GlaxoSmithKline Plc’s best-seller in India isn’t a treatment for asthma or cancer. It’s a malted milk drink called Horlicks.
The brand is India’s top packaged beverage behind bottled water and sells more than twice as much as PepsiCo Inc.’s namesake cola. Glaxo, the U.K.’s biggest drugmaker, is seeking to replicate that success in other emerging markets as it sheds over-the-counter medicine brands sold mostly in the U.S.
“We are trying to take Horlicks into a mega-brand strategy,” Zubair Ahmed, who heads GlaxoSmithKline Consumer Healthcare Ltd. in India, said in an interview.
So far, that has meant capitalizing on the brand’s nutritional image to extend the Horlicks name to instant “Foodles” noodles, breakfast cereals and biscuits. In coming years, Glaxo plans to introduce ready-to-drink versions of the powdered beverage and healthy snacks, Ahmed said.
The marketing of Horlicks is part of a broader push by Glaxo into consumer products in India and China at a time when the European debt crisis is placing downward pressure on prices.
While they have lower margins, consumer products provide steady, low-risk revenue growth without patent expirations, said Rajesh Varma, who helps manage 5 billion euros ($6.5 billion) at DNCA Finance SA in Paris.
“Consumer health care is a great additional reason to buy Glaxo,” said Varma, who is considering purchasing the company’s shares. “You’ve got revenue growth that is stable that won’t fall off a cliff.”
Horlicks, along with Sensodyne toothpaste and Eno antacid, helped push up Indian sales of Glaxo’s non-pharmaceutical products 19 percent last year with operating profit growing just as fast, Ahmed said. That compares with 1 percent sales growth for the division in the U.S. in the nine months through September and a 1 percent drop in Europe.
London-based Glaxo plans to expand distribution of its consumer products to 50,000 rural Indian villages over four years and spend as much as 40 million pounds ($62 million) to boost production capacity at its three plants in the country, Ahmed said. The company is also seeking wider distribution of its Lucozade sports drink in China through a local partnership.
Glaxo’s consumer health sales in India totaled about 350 million pounds, or 9 percent of global sales for the division in the nine months through September. Worldwide sales including pharmaceuticals totaled 20.4 billion pounds in the period.
Horlicks, a 138-year-old drink similar to Ovaltine, is made with malted barley and buffalo milk instead of cow milk for cultural reasons in India. The drink’s popularity historically stems from milk deficiencies in the eastern and southern regions of the country due to poor infrastructure, Ahmed said. While the drink mainly targets children, the company also sells a high-nutrient version for adults and Mother’s Horlicks for pregnant and breast-feeding women. It became part of Glaxo’s portfolio when the drug giant merged with SmithkKline in 2000.
“Glaxo is building on the healthy nutrition heritage of Horlicks in India,” said Richard Haffner, global head of beverages research at Euromonitor International in Chicago. Horlicks was founded as an infant formula in the U.S. by British brothers before finding use by armed forces during World War II and athletes at the 1948 London Olympics.
Horlicks sold almost twice as much in India as Coca-Cola Co.’s Thums Up soda, double Pepsi and brought in 50 percent more revenue than Tata Global Beverages Ltd.’s Tata Tea last year, according to Euromonitor, which doesn’t track sales of unpackaged loose teas. The country’s best-selling packaged drink is Parle Bisleri Pvt.’s Bisleri bottled water.
High levels of malnutrition and the large proportion of children in India, which is even greater than in China, will continue to drive sales of nutrition-related products, Ahmed said. In urban areas growing popularity of fast foods is contributing to an “exploding” antacid market, in which Glaxo leads with its Eno product, he said.
Other drugmakers with consumer units include Bayer AG, maker of Aspirin, One-A-Day vitamins and Alka-Seltzer antacids, and Novartis AG, which finished acquiring eye-care company Alcon last year.
Consumer products carry lower development costs than pharmaceuticals, said Navid Malik, an analyst at Cenkos Securities Plc in London. Glaxo spends less than 4 percent of sales on research and development in the consumer unit, compared with 15 percent for prescription drugs, he said.
Glaxo’s pharmaceuticals division disappointed investors when it said on Jan. 9 its experimental respiratory drug Relovair didn’t prove superior to an existing medicine in a late-stage study. Glaxo developed Relovair as a successor to Advair, its best-selling drug, accounting for about a fifth of global sales.
In December, Glaxo sold 17 over-the-counter brands including digestive helpers Beano and Gaviscon to New York-based Prestige Brands Holdings Inc. Glaxo is trying to sell a second batch of over-the-counter products including the Alli diet pill as quickly as possible, Chief Financial Officer Simon Dingemans said on Jan. 10.
The brands being sold off are mainly available in the U.S. and Europe and accounted for about 500 million pounds, or 10 percent of Glaxo’s revenue from consumer products in 2010. Chief Executive Officer Andrew Witty is working to expand the company’s business in oral health, wellness and nutrition, segments which have more global potential, according to Gbola Amusa, a London-based analyst at UBS AG.
Glaxo’s consumer health-care unit had 3.9 billion pounds in sales, or 19 percent of global revenue, in the nine months ended September. The unit’s 22 percent operating margin in the period compares with 37 percent at the drug and vaccine business.
In China, helped by the introduction of Lucozade in 2010, Glaxo’s consumer health-care sales grew more than 10 percent in the first nine months of last year. Glaxo ended a two-year distribution agreement with Uni-President China Holdings Ltd. late last year and is seeking an alternative strategy for Lucozade, according to the company.
Glaxo may seek a similar agreement with or acquire a bottler in Latin America to expand its beverage distribution, Euromonitor’s Haffner said. Candidates could include Colombia’s Postobon SA and Peru’s Aje Group, he said.
Demand for consumer staples in China, India and Indonesia will account for a quarter of global spending for such products by 2015, fund manager Varma said.
“Glaxo has strong growth in emerging markets and there’s no reason why that shouldn’t continue,” Varma said.