FOR TRACTION

» Banked heavily on product superiority But has widened market approach since » Offered only high premium products But has acquired mid-market brands » Was content with low volumes But is looking for numbers now » Had insufficient distribution coverage But has spanned out since then » Offered no reason for upgradation But intends to communicate better » Failed to gain upgrade market traction But could start reshaping attitudes

It seems premature, but the bourses have already signalled their general approval, even as Zubair Ahmed, 49, Managing Director, Gillette India Limited (GIL), has confounded his critics. The company has seen its stock go stratospheric, rising from Rs 264 in mid-January to Rs 417 in mid-April, and quoting now at a three-digit price-earnings (PE) ratio. In the best Occam tradition of minimising assumptions to the strictly essential, stock analysts seem to have gone bullish on a simple factoid: infusion of funds from the US. GIL recently got $20 million (Rs 96 crore).

By any stretch, the broad figures could not have excited investors. Net sales for 2001 were down 4 per cent to Rs 495 crore, while the net bottomline went red (a result of an extraordinary Duracell plant write-off of Rs 61 crore, though). Operating profit, while positive, has dipped slightly. And just a year ago, GIL was under attack for its merger policies, as it integrated Wilkinson Sword and Duracell into the firm on terms so generous that GIL shareholders were left fuming.

A closer look at GIL's operations, however, provides better justification for the stock buoyancy. Its plush new office in Gurgaon, on the outskirts of Delhi, presents a picture of complete outward calm. But the storm within is palpable to anyone with a sense of numbers. The entire value-chain has been squeezed for efficiency, with costs ripped out, the salesforce streamlined and inventories halved-all within just one year. Working capital requirement has crashed to Rs 54 crore. Facial hair is not the only kind of vestigial outgrowth that GIL is razing, evidently, to the satisfaction of the $9-billion Gillette, based in Boston, US, which embarked on a similar exercise globally under its new chief, James M. Kilts.

Sounds like a good start. But Ahmed knows only too well that plenty still needs to be done to tackle the fundamental problems nagging it. ''The challenge,'' he says, ''is to get the consumer on to the upgrade curve.'' This is so in all its markets-male and female grooming, batteries, toothbrushes, and small appliances-but more so in shaving systems. What Intel does with processors, Gillette does with blades. It uses planned self-obsolescence-from Sensor to Sensor Excel to Mach3-to impart dynamism to the market.

Zubair Ahmed, Managing Director, Gillette India: In search of a mega-success campaign

But here, GIL is operating in a stubbornly conservative market; just 3 per cent of blades sold in India, for instance, are cartridge type. Upgradations would have to be hard won. Is GIL up to it?

The company has the money. Apart from that, the company has the advantage of American technology coupled with local sensitivity. Now, what has begun as an internal slash-the-trash initiative could well turn out to be a high-impact movement in the wider market. If it gets the rest of its turnaround plan right, that is.

Missing Traction

GIL's past errors have been instructive. When Indian Shaving Products Ltd (ISPL), as it was called then, first gained access to Gillette's high-end shavers in the early 1990s, it sort-of assumed a natural ride over the double-edged blades sold by the House of Malhotra, which nearly monopolised the market.

That didn't happen. GIL's prices were too high, the consumer tradition-bound, and the distribution system sparse. Young first-time shavers were the ideal target, but here too, ISPL had to redesign its plastic disposable razor, Presto (giving it a heavier, more serious appearance and grip), before making headway.

Several of those problems have been tackled since. Most importantly, GIL has come to terms with the 'Indian reality'. Distribution has been widened, new markets have been entered and mid-market brands have been acquired in the quest for volumes. The idea was to deploy a dual-brand strategy to straddle at least two price segments in every product category. So, Gillette got itself Wilkinson (apart from ol' faithful 7 O' Clock), Duracell got Geep and Oral-B grabbed Prudent.

