Beverages

Glaxo's a Hit in India, Thanks to Its Horlicks Brand


GlaxoSmithKline’s (GSK) best-selling product 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 Pepsi (PEP). Glaxo, Britain’s biggest drugmaker, is seeking to replicate that success with other consumer products in emerging markets, including China, as it sheds over-the-counter medicine brands sold mostly in the U.S. “We are trying to take Horlicks into a megabrand strategy,” says Zubair Ahmed, who heads GlaxoSmithKline Consumer Healthcare in India.

Horlicks, which has been around for 138 years, became part of Glaxo’s portfolio when the drug giant merged with SmithKline in 2000. The product is made with malted barley and buffalo milk (which is richer than cow’s milk and more readily available in parts of India) and marketed mainly for children. In recent years, Glaxo’s India unit has moved to capitalize on the nutritional image of Horlicks through an array of brand extensions, including breakfast cereals, biscuits, and a beverage called Mother’s Horlicks that is formulated for pregnant women. The company also plans to introduce ready-to-drink versions and a line of healthy snacks in the coming years, Ahmed says.

Glaxo’s efforts to build on the Horlicks brand are part of a broader push into consumer products the company is making in places such as India, China, and Latin America. Emerging markets have become increasingly important to the British drugmaker’s strategy as the European debt crisis puts downward pressure on pharmaceutical prices. While they have lower margins, consumer products provide steady revenue growth. And there are no patent expirations to worry about. “Consumer health care is a great additional reason to buy Glaxo,” says Rajesh Varma, who helps manage $6.5 billion at Paris-based asset management firm DNCA Finance. “You’ve got revenue growth that is stable, that won’t fall off a cliff.”

Glaxo spends less than 4 percent of sales on research and development in the consumer unit, compared with 15 percent for prescription drugs, says Navid Malik, an analyst at Cenkos Securities in London. Other drugmakers that have built up their consumer units are Bayer (BAYN:GR), maker of Aspirin, One A Day vitamins, and Alka-Seltzer antacids, and Novartis (NVS), which completed its acquisition of eye-care company Alcon last year.

In 2010, Horlicks sold almost twice as much in India as Coca-Cola’s (KO) popular Thums Up soda and last year brought in 50 percent more revenue than Tata Global Beverages’ Tata Tea, according to Euromonitor International. High malnutrition rates among India’s large population of children will continue to drive sales of nutrition-related products, Ahmed says. Horlicks, along with other consumer products such as Sensodyne toothpaste and Eno antacid, contributed to a 19 percent increase in Glaxo’s non-pharmaceutical sales in India last year, with operating profit rising at a similar rate, Ahmed says. The company plans to spend as much as £40 million ($62 million) to boost production capacity at its three Horlicks plants in the country. Glaxo’s consumer health sales in India totaled about £350 million, or 9 percent of global sales for the division, in the nine months through September. Worldwide sales including pharmaceuticals were £20.4 billion in the period.

In China, Glaxo’s consumer health-care sales grew more than 10 percent in the first nine months of last year, helped by the introduction of its sports drink Lucozade in 2010. “Glaxo has strong growth in emerging markets, and there’s no reason why that shouldn’t continue,” Varma says.

The bottom line: Glaxo is putting more money behind consumer products in emerging markets to offset weakness in pharmaceuticals in Europe.

Kitamura is a reporter for Bloomberg News in London.

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Companies Mentioned

  • GSK
    (GlaxoSmithKline PLC)
    • $43.09 USD
    • 0.24
    • 0.56%
  • PEP
    (PepsiCo Inc)
    • $97.15 USD
    • 0.06
    • 0.07%
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