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UNILEVER: USING HORLICKS'S BRAND EQUITY TO LEAD¹

In December 2018, Hindustan Unilever Limited (HUL) announced that it would buy GlaxoSmithKline Consumer Healthcare Ltd. India (GSK Consumer),² which included popular brands such as Horlicks, Boost, and Viva.³ The merger with GSK Consumer came with a share-swap deal worth 317 billion,⁴ where 4.39 HUL shares would be allotted for every GSK Consumer share, at a later agreed date.⁵

The deal, (a very valuable deal in the health food drinks (HFD) market) helped the parent firm, GlaxoSmithKline Plc (GSK), fund a buyout of Novartis International AG's US$13 billion stake in an international health-care joint venture and was intended to "drive increased focus on over-the-counter (OTC) and oral health categories."⁶ HUL's parent firm, Unilever, leveraged a portion of its pre-deal holdings of 67.2 per cent of HUL shares to complete the GSK India buyout. In addition to the GSK Consumer business, the deal also included an 82 per cent sell-off of GSK Bangladesh and brand rights for GSK's consumer health- care nutrition products through a cash transaction worth 49.87 billion.⁷ It also enabled HUL to strengthen its foothold in the food and refreshment business in India. With Horlicks in its portfolio, HUL expected to increase the overall turnover of its food and refreshment business, increase market share, draw synergies from individual strengths, and gain access to a larger consumer base. HUL's investment in GSK Consumer enabled it to leverage a trend toward wellness and health and to potentially grow its food and beverage business from the existing 18 per cent revenue share in its portfolio to 27 per cent.⁸

Despite HUL's positive outlook and Horlicks's 43 per cent market share, the product had recorded a weak growth of around 2.6 per cent in the year ending March 31, 2017, as a consequence of single-digit growth in India's HFD category. ⁹ All major HFD players had been hit by concerns raised by the category's primary target audienceparents, physicians, and nutritionistsregarding the health effects (e.g., obesity) of sugars such as maltodextrin, a key ingredient in beverages such as Horlicks. As a result, the focus had shifted from maltodextrin-based drinks to healthier, preservative-free alternatives and products with Vitamin D, choline, and DHA.¹⁰ Changing consumer preferences, growing competition, and constant changes to the Government of India's regulatory scheme also added to the problems of the major players. ¹¹ In such a scenario, HUL was faced with a challenge: how could the company build on Horlicks' brand equity to sustain its leadership in the HFD market, leverage its leadership position to grow the company in this segment, and take growth to double digits?

COMPANY BACKGROUND

GSK Worldwide

With a revenue base of US$38.05 billion in the financial year (FY) 2017-18, GSK specialized in three core areas: pharmaceuticals, vaccines, and consumer health care. The company's business portfolio was dominated by the pharmaceuticals division, which contributed 57 per cent of the total revenue and was followed by the consumer health-care division, which generated 26 per cent of the revenue. The remaining 17 per cent of the revenue came from the vaccine division. With around 74 per cent of revenue coming from the pharmaceuticals and vaccines portfolio, GSK's management focused heavily on maximizing the potential opportunity from these two lead divisions. As a result, the company's priority was to improve its existing product and market performance through dedicated research and development efforts and to maintain a continued pipeline of potential new pharmaceutical products by investing in key vaccines and seeking further growth from GSK Consumer's power brands. GSK's focus was on making progress in the growing global health-care market through innovation, trust, and performance.¹²

GSK Consumer

GSK Consumer reported net sales of 41.5 billion in FY 2017-18, ending March 31, 2018.¹³ Like its parent, GSK Consumer emphasized driving innovation and delivering products with superior science. Despite a changing political landscape, a shift in consumer attitudes, economic headwinds, and regulatory changes, the firm continued to retain its market leadership position in the HFD category, which included brands such as Horlicks and Boost, with a value share of 55.3 per cent and a volume share of 64.6 per cent. The company leveraged its science expertise to launch newer flavours, extend high-protein HFD to the 30-plus age group, and relaunch Women's Horlicks.¹⁴ The company also invested in research and development of products that would suit a healthier lifestyle and in initiatives aimed at improving health and hygiene standards in rural areas, addressing issues of malnutrition, and using digital advocacy to educate masses on active health care.¹⁵

