It's Time To Change Tracks at J&J
Stagnant growth in its core areas, sagging margins, and increasing competition has forced the company to seek greener pastures.
By Nita Jatar Kulkarni
There's just one thing that sets apart Fast-Moving Consumer Goods (FMCG) marketer Johnson & Johnson (J&J) from its ilk. And that's an almost compulsive xenophobic streak that seems to run through the company, its publicly-held US parent and its Indian subsidiary. Where other FMCG players love to crow about even small achievements, J&J keeps its lips sealed Always.
The company's CEO, N.K. Ambwani, rarely meets the Press and, even when he does so, he reveals precious little. Ditto for his colleagues. Like members of a secret cabal, even former employees of J&J don't like talking about the company. When BT approached one of them, she said categorically: "Ask me anything, except about J&J or its products." Yet, it is no secret that rising competition is forcing J&J to change tracks, and change them fast.
The problem that the Mumbai-headquartered company (1998 turnover: Rs 548 crore) is facing is two-pronged. First, the segments where it is a clear leader, like baby-care products, aren't growing as rapidly as J&J would like. Second, with growing competition for its other products, the company is being forced to explore new avenues.
Of course, financially, things aren't terrible yet. To be sure, annual topline growth has been consistently over 15 per cent over the past 5 years. At the same time, J&J has strong brands like Savlon (antiseptic), Stayfree (sanitary napkins), Clean & Clear (skin-care), and J&J baby soap (baby-care). However, forced by competition to increase adspend and marketing-related expenses, and seek volumes by lowering prices in certain product categories, the company's bottomline is hurting.
In fact, while J&J's turnover has gone up from Rs 356 crore in 1994-95 (ending March 31) to Rs 548 crore in 1998 (ending December 31), net margins have declined from 8.70 per cent to 5.16 per cent in the same period. Financial figures for 1999 are not yet available at the Registrar Of Companies office in Mumbai.
Predictably, J&J's managers refused to speak to BT, but discussions with a cross-section of people, including the company's distributors, marketing consultants, and competitors, revealed pointers as to why J&J has lost its edge in the marketplace, and how it is trying to recoup lost ground. We also look at J&J's strategy to target teenagers through brand extensions of its skin-care and baby-care products. Says Anuraag Dabral, 27, Senior Consultant, KPMG: "Since growth in premium segments like baby-care is limited, the best thing for J&J to do is to enter volumes-driven ones." But will that work?
Chasing New Niches
The answer could well be yes. For instance, look at J&J's entry strategy in the skin-care segment in September, 1998. Leveraging its fastest-growing brand in the Asia-Pacific region, Clean & Clear, which was acquired in 1992, J&J adroitly avoided taking on competitors like Lakmé by targeting it at teenagers. Since most of the existing products in that segment were aimed at 20-plus customers, according to org-marg data, J&J was able to carve out a niche for itself in the marketplace and, within 3 months, pip Lakmé to the No. 3 slot.
Similarly, while the re-launch of a star-shaped kids' soap variant, that is aimed at children between the age of 5 and 12 years, in the same year was not too successful, J&J has initiated an innovative distribution technique by making the soap available in toy shops, and not just groceries and chemists. Likewise, the de-tangling shampoo for kids, launched in late 1999, gave the company the first-mover advantage although that segment is still in an embryonic stage. Agrees Dabral: "Indian mothers are still not ready to buy a separate shampoo for their children in any significant numbers."
That's a problem area because further consolidation in the Rs 230-crore baby-care segment, in which J&J has a 85 per cent marketshare and accounts for nearly a third of the company's turnover, seems difficult. In fact, the company may lose out due to stagnant growth and Wipro's aggressive foray in that market. Explains Anil Chugh, 36, Marketing Controller, Wipro: "According to our data, there has been de-growth in the premium baby-care market since 1998."
Therefore, Wipro, whose share declined from 16 per cent in 1996 to around 13 per cent in 1999, spent approximately half of its allocated advertising budget to push its baby-care products. Fortunately, for J&J, Wipro's Babysoft has a long way to go before it can make a dent in J&J's stanglehold. "It lacks brand pedigree, which is a must to succeed in the baby-care segment," says Anand Halve, 44, Partner, Chlorophyll Brand & Communications Consultancy. But Wipro is trying its best to make a mark.
Unfortunately, the same cannot be said about J&J's presence in the antiseptic market. After the initial growth, when Savlon chalked up a 14.70 per cent share in 1997, it is losing out to Dettol, and its share has declined to 12.50 per cent in 1999. Agrees Debashis Sarkar, 38, General Manager (Marketing), Reckitt & Colman, the manufacturers of Dettol: "A customer may try out our competitor's product, but she goes back to Dettol."
The solution, according to Dabral, is: "higher expenditure on advertising and marketing." But that's something J&J cannot afford as the incremental increase in volumes may not justify the expenses. Couple that with the fact that playing the volumes game in segments like sanitary napkins has already reduced overall margins. In fact, the company is reportedly incurring losses on one of its sanitary napkins' brands. Stayfree Secure, which was launched in late 1997 at a low price of Rs 20 for a pack of 10, has severely impacted the bottomline.
Moreover, the market needs in this segment have changed, which has been capitalised by competitors like Procter & Gamble (P&G). Last year, P&G launched Whisper's Wrap & Throw, and has now come out with Whisper Ultra. That has dented J&J's marketshare (in terms of value), which went up from 42 per cent in June, 1996, to 53 per cent in June, 1999. Elaborates Jayesh Ravindranath, 40, Associate Vice-President, Ambience D'Arcy: "Indian customers are increasingly behaving like their counterparts in the mature markets, where superior protection is taken for granted."
To reduce its costs--in a bid to improve margins--J&J has tried in vain to slash the margins of distributors and retailers. Last year, when the company decided to reduce the margins by 3 per cent for its products in the baby-care segment and sanitary napkins, the products were boycotted by distributors in south India. The company finally withdrew its decision, but the gainers in the process were P&G and Wipro. J&J had adopted the same strategy in both 1993 and 1995 when it slashed retailers' margins from 20 to 15 per cent. However, the company had to retract on both occasions.
Perhaps J&J needs to change its pricing and positioning strategy for some of its products, like Savlon and Stayfree. And get a foothold in new high-growth segments. In fact, recently, it launched a new frequent-use anti-dandruff shampoo, Nizral. But given the competition among anti-dandruff shampoo-makers, if J&J wants to take on new segments and new niches, it will first need a Clean & Clear strategy.
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