How India’s Godrej Consumer Products innovates for emerging markets

This interview is part of the Inside the Mind of the CEO series, which explores a wide range of critical decisions faced by chief executives around the world.

The Godrej Group’s innovation journey began in 1897, when Ardeshir Godrej patented a high-precision padlock that wouldn’t rust in India’s humid weather. In 1918, Godrej manufactured the world’s first soap made from vegetable oil instead of animal fat. A century later, the company introduced Magic, a 20-cent powder-to-liquid handwash that helped to democratize sanitation during the pandemic.

Today, Magic is sold by Godrej Consumer Products Limited (GCPL), the diversified Godrej Group’s leading firm focused on emerging markets, based in Mumbai. With Nisaba Godrej, a fourth-generation member of the Godrej family, at the helm, GCPL has developed a strong footprint in the fast-moving consumer goods space. Bringing affordable and sustainable home care, hair care, and personal care products to emerging markets is the mission of 43-year-old Godrej, who earned a bachelor of science from the Wharton School at the University of Pennsylvania and an MBA from Harvard Business School.

Nisaba Godrej has pursued inorganic growth through acquisitions in Africa and Indonesia. But to buoy organic growth in India’s domestic market of 1.35 billion people, she also remains focused on organic volume growth, a strong innovation funnel, investments in scaling new categories, and strengthening the company’s management bandwidth. In 2021, GCPL, a public company with a staff of more than 11,000, reported a consolidated net profit margin of 20% and net revenues of roughly US$1.5 billion. Godrej recently spoke with strategy+business about the challenges and opportunities involved in catering to the evolving needs of her customers, at home and abroad.

S+B: How will the global economic recovery affect your business, both in India and in the other emerging markets where you are active?
GODREJ: I think it’s hard to anticipate that right now, because there are so many variables to factor in. Although we do see a K-shaped recovery, there’s a level of frothiness in the market with valuations. There has been a lot of liquidity coming into India, and I am hoping that will encourage a capex cycle, because that’s what is needed for sustainable jobs and growth. I am neither pessimistic nor hugely optimistic—perhaps somewhat neutral, but banking on hopeful realism. In other emerging markets, such as Africa, our business has been doing well.

In general, larger companies that have been able to manage the situation on the ground, supply chain issues, and inflation are doing relatively better [than smaller businesses]. But that’s a sliver of what’s going on in the economy, more of a market share gain rather than an indicator of the overall economy doing well.

In the retail space, consumer products related to health and safety peaked during the second wave of the pandemic. For example, everyone has had a masterclass on handwashing, and penetration for handwash has shot up from 19% to 34% in India. It may moderate at some point, but some of these pandemic-related consumer trends and demands are here to stay.

S+B: During the pandemic, your hygiene business grew by 24%, and household insecticides—your largest product category—by 15%. How has the pandemic changed the way you think about your various product lines and businesses, and the operations that support them?
GODREJ: During the pandemic, we focused where the demand was, which included hygiene and health products. Discretionary products such as air fresheners didn’t do well. And as we know, this has really been the year of the supply chain, with supply being impacted by unprecedented disruption. There was chaos all over the world, and the one thing we learned was to rethink and focus on more agile supply chains and localization, especially in countries that had been importing from China.

To manage the challenges and take advantage of the opportunities, we need more automation and more capex. And I think India has a potential advantage if we set ourselves right in terms of attracting more manufacturing and building an ecosystem around it. With its strategic location, large internal market, and a thriving private sector, India is well poised to be the next manufacturing destination.

S+B: Your revenues are currently split between India (56%) and other emerging markets (44%). Going forward, do you plan to focus more on the domestic market and organic growth?
GODREJ: What we’re looking for is double-digit volume organic growth. That is our aspiration and our first priority. We will also continue to look out for interesting acquisitions in the home and personal care space in India and Indonesia.