Horlicks

Horlicks, a malt-based milk drink, was invented in 1873 in Chicago and patented in 1883. The British army introduced it in the Indian market in the 1930s. Because it was low weight, non-perishable, and high in calories, the product was considered to be an excellent food supplement.¹⁶ Horlicks consumption gradually increased and peaked between World War I and World War II, when it was sold in the form of tablets, candies, and dry-mix powder. Over time, as consumers grew older, Horlicks launched various flavours with enhanced tastes for different target segments.¹⁷

Product

Horlicks comprised measured proportions of wheat, malt barley, milk, and 14 nutrients, including calcium and Vitamin B.¹⁸ The nourishing malt-based beverage included a mix of clinically tested bio-available nutrients that promised to enhance immunity, increase mineral density, strengthen bones, increase lean tissue, improve concentration, increase health nutrients in blood, and promote healthier weight gain. To serve as a tastier milk substitute, Horlicks added more flavours, such as chocolate, kesar-badam (saffron- almond), and elaichi (cardamom) alongside its classic malt flavour. Over the years, Horlicks extended its product line beyond the existing target segment to include Junior Horlicks, for toddlers and preschoolers, and Women's Horlicks and Mother's Horlicks, for women. A separate line of products, devised in consultation with nutritionists, focused on delivering high growth and metabolism with offerings such as Protein+ (a "high-protein nutritional beverage for adults"), Horlicks Growth+ (which promised advanced nutrition to support faster growth in children), and Cardia+ ("to support lifestyle modification for adults with risk factors)." With the new variants, focused on individual needs, Horlicks leveraged its science expertise to respond to changing market sentiments.¹⁹

Price

Horlicks was a value-based product for GSK and a focal offering within its nutrition portfolio. However, with improvements in the milk distribution chain across India, the addition of potential influencers such as nutritionists and pediatricians, increasing competition, and an economic slowdown, Horlicks had to consider alternative strategies to drive further consumption among Indian consumers. They did this by focusing on initiatives that boosted consumption of its value-based products and creating a niche segment by introducing premium offerings. Smaller unit packs were introduced, dropping the price by one-fifth, to induce consumption within untapped rural segments.²⁰ Brand managers also focused on specialized high- margin premium offerings to attract health-focused urban consumers. To boost the revival of incumbent products within existing markets, Horlicks reversed its price of sachets by 20 per cent, from 6 to 5.²¹ To resonate with regional consumers, Horlicks rolled out limited editions of a health drink with Madhubani artwork packaging.²² These 200,000 limited-edition 500-gram packs were sold for 225 on e-commerce platforms such as BigBasket within southern and eastern markets, as well as on premium modern-trade store shelves.²³ Based on the above initiatives, it seemed that Horlicks was eyeing economic revival and growth in the context of a slipping market share.

Promotion

Through its marketing campaigns, Horlicks promised Indian parents they could have "sharper, taller, and stronger" children²⁴ by offering them one cup of the hot drinktargeting parents' need to provide the best nutrition for their children. Horlicks was able to grow its sales beyond non-pharmaceutical sales by advertising in different ways.²⁵ Horlicks had always focused on science and addressing the nutritional needs of consumers in its advertising; its most recent commercial depicted children battling pre-exam stress and fear in Kota, a city in northern India that was infamous for high-stress exam-coaching institutes. In the ad, the children were surprised by a visit from their mothers, who brought home-made food, advice, and cups of Horlicks, emphasizing the importance of providing emotional strength to children to help them counter the challenges of life. In the same spirit, GSK initiated a helpline to assist students in overcoming their fear of exams.²⁶