Yet, progress has been slow, with Gillette remaining restricted to the market's top-end. Yes, marketshares have risen over the past few years, but only just. GIL faces high-volume rivals at every turn: Malhotra in blades, Eveready in batteries and Colgate-Palmolive in toothbrushes. ''It is clear that Gillette cannot play the volumes game in any of its categories in India. The potential for value growth is huge, however, because both market potential and products exist,'' says Nirav Seth, an FMCG analyst with SSKI, a stock brokerage firm.

That GIL has an enviable product portfolio is beyond doubt. In razors and blades, the company straddles three segments: the price-fighter brand Wilkinson Sword, mid-priced 7 O' Clock and its premium Gillette range, available in Sensor, SensorExcel, and Mach3 variants. But even after nearly a decade in India, the Gillette brand touches just about 4 per cent of GIL's estimated male grooming customer base of 16 million.

The FMCG slowdown hasn't helped. Admittedly, Gillette's Mach3 is indeed catching the fancy of Yuppies, but just one-third of Sensor's consumer franchise has upgraded to it. Meanwhile, 7 O'Clock has been hit-with its premium double-edged blades being substituted by millions for cheaper Malhotra alternatives.

The story in other categories is not any better. In batteries, its workhorse brand Geep grew by 10 per cent in 2001, but its high-value alkaline brand, Duracell, actually declined by 4 per cent. Analysts are concerned that Duracell, Geep, Braun, Oral-B and Prudent are proving a drag on profitability.

Fresh Lather

For all that, Ahmed has sufficient reason for optimism. The thinking: the past is prologue. It's never too late to start making waves, and what's of relevance now is GIL's renewed thrust forward. With its internal systems now in shape, the company can finally mount a growth-securing market offensive.

GIL has already brought its 7 O'Clock range under the Gillette aegis, more than quadrupling the flagship brand's distribution in one move. This is not mere ''brand rationalisation'', according to Manoj Kumar, Regional Business Director (Grooming & Personal Care), India & South Asia, Gillette. At twice the price of most regular blades, 7 O'Clock needed some brand reinforcement.

In addition, emphasis is being placed on gaining trials through low-priced packs and throw-in sampling exercises (examples: a Rs 5 gel in a sachet, a Rs 50 foam can and single-unit blade packs of Sensor, even shortly for Mach3). ''Sometimes,'' adds Kumar, ''the cash ring can make a difference. And free sampling gets your own consumers to try and upgrade.'' The betting is that the grooming-conscious youngster would savour the fresh experience of a gel-given lather, followed by a shave of utmost safety, smoothness, and chin-sensitivity. It helps that HLL's Close-Up toothpaste has already equated 'gel' with the affirmative confidence of 'freshness', in consumer mindspace. Eventually, though, GIL will have to do some attitude-shaping of its own. If psychographic researchers are right, then a crucial mid-market challenge is to raze the myth of masculinity being represented by a 'tough beard'; the truth is that a scraping sound indicates poor blade quality, not testosterone.

Similarly, in other markets too, GIL needs to nudge the consumer up the sophistication ascent. In small appliances, for example, Braun is banking on its hand-blenders as a beachhead product to penetrate India, starting with the top 30 cities. Among other new launches is Braun's Silk-Epil EverSoft, an epilator aimed at the wax-happy Indian woman. In oral-care, GIL sells just brushes, no paste. ''We have to reconcile with the fact that our competitors advertise toothpaste and gain sales in toothbrushes,'' says R. Parthasarathy, Regional Business Director (Braun & Oral Care). Example: HLL, with Close-Up and Pepsodent, has nearly a quarter of the Rs 393-crore toothbrush market, with just the rub-off of their paste campaigns to thank.

All said, GIL is aware that it needs a mega-success campaign in at least one product category. Ahmed speaks of bumping up ad budgets across all brands by 10-20 per cent this year (up from a total of Rs 32 crore in 2001). This could include going high-decibel with a single message for a single brand.

Shareholders have put the merger agony behind them, and are willing to treat 'corporate structure' issues as worthless vestiges of a troubled past (after all, it took so long for ISPL to assume its real name in India). What matters, ultimately, is whether it has a clear hold on the market's future.