Delivering smiles. Colgate-Palmolive sinks its teeth into four pillar strategy

It’s an articulation of a strategy that we’ve been quite tight on and made some choices. Our strategy has four pillars to it. The first pillar is of growing category consumption and the share of our core brands within that. Second is to drive science-led premiumisation. The third one is building competitiveness of our toothbrushes and devices. And the last one is diversification. It’s quite a simple strategy and one that we have executed quite well too.

What consumers are looking for is a product that delivers to promise at a certain price and is available in a store that she shops at. It’s as simple as that And why we’ve tried to get better on each one of these levers. For example, in the case of product quality, we have relaunched all our core brands with improved formulations that are consumer tested to be better than they were before and, in many cases, better than competition as well. In that, we have used the fact that Colgate invests more in R&D in oral care than any other company in the world. So, we’re using these expertise into the formulations of the products that we sell — be it arginine technology in Colgate Strong Teeth or ultra-freeze technology in Max Fresh or active salt technology in Colgate Active Salt, all of them have a tech that delivers on promise which I think is quite important.

I think our advertising quality has become significantly better. It tests better, and it lands better, which is great. On top of that, we’ve spent 20 per cent more money on advertising for a brand that was already one of the most advertised FMCG brand. In terms of availability, we always were available in 1.7 million stores, but analytics has allowed us to sharpen our assortment in each of these stores to be relevant to the geography and the job that store does for its set of consumers. So, it’s a combination of all of these.

The assumption when anybody takes a look at our P&L and sees the 400 basis point margin improvement, is that it’s been driven by taking pricing up. That’s not true. Our average selling price to the category, if anything, has marginally come down. It’s not gone up. And therefore, margin is driven, yes, a little bit by pricing that we are taking, and everybody else is taking, but equally, if not more so, by this funding the growth programme. What this means is every single line item of cost, whether it’s a direct line item or an indirect line item of cost, is scrutinised for sucking out non-value-adding costs.

In any given year, we are able to take out between 4 per cent and 6 per cent of our net sales or turnover of non-value-adding costs at a gross level, part of which is then invested back into superior products. Part of it we invest into advertising and some goes into improved margins. So that programme is well-established and it’s not one that is owned either by finance or by supply chain. It’s one that runs across the organisation with everybody. So, everybody feels a need to deliver FTG (funding the growth) as we call it and is quite important to our ambitions.

Certainly through 2021-2022, inflation was at quite a peak. In 2023, it started stabilising towards the back end of the year. In 2024 (calendar year), it seems relatively benign. We are not seeing anything dramatic in the shape of inflation for the next three quarters. This has helped demand because the level of pricing has gone down in the category and has helped the overall consumption move up.

In this quarter, rural is 200 basis points (bps) ahead of urban growth. The green shoots of recovery could be seen in the beginning of the second half of last year. This is the first time in many quarters that rural growth is faster than urban, which augurs well for us because we think we have opportunity to grow both side-by-side.

Actually, the rural market is led by four to five States in central India between UP, Bihar, Madhya Pradesh, parts of Maharashtra and West Bengal. The bulk of rural sits there and that’s where the growth is coming from. The rural areas of States like Tamil Nadu and Kerala are not particularly rural in terms of consumer behaviour, or in reach, or relative affluence. The division is not as stark in some of those States.

In terms of the actions that we have taken, the ‘Brush at Night’ campaign has been on full steam since Diwali last year. The insight being, most Indian consumers eat dessert after dinner and then don’t brush their teeth. Given that the saliva activity in your mouth drops as you sleep, the leftover sugar in your mouth becomes a paradise for the bacteria. Therefore, the need to brush at night is as much as the need to brush in the morning, if not more. So, that insight really led to the Sweet Truth campaign, which started in Diwali and has continued ever since because behaviour change is not about us doing one campaign. So, we continue to do above-the-line efforts to drive this change.