Because of highly aware consumers and an emerging target audience, Horlicks altered its strategy, becoming a partner in consumers' awareness journeys by educating them on the critical aspects of building a healthier lifestyle. Horlicks used this approach when it launched nutrition-packed Protein+, Growth+, and women- focused drinks to connect with better-informed consumers and cater to their new, redefined requirements. GSK hired popular actor Ranganathan Madhavan as the brand ambassador for Horlicks Protein+, to spread awareness of the quality of proteins and building a healthier lifestyle.²⁷ GSK also included actor Taapsee Pannu as the face of Women's Horlicks and launched a YouTube campaign called "The Chalk Project" to ensure awareness around healthier bones for women of all age groups.²⁸ The brand also launched a microsite where women could undertake bone health tests and learn about health, exercise, and diet change.²⁹

To support nutrition, the brand engaged Bollywood superstar Amitabh Bachchan to lead its campaign on Horlicks Mission Poshan, in line with the government's Rashtriya Poshan Abhiyaan ("National Nutrition Mission"), to tackle malnutrition, infant mortality, and stunting.³⁰ However, following protests from public

health experts on the promotion of high-sugar-content drinks, Bachchan issued a clarification that suggested he was associated with the cause itself and not a specific brand.³¹ Horlicks also launched a new range of packaging to connect with consumers at the regional level³² and sold these unique packages through e- commerce platforms like BigBasket and Amazon.³³

Place

HFD market competitors had always used general trade as their dominant distribution channel. This contributed around 60 per cent of sales and was followed by pharmacy stores and modern trade.³⁴ Along with significant retailer and household penetration, GSK Consumer products commanded a strong presence through pharmacy stores. Under pressure from increased competition and a shrinking market share, Horlicks decided to diversify its distribution beyond the existing medium.³⁵ The brand made conscious and sustained efforts to grow its distribution networks beyond Tier 1 and 2 cities³⁶ and included around 7,000 rural distributors in its chain.³⁷ Horlicks also leveraged popular e-commerce platforms to add itself to the monthly online grocery orders of urban households. Horlicks moved beyond mass distribution to take a differential distribution strategy by partnering with BigBasket and Amazon, which supplied its limited- edition Madhubani-themed packages.³⁸

HUL-GSK CONSUMER MERGER

The HUL-GSK Consumer deal could be defined as the most valuable deal of 2018 in the HFD industry. To fund a US$13 billion buyout of its stake in Novartis,³⁹ GSK agreed to sell its 72.5 per cent stake in its Indian business. The deal, announced in December 2018 and valued at 317 billion, merged HUL with GSK Consumer India in a share swap.⁴⁰ The final share-swap deal allowed shareholders of GSK Consumer India to exchange each of their shares for 4.39 shares in HUL on an agreed-upon date. The parent firm, Unilever, held 67.2 per cent of HUL shares before the deal, and a portion of this holding was leveraged to complete the GSK Consumer India buyout. Unilever had bought 15 per cent of HUL shares in its Indian unit in 2013, and the accelerated growth of nearly 300 per cent during these five years had equipped the firm to secure this merger. After the issue of new HUL shares in this share-swap deal, Unilever's holding was diluted to 61.9 per cent in HUL, and GSK, the parent company of GSK Consumer, holding at 5.7 per cent.⁴¹ In addition to GSK Consumer, the deal structure also included an 82 per cent sell-off of GSK Bangladesh and brand rights for GSK's consumer health-care nutrition products through a cash transaction of 49.87 billion.⁴²

CHANGING CONSUMER LANDSCAPE

Increasing urbanization, consumerism, and awareness of health risks had changed the Indian consumer psyche. Educated parents, professional consultants, and nutritionists were now driving a shift toward a healthier India. The HFD industry's claims of helping children become stronger, healthier, and more intelligent no longer seemed to lure present-day parents. The Institute for Health Metrics and Evaluation reported that malnutrition and dietary risks were the two top drivers of death and disability in 2017.⁴³ With rising awareness of malnutrition, obesity, and the impact of sugar and related substitutes, parents turned to nutritionists and began consuming products only after extensive research, examining product labels and nutrition facts in detail before considering purchases.⁴⁴

