left unplugged. Consequently,
Levers had a brand in virtually every segment of
thedetergent market. This strategy changed
since MS Banga took over and now HLL
concentrateson its 30 brands, which have been
identified as power brands.
In 1993, Nirma tried to put off the merger of the
ailing Tata Oil Mills Company Ltd., (TOMCO)that
was to be merged with HLL. The strategy was to
try and wrest away 20% of TOMCO'sshares by
offering 50% more (Rs.75 for each share) than
what HLL was offering at its swapratio of 2:1540.
Acquiring TOMCO would have given Nirma a 10%
market share in the toiletsoaps market. The
winner among TOMCO's brands was Hamam. The
other soaps that did wellin their segments were
OK and MOTI. Karsanbhai was not successful as
the Tatas decided tosell off the stake to HLL.
 Top of Form
Other Companies doing a Nirma on Nirma
What Nirma did to HLL, it has had to face from
other entrepreneurs. The two of the
biggestcompetitors to have emerged are Kanpur
Trading Corporation and Dandi Namak.
KanpurTrading Corporation are the makers of
Ghari detergent. It is headed by a 56 year old
MurliDhar, who himself is an ardent admirer of
Karsanbhai Patel. He is following the footsteps of
hisidol- both in sharing a humble beginning
marked up by tin shed operations and
bicyclemarketing, through fiercely extending
flagship detergent brand Ghari to kirana store
shelves inUP and adjoining markets. Ghari has
crossed the Rs.550 cr33 sales mark in 2002 and
is thelargest single brand in UP and adjoining
markets. To give a sense of sizes Ghari is almost
asbig as Surf, Cadbury and Fanta, twice the size
of Dettol and three times that of Ariel bysales34.
Ghari is the fastest growing brand in the
detergent sector at around 40 and 10%volume
share on an all India basis.
Suresh Agarwal makes the Kunwar Ajay brand of
sarees. The trouble was people boughtsarees
twice a year. There were other irritants like
retailers returning stocks unsold. To chivyup the
demand he spent Rs.25 cr on a nationwide ad
campaign. But sales of the Kunwar Ajaysarees
did not perk up. Then he thought of getting into
FMCGs. The two reasons of getting into the FMCG
sector were that buying is much more frequent
and goods once sold to thetraders aren't taken
back. So he decided to enter something as
plebian as salt. Since its launch in October 2001,
it shipped 60,000 tonnes to the trade.35 Agarwal
also launched Friendly wash, a detergent in April
2002, in a bid to take on Nirma.

Bottom of Form

Search coming soon

Download this Document for Free

.