How India’s intense competition in the powdered health-food drink space will ultimately help Indian kids get better nutrients

Two important acquisitions in the Food & Beverage space are impending in India: H. J. Heinz’s Complan and GSK’s Horlicks and Boost brands1. These 3 brands are believed to represent almost two-thirds of the Indian children’s Health-Food Drink (HFD) market that is estimated to be worth between US $ 860 million2 and over $1 billion (70 billion Indian rupees)3 in annual sales. As a result, strong contenders are currently bidding to acquire these brands: global consumer-goods giants Unilever, Nestle and Coca-Cola for Horlicks and Boost, and Zydus Cadila Group (a leading Indian pharmaceutical company) for Complan.

The current position of the brands for sale is being shaped by mixed factors. On the positive side, Horlicks and Complan are market leaders with a lot of heritage in a strong category. But, on the negative side, they are quickly losing market share to a variety of contenders – both international premium and local affordable players.

Stuck in the middle, these heritage brands are being squeezed; keeping pace without carefully revisiting ingredients, tastes and pricing could be a challenge. Buyer beware.

Horlicks, Boost and Complan: Historic Leaders of the HFD space

The market of HFDs in India emerged in the 1950s with the introduction of Horlicks, a malt-based nutritious drink. Horlicks quickly grew in popularity, especially in South and East India where availability of milk was scarce3.

Other brands including Boost (also owned by GSK) and Bournvita (currently owned by Mondelez) followed. As the market matured, brand-extensions were launched including “Junior Horlicks”, a junior range targeting 2 to 6-year-olds, which was launched in 1995.

Capitalising on their uptake among Indian families, these brands worked hard to achieve a broader and broader distribution in the general trade (small store format), even in rural areas. This put them at the centre of health nutrition for children after breastfeeding and weaning.

The past 15-20 years were particularly prosperous for these powder-based malted HFDs. They saw a steep boost in sales driven by the emergence of an Indian middle class and their desire maximize the physical and intellectual development of their children. These parents regard nutritional supplementation as an important way to help their toddlers, pre-schoolers and grade-schoolers to reach their full potential – a belief positively reinforced by frequent marketing and advertising campaigns targeting these families, especially on TV.

But this context also accelerated the uptake of other types of child-nutrition solutions. Boosted by the growth of the modern trade (larger store format) and e-commerce, new competition was able to gain visibility and reputation among parents. The household names Horlicks, Boost and Complan are now being challenged by a variety of other national and international brands that take advantage of limitations among those household brands, such as high sugar content or limited amounts of growth-related nutrients in their formulation.

Challenger # 1: HFDs with better nutrients (e.g. Nutricia’s Protinex)

As a consumer segment, educated middle-class Indian parents are concerned with the amounts of what they consider unhealthy or desirable nutrients and are particularly keen on scrutinizing food labels.

International companies have seen this as an opportunity to launch new HFDs with additional nutrients or the same nutrients as traditional HFDs but in higher quantity. For example, Danone Nutricia’s Protinex was launched to fill a gap in HFDs with high protein content. Its “tasty chocolate” formula contains 8g of protein per serving vs. 3.9g for Junior Horlicks Stage 1 and 5.9g for Complan Jar Royale Chocolate. Furthermore, it also beats competitors on the concentration per serving of most other vitamins and minerals in the formula – making it a “no brainer” for label-reading parents able to pay a premium for a product with better nutrients (as Protinex costs almost twice as much per serving as Junior Horlicks).

Challenger # 2: Paediatric Nutrition (E.g. Abbott’s Pediasure)

In 2000, Abbott launched Pediasure, specially formulated for children aged 1 to 10 years old and conceived of as a full meal replacement for picky eaters. Together with Ensure (targeting adults but also frequently taken by children), Pediasure is estimated to have a 10% market share of the HFD market; and both brands continue to grow quickly2.

This success is attributed to Abbott’s commercial strategy which capitalises on the critical role played by paediatricians in recommending nutrition formulas to parents. In order to boost recommendations, Abbot’s representatives visit these healthcare professionals (HCPs) and educate them about the important role of complete nutrition in a child’s brain and physical development. In parallel, the advent of a large educated middle-class of parents also resulted in a more hands-on approach to children’s health monitoring with regular routine visits to HCPs. And the fact that they could afford these premium products ultimately created a snowball effect for Pediasure and Ensure.