Additionally, the nature of nutritional issues facing urban and rural populations differed significantly. The National Health and Family Survey in 2015-16 reported that, while the urban population was more prone to obesity, the rural population was battling malnutrition.⁴⁵ Indian consumers focused on improving their lifestyles, health, and wellness, which indicated huge potential in the premium segment. With major HFD companies still limited to Tier 1 and 2 cities, a significant opportunity for expansion was evident.⁴⁶

INDIAN HEALTH FOOD DRINK CATEGORY

Euromonitor International expected the Indian HFD category, with a market size of around 78.73 billion, to grow at the rate of 3.7 percent until 2022; this compared to the category's actual 11.5 per cent growth between 2012 and 2017.⁴⁷ Horlicks led the market segment with around 43 per cent, followed by incumbents such as Mondelez International, Heinz, Abbott Nutrition, and Danone. While the market was primarily dominated by legacy companies, new entrants such as Amul Pro and PowerVita were also keen to enter this category. Owing to urbanization, increased disposable incomes, and higher education, current consumers were health-driven and aware of product labels and nutrition charts. With growing levels of malnutrition, obesity, and health hazards related to the consumption of excess sugar and related substitutes, parents consulted nutritionists on a day-to-day basis for their recommendations. The HFD category had gradually evolved from milk substitutes and enhancers to nutrition supplements. HFD drinks started to focus on nutrition and health. With further growth in consumers' health awareness, rising affordability, and busier lifestyles, competitors were expected to invest in innovation and to satisfy consumers on flavour, nutrition, and sweetness content, even as they improved accessibility. India was expected to account for 45 per cent of global malt-based hot drinks retail volume sales.⁴⁸ There was no sugar tax, but authorities had levied a 40 per cent tax on soft drinks, thus encouraging manufacturers to increase the concentration of fruit in their drinks.⁴⁹

MAJOR BRANDS IN THE HEALTH FOOD DRINK CATEGORY

Bournvita: Mondelez International Inc.

Cadbury entered India in 1948, and within the same year, introduced Bournvita, a malt-based drink. When Kraft Foods Group Inc. acquired Cadbury in early 2010, it aligned the entire snacks business under Mondelez International Inc. (Mondelez).⁵⁰ In 2018, Cadbury completed a successful 70-year run in the Indian market. Bournvita, an established brand among Indian consumers, had consistently promised to build children's inner strength by supporting active brains and stronger bones and muscles. The brand messages, which stressed preparing children to become winners and increasing their inner strength, resonated with parents.⁵¹ Bournvita was consumed mostly by children aged 6 to 11 years; however, to appeal to toddlers, preschoolers, and women, and to ensure the prescribed nutrition intake recommended by physicians, Mondelez launched variants in chocolate, caramel, and other flavours: Bournvita Li'L Champs; and Bournvita Biscuits for women. With these new launches, Bournvita made long strides to take on its competition in the focal segments.⁵²

Complan: Zydus Wellness Limited

In October 2018, Zydus Wellness Ltd. announced that it had acquired Heinz India Private Limited (Heinz India), a subsidiary of Kraft Heinz, along with Cadila Healthcare Ltd. (Cadila), at a valuation of 45.95 billion.⁵³ Popular Heinz India brands negotiated as part of the deal included Complan, Glucon-D, and Nycil. Complan made 4.5 billion in FY 2017-18 and was the third most popular HBD drink in the country. Despite enjoying high recognition in the milk-drink segment and having a strong presence within the prescription segment and a favourable OTC base, Heinz India had failed to capitalize on changing market dynamics, and this led to the stagnation of the Complan brand. Heinz India, which was focused mainly on building its food business, neglected Complan, leading to weak segmented products, failed lifecycle management, and the gradual increased acceptance of competing brands such as PediaSure among pediatricians and parents.⁵⁴ After acquiring Heinz India, Zydus Wellness Limited planned to revive Complan: it had a three- to five-year growth plan that was expected to challenge PediaSure's hold among pediatricians and child specialists through its low pricing and Cadila's deep reach among medical representatives in urban and rural areas.⁵⁵

