Germany's Henkel in the Indian FMCG Industry

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Case Details:

Case Code : BSTR086
Case Length : 15 Pages
Period : 1996-2006
Organization : Henkel Spic India Ltd.
Pub Date : 2004
Teaching Note :Not Available
Countries : India
Industry : FMCG

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Introduction Contd...

In addition to Pril, its brand portfolio included names such as Henko, Henko Stain Champion, Henko Power Pearls, Chek, Margo, Neem, and Fa. A relatively new player in the intensely competitive Indian FMCG market, Henkel's evolution into a Rs 3 billion company within a short span of time was termed commendable by many analysts. The company credited its rapid growth to its focus on continuously launching new products, acquiring brands that had strong growth potential, aggressive marketing and advertising, and strengthening of the distribution network over the years.

Background Note

In 1987, Henkel KGaA, a leading chemicals and consumer products manufacturer based in Germany (Refer Exhibit I for a profile), entered India through Spic Fine Chemicals Ltd. (Spic). Spic was a joint venture between Henkel KGaA and Tamil Nadu Petro Products (a leading Indian chemical products manufacturer); the two companies entered into a technical collaboration to manufacture Zeolite based, phosphate free, eco-friendly detergents.⁴ In January 1992, Spic made its initial public offering, issuing equity shares of Rs 260 million. In March 1993, the company set up a detergent manufacturing plant at Karaikal in Pondicherry. The plant had the capacity to manufacture 15000 tonnes each of detergent powder and bar, and 10,000 tonnes of Zeolite.

Spic planned to export Zeolite and detergents to Oman, Dubai, Greece, Egypt, Turkey, Singapore, Seychelles and a few African countries. In August 1993, Spic launched its first product, a detergent powder branded Henko in the premium category (Refer Exhibit II for a profile of the market segments tapped by the company).

The company paid Henkel KGaA a royalty of 55 DM per ton of sales (this was applicable for all products launched in the future).⁵ Initially, Henko was launched only in some parts of south India like Kerala and Tamil Nadu, with very little, regional promotional support. Though Henko was a superior product in terms of quality, it did not receive much attention in the market. This was largely because Spic did not do much to create awareness for the new brand. Spic was thus unable to persuade customers who were used to popular brands (such as Surf and Ariel) to try out a completely new product. The company's poor distribution and retail network too hampered the sales prospects of Henko...

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4] Zeolite is a key ingredient used in manufacturing detergents. Reportedly, it is an eco-friendly substitute for another chemical called sodium tri-poly phosphate (STPP) that most detergent manufacturing companies in India used. STPP pollutes water by increasing its phosphate content, thereby rendering it unfit for drinking, irrigation and for being used as a part of the manufacturing process in various industries. Spic planned to cash in on the 'environment-friendly' attribute since it was the first company in India to offer such a product.

5] DM refers to Germany's then currency, the Deutsche Mark. The country adopted the European Union's common currency, Euro, in 2001-02.