Our Indonesia acquisition of 2010 [Megasari Makmur Group, a leading manufacturer and distributor of a wide range of household products, including insecticides and air fresheners] has done really well for us. The business has grown four to five times in value over the last decade, and it has very strong EBITDA margins.

We struggled in Africa for a couple of years, but we’ve brought the business back to good growth. Our EBITDA margins are moving up. But it’s still far off from being defined as a success. I wouldn’t say setting foot in Africa has been a mistake, because there is certainly a huge market for high-quality products at low prices. Think of Nigeria and its 200 million consumers.

But in hindsight, I think we spent too much, and we did too many acquisitions. We should have focused on three or four of the big countries on the continent and not done so many small acquisitions. Although it did give us a good opportunity to build the brand in cultural alignment—for example, in the hair extensions category—we underestimated the influence of Chinese companies already operating in Africa. One of my blind spots because of my education [in the US] and exposure has been my Western-centric view of the world. But when we look carefully at what’s happening geopolitically and economically, having a Chinese-centric view is also hugely important.

S+B: How does all this influence your strategy for emerging markets?
GODREJ: I think it is about innovating to develop accessibly priced products that could be distributed far and wide, with a low cost to serve. For example, household insecticides are critical, especially in places with malaria issues. That is why our recently launched multi-insect solution, Goodknight Power Shots aerosol [a concentrated, no-gas spray that costs less than $3], is seeing an encouraging response in Nigeria, and the demand will persist.

You have to give consumers what they want. Your offerings have to be differentiated and innovative. And in emerging markets, making things accessible, whether it’s from a price point or distribution perspective, becomes extremely important, as basic as it may sound. You want consumers to exclaim, “Wow, the quality of this product is fantastic!” And then when they hear the price point, it’s that added delight that they can actually afford to purchase that product. That’s fundamental.

S+B: With the rise of the omnichannel shopper, how are you meeting these evolving needs and simultaneously ensuring brand differentiation?
GODREJ: For older companies like ours, a lot of the digital revolution is not just about gathering consumer-facing data through the e-commerce channel, but also, and perhaps more important, the efficiency that technology and digital bring.

Moreover, the digital ecosystem opens up the ability to premiumize and launch digital-native products that can only be purchased via an e-commerce platform. We did that with dishwasher tablets, anti-mosquito bed nets, and detergent pods. But there are exceptions, too. For example, for Goodknight [the top-selling household insecticide brand in India], we have Naturals, a range of products made of natural active ingredients, that we launched on our e-commerce platform, as demand for that product is quite strong. But now local department stores are also asking for these products, and we need to cater to that demand, as well.

The other interesting marketing strategy is direct-to-consumer [D2C]. This enables you to educate the consumer online and then use conversion marketing to get them to buy products online. Influencer marketing and product promotion via social media are also set to change the game. For example, during a consumer visit in Delhi, I asked a lady who had bought Magic, our powder-to-liquid handwash product, if she had seen our ad. She told me, “No. Someone sent me the picture on WhatsApp. So I bought it.” Word of mouth has acquired a new meaning altogether.

S+B: How does your stated purpose, “Bringing the goodness of health and beauty to consumers in emerging markets,” tie into sustainability?
GODREJ: I believe you can rethink how everything is done—for example, building products and supply chains for emerging markets in a sustainable way. As incomes and per capita consumption rise, we should not build Western models of consumption. Because if we consume like the West, it’s not going to work out well for us.

For example, Magic is aimed at upgrading people from bar soap. In India, the soap market was valued at $2.6 billion in FY2020. Forty percent of the country’s soap market is in the less-than-13-cent category that is accessible to consumers. At its 20-cent price, Magic handwash [which comes in a sachet and needs to be mixed with water] replaces the use of two bars of soap. There is a definite value for the consumer. Also, because it is lighter, four times more handwash refills can be transported per truck, using less fuel for transportation, and lowering carbon emissions.

