Possible sale of Complan, Horlicks casts spell on Rs 7,000 crore malt-based health drinks market

Heinz bought Complan from Glaxo in 1994. Kraft acquired Heinz in a deal valued at $23 billion in 2015.

The report of Kraft Heinz's possible sale of Complan comes two months after rival British giant GSK put its popular nutritional health brand Horlicks under "strategic review" implying its sale to fund the $13 billion acquisition of Novartis' consumer health business.

In India, Horlicks and Boost are sold by GlaxoSmithKline Consumer Healthcare. The strategic review will include an assessment of GSK’s 72.5 percent shareholding in the company.

GSK expects to complete the “strategic review” by end 2018. Horlicks alone contributed around three-fourths of the company's sales of Rs 4,208.57 crore in FY17.

GSK is the market leader in the Rs 7,000 crore health food drinks segment with Horlicks holding 49 percent market share, followed by Mondelez’s Bournvita at 11 percent and Kraft Heinz Complan at 7 percent.

Abbott with Pediasure (pediatric) has 1 percent market share, but commends premium pricing compared to other competitors.

Why are Kraft Heinz and GSK selling their malt-based health food drinks.

In recent times players like Nestle, Danone and Patanjali have entered  the space with brands like Milo, Protinex, and Power Vita, respectively. This has intensified competition and is putting pressure on margins. Patanjali's Power Vita is priced 30 percent lower to nearest rival Horlicks.

“The HFD category has been struggling to grow as fast as some of the other Food & Beverage categories in India (6% sales CAGR in FY12-17 vs 16% for F&B),” said Ambit Capital in its latest report.

“This is a result of weakening value proposition due to aggressive price hikes and lower investment by key players like GSKCH, Mondelez and Heinz in a category which requires high A&P (advertising and promotional) spends to recruit new customers as older consumers churn out once they become adults,” the report added.

Moreover, consumers are demanding scientific evidence to back the claims these companies make while promoting their products.

Historically, malt-based health drinks targeted children in the promotions. For example, Horlicks' "Taller, Stronger, Sharper" campaign, Bournvita's "intelligence and confidence" campaign, and Complan's claim of being a complete planned food for the family and later for growing children. All these claims, however, were not backed by any rigorous clinical evidence.

In more set back, nutritionists and dietitians have pointed out that many malt-based health food drinks can be harmful for children leading to obesity.

"Much of these drinks contain a lot of sugar and starch means excess carbohydrates, which isn't good for kids health, I don't advice them," said Avani Sidhpura, a Mumbai-based nutritionist.

Possible contenders

There are many who could be interested in picking up the health food drinks, including global majors like Nestle, Unilever, Reckitt Benckiser, Mondelez, Abbott and Danone, and Indian companies like ITC, Marico and Patanjali.

"Our analysis suggests that Nestle is the most suitable buyer followed by Abbott due to potential synergies from having products in the same or adjacent categories in India and other countries," Ambit Capital said in its report.

The report suggests that British FMCG major Reckitt Benckiser could turn out to be the dark horse.