Colgate To Deepen Focus On Non-Oral Care To Spur Growth: New CEO

Colgate-Palmolive (India) Ltd. has mapped out plans to focus on four key areas to win back lost market shares and restore growth that was seen two to three years ago.

According to Prabha Narasimhan, the company's newly appointed managing director and chief executive officer, the new focus areas include:

• Lead growth in the toothpaste and toothbrush categories

• Focus on growing volumes first, then value.

• Drive science-led premiumisation. Currently, the contribution from premium products is near double digits.

• Build a personal care portfolio. Both organic and inorganic growth in Palmolive (non-oral) will be the strategy for expansion.

Opportunity Beyond Toothpaste

Colgate-Palmolive India's first job will be to get people to brush their teeth at least once a day, and ideally twice a day, Narasimhan said while addressing her first analyst meeting on Tuesday after taking charge.

Given India's low oral care consumption, she sees plenty of room for growth. The opportunity in toothbrushes, she said, lies in both volume and value as the company seeks to expand beyond toothpaste.

"From a perspective standpoint, if India's toothpaste consumption is x, the Philippines stands at 1.8x and Brazil at 3.1x," the company said in its investor presentation. While globally, 40–60% of oral care category revenue comes from products other than toothpaste, its share in India is only 20%.

The company will focus on tapping the 55% rural consumers who are currently not brushing their teeth regularly to drive volume growth, Narasimhan said. Besides, it has 90% market share at the below-Rs-50 price point, providing scope for taking consumers up the value ladder.

Even though Colgate's relative market share is still strong, with a market share that is 2x or more than that of its closest competitor, Dabur, the company hasn't done as well as its peers in recent years because volume and value growth have slowed and the company has lost market share.

"Its volume growth has averaged 3% over the last five years, lower than peers (5–9%) and its own historical performance (10% average over FY07–15)," according to Jefferies. Similarly, Colgate's revenue growth of 5% CAGR has been only half of Dabur's oral care portfolio's 10% CAGR, it said.

Colgate's market share has eased to 50% from its peak of 55%.

"This was partly due to factors such as the slowdown across FMCG, especially in rural areas where Colgate is over-indexed, the consumer shift towards naturals, and the maturing of rural penetration in toothpaste," Jefferies said in a Dec. 11 note. The brokerage believes that the company needs to be "more aggressive" to counter the heightened competition.

Colgate India launched "Ved Shakti" targeting the natural toothpaste segment. But after a steep rise of 900 basis points between 2016 and 2019, it remained flat with a 40 basis point gain from 2020 to October 2022, Nielsen data showed. Narsimhan, however, said that the company would step up investments towards new launches in the 'natural' portfolio.

Premiumsation

The company expands to ramp up premiumisation across categories.

It has forayed into the oral beauty category with the launch of its Colgate Visible White O2, and also launched Visible White O2 toothbrush to complement this category. It expects its electric toothbrush range for kids and adults to also help increase its premium portfolio's contribution.

Scale Up Non-Oral Care

The company is focusing on building a personal care brand under Palmolive, focusing on hand wash, body wash, and face wash, according to Narasimhan. Currently, it has a 20% market share in both hand and body care across online marketplaces. Colgate has forayed into 'face' this year.

The company will also look at inorganic opportunities in this space.

India, she said, is one of the parent company's three key markets, and the emphasis will be on having high margins and reinvesting profits back into the business to drive growth.

While its current focus would be personal care and oral care, Narsimhan said, the company would continue to look to see if it needs to enter other businesses where Colgate is present globally, such as home care.

In the last four years, the company has built its strength in the north, central, and eastern parts of the country significantly through distribution expansion. Currently, it has a general trade reach of 1.7 million stores.

The company is also in the process of rolling out India's first e-B2B platform that will only be used by dentists in 2023.

Analysts' Take

Narsimhan, who was recently roped in from Hindustan Unilever Ltd. to helm Colgate, has a lot on her plate to defend its turf and close the gap with Dabur India Ltd., HUL, Patanjali, etc.

Analysts expect the new CEO will be able to use her experience at HUL to help Colgate create new categories. "We believe the change in leadership provides an opportunity to pivot strategy towards greater focus on topline and volume growth over near-term margins," said Jefferies.

Narsimhan is also the first person from outside of Colgate India to be hired directly as managing director in at least the last 20 years.

The parents' tight control has dissuaded the Indian arm from adopting a growth-oriented strategy, Jefferies said. 

"We hope Prabha looks at the business with a new lens."

Nirmal Bang analysts said the company's broader strategy remains largely unchanged. "Over the medium term, increase in per capita consumption remains a big opportunity in the toothpaste category, but it is increasing only gradually," it said in a note, adding that it will require some big initiatives from the market leader to make behavioural changes in consumers to make them increase the frequency of brushing teeth.

While CEO changes usually create excitement among investors and cause share prices to react, this does not seem to be the case for Colgate.

According to Jefferies, the stock has delivered sub-par returns (7% CAGR since CY15 compared with 12–22% for peers), with Colgate losing market share in toothpaste and weak volume growth performance. A growth pick-up is a must for the stock to trade in line with peers like HUL, Marico, Dabur, it said.