PediaSure: Abbott Laboratories

PediaSure, a flagship offering from Abbott Laboratories (Abbott), was the market leader in the premium HFD market. Out of the overall HFD market, the premium segment constituted 15 per cent of the market. PediaSure had a 9 per cent market share, followed by Protinex (3 per cent), Ensure (2 per cent), and others (1 per cent). While legacy brands such as Horlicks, Bournvita, and Complan focused mostly on serving as a taste-enhancing addition to milk for children between 6 and 11 years of age, and Cerelac and Nan were preferred for infants under age two, Abbott's PediaSure targeted children aged between 2 and 6. It created a market out of this microsegment with a renewed focus on protein. The product drove an estimated 4,500 million market within India through supermarkets, large stores, online channels, and traditional chemist's chains and OTC sales, which contributed 70 per cent. Promising to contribute to improved immunity and visible growth in 90 days, PediaSure not only assured concerned parents, who consulted their pediatricians before purchase, but also gained the confidence of nutritionists and doctors. PediaSure attained this breakthrough by introducing 200-gram packs that were readily available for trial by doctors and parents in waiting rooms; this set it apart from most pharmaceutical products, which medical representatives shared with the doctors for review.⁵⁶

Protinex: Danone

Danone, a French multinational food products company, operated primarily in four areas: early-life nutrition medical nutrition, waters, and essential dairy and plant-based products. Products in the nutrition segment constituted around 80 per cent of Danone India's portfolio and were distributed through 200,000 outlets. Within nutrition, Danone offered brands such as Farex, Aptamil, Deolac, Nusobee, and Neocate "to address the needs of young infants, pregnant mothers and adults." Danone, which acquired the over-50-year-old brand Protinex from Wockhardt Limited, was well-recognized and accepted among adult consumers in India. After introducing Protinex to its portfolio, Danone altered its strategy, shifting its focus from medical products to an OTC-led distribution model that resulted in more than 50 per cent market share in the adult nutrition category.⁵⁷

DILEMMA

GSK Consumer had many nutrition brands in its portfolio, including Boost, Viva, and Maltova, but Horlicks was its flagship brand.⁵⁸ Although Horlicks was popular and sold across Sri Lanka, Bangladesh, Malaysia, Nigeria, and India, the Indian market contributed 85-90 per cent to its overall revenues. Euromonitor International estimated that Horlicks led India's 78.73 billion malt-drink market with a 43 per cent market share, followed by Bournvita and Boost, which had around 13 per cent and 11 per cent of the market share, respectively. A considerable portion of the market was shared by various smaller brands, which constituted around 33 per cent of the market. Despite being the market leader, Horlicks witnessed a slow decline and recorded a weak growth of 2.6 per cent in the financial year ending March 31, 2017.⁵⁹ India's entire HFD category had managed only single-digit growth, much to the concern of major competitors.⁶⁰

Changing perceptions and awareness among parents, physicians, and nutritioniststhe primary target market for the HFD categoryregarding childhood obesity as a side effect of sugar-based ingredients such as maltodextrin in HFD products had led to a shift toward healthier, preservative-free alternatives and products with Vitamin D, choline, and DHA.⁶¹ As more high-protein, nutritious, and prescription-driven alternatives such as PediaSure and Protinex became available in pharmacies and stores, these products started to eat into the HFD market share and challenged the category's dominance.⁶² The major companies in this segment faced many concerns, including declining growth, the growing popularity of substitute products, changing consumer preferences, intense competition, and uncertain market dynamics due to changes in sales tax, demonetization, and Government of India regulatory frameworks.⁶³ With HUL now making a foray into the HFD market from a leading position, how should it navigate the health-aware, nutrition-conscious consumer segment, revitalize Horlicks, and keep the product relevant in the context of rapidly changing consumer tastes and preferences?

QUESTIONS:

3 questions

a) Analyze the HFD market in India using appropriate marketing tools and evaluate the potential future for the industry.

b) Analyze Marketing Mix for Horlick's.

c) With evolving customer attitudes and increasing focus on healthy lifestyles, how should Horlick's build on its existing brand equity to sustain its leadership position in the disrupting HFD market?