If you are a company with a diverse portfolio in the fast moving consumer goods (FMCG) industry, it’s only logical to approach retailers as one common brand to wrangle a better deal for yourself. This is what most large companies tend to do, no matter that the various products bear different brand names.
The Godrej group, on the other hand, has a different problem. Even though its FMCG products are marketed primarily under the Godrej brand, they are housed under three different companies, which in turn, have independent business relationships of their own.
Godrej Sara Lee, the home care company is a joint venture with Sara Lee Corporation, food and beverage is housed under Godrej Hershey, a joint-venture with the chocolate maker headquartered in the US town of the same name, while Godrej Consumer Products is a listed company with it is own set of external shareholders. And so, apart from sharing the Godrej name, they had little in common over the years.
It was on chairman Adi Godrej’s younger daughter Nisa’s initiative that Bain & Co were appointed in 2007 to find a way for the three companies to work together and exploit potential synergy. The result: an FMCG Portfolio Cell (FPC), set up in April 2008.
The FPC broadly oversees the functioning of all three group companies, or now, strategic business units (SBUs).
The Godrej group model is unique in the sense that while it is a common brand, they are all part of different companies. Most FMCG companies have many brands which are all part of the same company, which makes co-ordination and implementation of decisions easier.
At the very outset that the FPC is not directly involved in the day-to-day running of any of the companies, but functions more as an internal consultant to them and as an advisory body. They are there to look at the business interests of the SBUs jointly and severally.
The companies still have their own management teams which function independent of the FPC. The FPC comprises four other members, experts in human resources, strategy, M&A and channel management respectively, all of whom have had prior experience in the consumer goods industry.
The primary reason for setting up the FPC, is to increase the combined turnover from approximately Rs 3,000 crore currently to Rs 5,000 crore over the next three years through a mix of inorganic growth, reduced costs and improved productivity.
And the first target for the cell is rural distribution. In the rural markets, the overall volumes determine the cost of distribution, and this tends to be high for individual companies.
The benefits of bundling all the products together and approaching the rural markets are obvious, more so when not all products from a company’s portfolio are going to find takers there. As a result, not only does the overall cost of distribution go down, but it also makes it beneficial for the companies to pursue newer geographies without having to worry too much about profitability.
While the urban distribution model stays intact, the FPC is involved in dealing with modern trade, again, not to get better margins, but to boost productivity. For instance, most outlets have ‘gondolas’ or display units placed near cash counters or aisles where all the company’s brands can be stocked. Instead of an individual company doing this, if it is done through the FPC, the savings can be substantial.
The creation of the FPC has also resulted in greater attention given to the FMCG business at monthly meetings. Earlier, all the business heads of various group businesses including diverse ones like real estate and chemicals would meet monthly and large parts of this would end up being irrelevant to other group companies.
Under the new structure, the leadership team meets once a month where the complete focus is on the three FMCG companies. In addition to this, the FPC members sit in for the monthly executive committee meetings of the various SBUs and meet amongst themselves on a weekly basis.
As a result, a lot of common learning from the other group businesses are shared at these common sessions which have come to serve as a platform for knowledge management.
So far, the group is happy with the results shown by the FPC since it was set up, although there is still a lot more that needs to be done. Areas like supply chain integration for instance will be tackled only in the second year. Meanwhile, in keeping with its growth objective, the cell has been actively scouting for potential acquisition opportunities for the various SBUs.
As the common body, all the M&A opportunities first come to the FPC. They evaluate them to decide which of the three SBUs they would be best suited to. This way, the companies are also left free to focus on their core business as the evaluation of these opportunities is under progress by a separate panel of experts.
The company in question gets involved only from the second stage. According to the MD, instituting the FPC was relatively stress free as they did not face any sort of opposition from either the respective companies, or their joint-venture partners. The partners could see that what was being done would bring in a lot of benefits for the company at a minimal cost, and it helps that The MD is on the board of all three companies.
Now if this were to be out sourced to an external consultant, the resultant costs might have been significantly higher. It is still fairly early to judge the success of such an initiative.