8/2/2010

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Foodles in the noodle bowl

Sayantani Kar / Mum bai August 2, 2010, 0:39 IST

GSK is pitching new Horlicks Foodles as a healthier option in instant noodles. Can it storm Maggis stronghold? GlaxoSmithKline Consumer Healthcare (GSK) has entered the instant noodles market which is ruled by a brand that is synonymous with the category Nestls Maggi. While its Rs 1,500-crore malted drink additive, Horlicks, has had a long reign at the top, this time GSK is the challenger. Instant noodles were introduced in the country by Nestl under Maggi in 1984. Since then, many rivals have come and gone but Maggis rule has remained unshakable. The market for instant noodles is worth Rs 1,137 crore, according to Nielsen, and is growing at 20 per cent per annum. Out of this, Maggi Masala-flavoured maida (processed flour) noodles command around 91 per cent; other Maggi products and flavours, and all other brands make the remaining 9 per cent. No other food category has such dominance of one brand. Horlicks Foodles is GSKs attempt to get a share of this pie. Not just Nestls Maggi, it has to contend with Hindustan Unilever which has entered the instant noodles snacking segment for the second time with Knorr Soupy Noodles. (It had earlier tried its hand with a tie-up with Indo-Nissin for its Smoodles in the 1990s. It had also launched and later withdrawn a rice- and vegetable-based pudding with a chutney mix for evening snacking called 4 OClock Tiffin earlier this decade.) Private labels of large retailers like the Future group (Tasty Treat) have gained some traction with their lower price tags some of them claim to have grown 15 per cent in the last one year. ITC, which has done well for itself in categories like flour, salted snacks, confectionaries and biscuits, has so far shied away from instant noodles; its cooks and experts have not been able to come out with a unique flavour to take on Maggi. GSK has chosen Horlicks Foodles for its entry into salty foods, a category that hinges on the very subjective criterion of taste. On its target is 6 per cent of the market in a year or so. Health is wealth GSK says Foodles is nutritious instant noodles. Will that be enough to cause a breach in Maggis stronghold? The company claims the proof lies in the test-marketing. GSK Executive Vice-president (marketing) Shubhajit Sen says that Foodles has been able to garner 5 per cent of sales in the South and East where it was soft-launched before going national. That could mean sale of around Rs 25 crore from two zones around 2 per cent of the overall market. It was good enough for GSK to compress the 18-month deadline for a national rollout and do it in July. Instant noodles are no longer alien food in India. An IMRB report says 45 per cent of all households consume instant noodles. But GSKs internal studies showed that instant noodles were not usually considered healthy. It found that mothers felt guilty serving instant noodles to children because maida is not as healthy as atta or wholegram wheat. As a result, mothers fortified the noodles with vegetables and eggs. This was a vital clue for GSK before it got started. The fact that the category is so lopsided presents a bigger opportunity than usual to position oneself differently and get heard. Even though instant noodles right now have their centre of gravity in taste, we can afford to offer one with nutrition because we are good at understanding what makes for nutrition, says Sen. GSK struck a partnership with Nissin, the maker of Top Ramen Smoodles,