Abbott also promotes its products directly to consumers (D2C) and are widely available in mass distribution channels. This “double-hat” approach, both medical and D2C, is not specific to India but has been the trademark of Abbott Nutrition for market entry around the world: first Abbott Nutrition targets HCPs to drive recommendation of their brands, then after 5-10 years, when their medical reputation has been established, they introduce D2C communication and aim for mainstream distribution to encourage broader product adoption. As in many Asian markets, this approach is paying off in India.

Challenger # 3: Growing-up Milks (e.g. Mead Johnson’s Enfamil)

Parents’ concern with the ingredient content of nutritional option has paved the way for the growth of adjacent nutritional categories, particularly growing-up milks.

A large reason why malt-based HFDs had been so successful in India was the fact that milk was not easily available and, when it was, its quality was poor. In contrast, malt-based HFDs were both accessible and able to mask an unpleasant milk taste3.

These historic success factors, however, are losing their relevance. A variety of infant milk formulas are now accessible, and most of them have “follow-up” toddler versions. Mead Johnson’s Enfamil Stage 3 is a particularly strong player in the space and has adopted a message around physical and brain development, competing head to head with traditional malted HFDs who leverage similar marketing lines.

Growing-up milks are sold at a premium price point; for example, Enfamil Stage 3 is four times more expensive than Junior Horlicks on a one serving basis. However, urban middle-class parents are willing to pay that higher price to provide what they perceive as better-quality nutrition, in line with the child-feeding practices of North American and European countries.

Challenger # 4: Local affordable HFDs (e.g. Patanjali’s Powervita)

The 3 types of contenders that we have laid out all have in common that they are led by premium brands owned by international companies (Abbott, Danone Nutricia and Mead Johnson). But leading HFDs’ competition also comes from the opposite side of the spectrum where local, affordable brands cater to rural families and urban working classes with low incomes. For example, Patanjali’s Powervita has a similar packaging look to Horlicks and Bournvita but is cheaper – ₹ 7.8 per serving (based on Amazon India prices) vs. ₹ 15.1 for Horlicks Junior and ₹ 8.2 for Bournvita.

The differentiation of local HFDs is not just on price but also on the brand’s identity, ingredients and taste. For example, Powervita is inspired from traditional ayurvedic medicine and borrows its marketing terminology from that space: “Shatavari promote health energy level and boost immunity” and “Shankhpushpi & Brahmi [is] good ayurvedic remedy for memory and brain”. In fact, Patanjali was co-founded by a very popular guru, Baba Ramdev, and, as such, has a lot of appeal among families with strong traditional Indian values4.

Beyond ayurvedic ingredients, the adaptation to local tastes can also appeal to Indian consumers. “Badam” (almond in Hindi), present in MTR’s Instant Badam Drink Jar is a good example. The importance of meeting local tastes has even been recognised by international players like Abbott that now manufactures locally its nutritional products with Indian flavours – e.g. “kesar badam” (saffron & almonds) for Pediasure5.

Although local HFDs represent a small amount of the total value of the HFD market due to their lower pricing, there are successfully taking some volume shares from most established players, slowing down the adoption of traditional brands Horlicks and Complan among Indian families emerging from economic scarcity.

Final thoughts

While Horlicks and Complan’s brand equity should still continue to attract socially ascending families to its products once they can afford them, the growth will certainly be lower than would have been originally predicted based on pure socio-economic factors.

The long-term future of Horlicks, Boost and Complan will very much depend on the type of innovation they manage to bring to the market in both tastes and ingredients. A substantial increase in protein, vitamin and mineral content could certainly help them to stay relevant, ultimately benefitting Indian children.

Marie-Elisabeth Maigre

 

Sources:

1 https://timesofindia.indiatimes.com/business/india-business/coke-zydus-to-bid-for-krafts-brands-complan-glucon-d/articleshow/65694532.cms

2 See Redseer’s publication “Health Food Drinks on the Road to Transition” (http://redseer.com/wp-content/uploads/2018/06/health-food-drinks-hfd-market-in-india-on-a-road-to-transition.pdf)

3 https://economictimes.indiatimes.com/industry/cons-products/food/whoever-buys-horlicks-must-reckon-with-better-informed-consumers-in-a-rs-7000-crore-market/articleshow/63560169.cms

4 https://www.india-briefing.com/news/ayurveda-india-fmcg-market-consumer-preferences-natural-organic-products-17395.html/

5 https://www.business-standard.com/article/companies/abbott-to-launch-nutritional-products-in-indian-flavours-114101600800_1.html

 

US Vape Stores: Can they Survive a Ban on Liquid Flavours?