We need to look at such models. We’re still using plastic in Magic’s packaging, but with innovation, that too can be brought down. And importantly, because we are able to lower emissions by using less fuel, there is no additional cost associated with using clean technologies to produce it—we don’t have any green premium on this product—and we make more margin on it than we do with bar soap. We need to now focus on how we innovate to find that circularity, where it ticks all the boxes.

S+B: Godrej aims to become carbon-neutral and reduce specific energy consumption by 30%. What steps are you taking to achieve these goals—for example, with regard to manufacturing and supply chain practices?
GODREJ: We’ve taken several steps to move toward net zero or carbon neutrality, and this is in line with our Good and Green Vision 2025 that we had announced in 2010. We are focused on improving energy efficiency to align with our [ethics pronouncements] EP100 commitment, by improving the resource efficiency of all our processes. [EP100 is a global initiative that brings together companies committed to improving their energy productivity by deploying efficient technologies and practices.] That means we are using less energy, water, and raw materials, while increasing productivity.

We do have some challenges, for example, our green manufacturing performance remained flat after fluctuating in the first half of 2021 due to lockdown measures and intermittent operations, and our water usage spiked. On the brighter side, we have achieved zero waste to landfill. We have also started doing assessments that we were not doing five years ago to ensure that the goods and services we provide are safe and contribute to sustainability throughout their life cycle. We’ve streamlined our equipment and use briquette-fired boilers rather than oil-fired boilers across the Group.

We also source 29% of our energy from renewable sources such as solar PV installation, and we are collaborating on energy efficiency with our supply chain partners, because we have a sustainable supply chain program. We are 100% compliant with extended producer responsibility (EPR), as we take back post-consumer plastic packaging waste equivalent to the plastic packaging we send out.

S+B: You often talk about creating an equitable world alongside a greener world. How do you approach diversity and inclusion within your organization?
GODREJ: I cannot emphasize enough the importance of having different people and different perspectives at the table to influence decision-making. When Parmesh Shahani, who leads our diversity and inclusion agenda, first spoke about offering gender transition surgery [as a company benefit], my thought was, what if people just join our company to use this benefit? I soon realized it was a blind spot triggering these thoughts, even in me, with my liberal upbringing. Of course, we all have unconscious biases and blind spots, so we need diversity at the table to influence and initiate change. Many of our policies supporting LGBTQ employees were in place well before the 2018 landmark decision that decriminalized homosexuality in India.

It is not just about being diverse, but also being inclusive, and it is important to design for that. Here, it is important to distinguish between the idea of your best self and your true self. I could give you all the numbers that tell you about our best self. For example, 45% of our workforce is female, and we have the highest number of women board members of any listed company in India. But that doesn’t say much because I get to decide who is on the board, and it is easy to push it through.

It is therefore critically important to talk about our true self—not just about what we do well, but what we’ve learned and where we’re failing, because that’s where you get the support to improve and be better. For example, we’re not at the equal representation [rate] we aim at for women. In India and at Godrej, we grapple with already low and decreasing participation rates of women in the workforce. India’s rate of female participation in the formal economy is as low as 24%; we’re just slightly higher than Saudi Arabia. Our internal studies at Godrej show that women’s engagement is lower than that of men, and women’s attrition is higher. While there is no gender-based disparity in pay, biases—possibly cultural—play out in 360-degree feedback. [For example,] trends indicate that men tend to rate women lower than they rate other men.

S+B: How does this tie in to your ability to build trust with your stakeholders?
GODREJ: We have the humility to learn. I think in our 125-year history, we’ve probably made mistakes many times, but we own up to them, and come back to the table and say, how do we get better?

During the pandemic, we’d decided that if there was any time that we’d take the hit in losses, it would be now. Our people and communities and their safety would be a priority. This was grounded in something my father, Adi Godrej, always says, and that we follow: It’s easy to live your values when the going is good. What really matters is how you stick by those values and live them when you have tough choices to make.