And, of course, the continued support of the Bright Smiles, Bright Future school contact programme. So, all this is funnelling towards an increase in brushing at night in urban India. The work in rural India continues. I don’t think we have an answer yet, in terms of how we will move the consumption behaviour in rural India, but hopefully over the next month or two, we should have some insight there as well and we’ll try a few things and see what works. But these are activities that we’re committing to for the next foreseeable future of years, not foreseeable future of quarters. So, start it and we’ll keep at it.

Growth has been balanced between volume and price this quarter. And we’re quite happy with the shape of our business as it sits. Going forward, the hope is that premiumisation will happen faster as we get into looking at actions that we’ve taken on Total. We have an innovation on a whitening booster. It’s a gel, which is an adjunct to toothpaste. So, you apply it on clean teeth, wait for a few minutes and then wash it off. And then 14 days later, you have whiter, shinier teeth. It’s the first time in the Colgate world that we’re bringing such a gel into the market, which is great and expands the potential size of the pie as well.

We’re also seeing a big opportunity in terms of therapeutics or the pain end of the problem. About 100 million-odd consumers go to dentists in India, a lot of them with issues with their gums. So we’re also seeing some other opportunities of what we can do in that space. As a combination of all of these, there is a tremendous potential in premium and therefore potential to drive mix.

Our premium brands are growing significantly faster than the rest of our portfolio, as they should. They’re growing between 2.5 to 3X faster than our core portfolio. And that will be really the focus; of how we can keep that going even as they get larger.

This is one of the things where we can say plan-made, plan-delivered in terms of the focus. So, last year we agreed that we will focus on body wash and hand wash. Since then, we have upgraded the product by the end of last year to a superior sensorial.

Earlier this year, we launched three new variants on Palmolive body wash. And just last week, we announced our new proposition to the media — ‘in the hurry of this world, can we slow down and savour a Palmolive bath?’ We are very excited to operate in this space right now. Early results, even of just the product upgrading and the new variants, have given us about a 20 per cent uplift in share of market in modern trade and e-commerce. So, we’re optimistic. The great thing about having the kind of P&L that we have is that we have the wherewithal to support these brands and we’ll ensure that they get supported.

The body wash market itself grows at 30-40 per cent. We are also seeing growth which is 3x of our portfolio or at least the ambition is to get to 3x of our portfolio. So, to that extent, certainly the needle is moving but then we are only scratching the surface in terms of opportunity because penetration remains under 3 per cent. Our share is in single digit unlike the toothpaste segment where we lead the pack and take the market where it needs to go. In body wash, we have a much simpler job, which is to just gain share of an existing category that is already growing. This is far easier to do than driving consumption.

From a diversification perspective, we are doing significant work on bringing in some things from the global Colgate portfolio and we are at an advanced stage of thinking on that. So, in the next couple of quarters we should see some action in that space. As far as acquisition is concerned, we continue to be exactly in the same space we were when we spoke last which is that we are very interested. However, this one is not fully in our control and therefore we need to find an acquisition target that desires to be acquired. So, that combination continues to elude us now, but we are on it, and we continue to have the ability and the backing to be able to do it. Question is now to find the right acquisition.

Yes, absolutely. Our intention will be to look beyond the current portfolio and that’s really where the thinking is going because we already have a very large share of the oral care market, and we can do more, and we will continue to do more but that doesn’t do the diversification job. So, as far as diversification is concerned, we are certainly looking at other brands as well.

Our expectation is that price growth at a company level will be in the 300-500 bps kind of range depending on what happens in the back end of the year. So, that is really what we are looking at and we are hoping to get the right mix and volume to also start playing a balanced role along with pricing to drive the overall growth.

No, we are very well served by the four factories that we have — three toothpaste and one toothbrush. All of them have the headroom capacity to take on the ambitions that we have for this year. So, I think we are in a good place. And actually, capacity expansion is one of the things that we have the luxury of not being expressly worried about given that we have such a strong balance sheet and our return on capital at the moment is 99 per cent. So, there are a lot of things in our favour on that piece. So, it is not one of the things that is driving decision making criteria. As and when we need capacity, we will expand.