Retailers of e-cigarettes in the U.S. are under increasing pressure as the FDA seeks to regulate the quickly growing and ever-changing nicotine alternative market. Of particular concern is the growing use of e-cigarettes among teenagers which has been described as an ‘epidemic’ by regulators. In response, the FDA is considering a ban on all flavoured e-liquids and juices, leaving only tobacco flavoured products. Such a change would drastically dampen the U.S. e-cigarette market – causing many retailers to close and making consumers turn to other venues or mix their own e-liquids.

The scope of the flavour ban is not available, but the FDA has made clear that the public health implications are important enough to consider “the immediate removal of these flavoured products from the market.” The worst-case scenario for the e-cigarette market would be if the FDA followed the example of the counties in California which have already banned flavoured e-cigarettes. This would include a full ban on flavoured liquids (both the nicotine-containing and nicotine-free types).

To understand how the vaping product landscape would be impacted, Sector & Segment interviewed e-cigarette retailers across the United States to better understand how they are responding to regulation and the potential for a ban on flavoured e-liquids in particular. This included interviews with several retailers in San Francisco and San Mateo, California where a ban on flavoured e-liquids has already been approved and is currently being implemented. As such, these interviews represent a strong case study for the potential impact of a nationwide ban on flavoured e-liquids.

Vaping liquids going up in smoke

A ban on flavoured liquids would represent a loss of sales that could threaten the existence of the ~8,000 e-cigarette stores currently trading. For all of the retailers interviewed, e-liquids made up the largest share of their sales and could not be easily replaced. Liquids have to be replenished every few weeks whereas devices, although pricier, typically can have a lifespan of several years. This makes stores dependent on consumers keen on replenishing or trying new flavours.

We sell everything: mods, juices, pods – but the bulk of the business is in the juices

– Vape Store Owner, San Francisco

Much of the appeal of stores is their ability to provide a wide range of flavours. And retailers provide consumers a venue for testing and discussing the merits of flavours (and devices). As a result, stores often focus on offering a boutique experience where customers can draw from the knowledge of employees. In a tobacco-only flavour liquid market, the vaping communities organised around specialised vape stores will lose their appeal, which could lead to store closures.

This was the case for the retailers interviewed in San Francisco. Without income from e-liquids, retailers had the option of either moving to a less regulated product offering or simply shutting down. While some stores might be able to carry on by selling e-cigarettes and other devices, they would also be forced to diversify into new products.

When the flavour ban goes out, that will be the end… some consumers might continue to use tobacco flavours but it’s too much of a gamble for me [to stay in business]

– Vape Shop Owner, San Francisco

The flavourless future of the vaping market

In a scenario where the FDA bans flavoured liquids, current users of those vape juices will be pushed to adjust their buying behaviours.

At the moment, only a small fraction of vapers who consume nicotine liquids rely on tobacco flavours as the majority prefer to experiment with fruity and sweet tastes. If e-liquids were reduced to a single flavour (tobacco), there would be little need for flavour tasting in dedicated vaping stores. Consumers would be able to turn to gas stations, convenience stores or online platforms for product refills, the same way most do for either cigarettes or pods. With minimal variation between brands, a few key tobacco-flavoured e-liquid brands would likely dominate the market.

Consumers’ preferences in devices would also change. Most would turn to e-cigarettes as a nicotine delivery system rather than for the “flavour plus nicotine”. Open devices like mods would lose much of their value in favour of pod-style devices. Mods are oriented around delivering fuller flavour which would be of less value in a market with only tobacco flavoured liquids. In contrast, pod-style devices accompanied by salt nicotine, a type of e-liquid, are able to deliver high doses of nicotine in a small convenient package.

Less drastic scenarios are still on the table

It is not yet clear that the FDA will pursue a full ban on flavoured e-liquids. Various other options are available for reducing teen usage such as:

·       Restrictions on e-liquid nicotine strength

·       Restrictions on online sales

Furthermore, if the FDA allows for flavoured nicotine-free products, many stores may be able to carry on selling flavoured liquids and nicotine separately, thus allowing consumers to mix their own flavours.

However, if the FDA follows San Francisco’s model this would not be an option. In California, nicotine-free liquids are regulated as tobacco products and so the ban on flavoured e-liquids would extend to nicotine-free products as well.

Final thoughts

Although there is still limited visibility on the full scope of FDA restrictions on sales of e-cigarette consumables, it seems likely that whatever path they take, it will affect the entire industry, from liquid production to vaping communities. E-cigarette retailers have adapted to a range of regulations in recent years but all the vape shop owners we talked to were consistent in believing that a full ban on flavoured e-liquids would mean the end of their specialised retail.