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8/2/2010 http://www.business-standard.com/in the original Maggi-challenger. Nissin helped GSK first in research and then in production. The result was a maida product and another noodle made from four different grains as a healthier option. Both contain minerals in their tastemakers. It made sense to retain Horlicks as the mother brand because of its strong brand equity in the health segment. The brands India sale alone contributes 70-75 per cent to its global turnover. It also reiterated the association with wellness.
To drum in the fact that Foodles stands for nutrition, GSK is now working on a tactical insight from its test launch: It found the need to tag the packs with the respective flavours and ingredients more clearly. It has also ensured that it gives out clues of the noodles being tasty and healthy on the pack itself. The key lies in increasing the visibility, says Sen. Horlicks has ensured floorstanding units, hangars and baskets at stores to highlight the product. But isnt it too late? Maggi repositioned itself as a healthier snack option some years ago when it introduced rice and atta noodles, and adopted the tagline, Taste bhi, health bhi (Taste as well as health). But the contribution of these variants to its total turnover remains small. It has in its portfolio no fewer than three products and five variants in the instant noodles category. Most may not contribute much to sales, but they block out several entry points for rivals. One has to try really hard to come out with a killer product. Meanwhile, Nestl strengthened Maggi's position last year by launching an interactive advertising campaign, which sought to build emotional bonds with consumers. Price play GSK sure knows the market. To begin with, Foodles will talk to urban consumers, unlike Maggi which has gone rural and deep into urban markets with its small Rs-5 pack. We were present with only single-pack sizes which account for 28-29 per cent of the market. The larger family packs of eight and four strips are being rolled out now, informs Sen. It is also priced at a premium, in line with the mid-premium image of its mother brand Horlicks. Its multigrain variant costs Rs 15 for 80 gm compared to Maggis Rs 10 for 80 gm. To be sure, there exist smaller brands than Maggi and Knorr in the market like Capital Foods Chings Secret and Smith & Jones, and Choudhary Groups Wai Wai. GSK may try to gain a foothold in the market by displacing these brands first. For that, it can count on its revamped distribution network it reaches 600,000 retail outlets directly and another 1 million through distributors. Of course, the retailers who stock Horlicks can also stock instant noodles. So far as private labels are concerned, Sen says they are just price warriors and that too within a limited network. Modern trade accounts for only 8 per cent of the category sale. Private labels often play the low-cost card and are not really building brands. That may be fine, but GSK has to face a rejuvenated Hindustan Unilever. It has packaged noodles with soup in Knorr Soupy Noodles while instant noodles may be unhealthy, soup is seen as a healthy option in Indian households. And there is sufficient differentiation too: The product harks on the different way of eating noodles rather than taste or nutrition. Taking the idea from its Noodle Soup which was sold under Knorr soups, the company is aiming to ride the noodle-eating habit to popularise its soups which were otherwise bought largely in winter. In its aggression, it even replaced soups with instant noodles for the same positioning as a mid-evening meal for kids. It has cranked its sales force for ground-level activation like in-shop demonstrations.

FOODLES DECODED
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# Strength: Legacy of Horlicks in wellness, large distribution network # Weakness: Lack of experience in the segment, lesser traction in North and West # Opportunity: Market growing in double digits, instant noodles widely accepted as snack food # Threat: Category hinges on subjective taste, market monopolised by Nestls Maggi, Hindustan Unilever wants a slice of the pie
Spreading risks It is crucial for Foodles to succeed. It is, after all, a part of GSKs diversification beyond malted health drinks based on indigenously developed products. This plan got momentum after Zubair Ahmed took over as the managing director in 2007. (He was running Gillette in India but left after it got acquired by Procter & Gamble.) At present, more than 58 per cent of GSKs revenue comes from Horlicks, that too mostly from the South and East. Good business sense requires GSK to spread its risks across more products and more markets. Thus, while 2008 saw it launch variants of Horlicks and a brand refresh of Boost, 2009 led it into biscuits, flavoured milk and cereal bars. GSK is targeting half its growth from new products every year so that by 2012-13, 25 per cent of its business comes from its Indian innovations. Foodles could help GSK fortify Horlicks across India. GSK tested Foodles first in the South and East where Horlicks is strong. Since milk is more abundant in the North and West, flavours in the form of brown additives are more popular, according to Shirish Pardeshi, senior analyst of Anand Rathi Securities. So, there is room for Horlicks to grow here. Foodles could ride on its success. With Foodles, GSK could score better for the Horlicks brand name in these regions. As income levels rise and packaged food finds more takers, experimental users will fragment the instant noodles market. The next few months will decide if the current crop of players can continue to sell or will they have to go for a market check. As for GSK, will Foodles help it grab more sales? The answer will show up in the next few financial results.

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