Good morning [%first_name |Dear Reader%],

In the past couple of years, fast-moving consumer goods (FMCG) companies have been on an acquisition spree, but mostly involving small deals in the direct-to-consumer (D2C) space. Everyone from Hindustan Unilever (HUL) and Tata Consumer Products (TCP) to Marico and ITC have hoovered up one or more D2C brands. 

There have been a few acquisitions of old and established companies, including Dabur’s almost-Rs 600 crore (US$73 million) purchase of a majority stake in Badshah Masala earlier this year. 

But these are the exceptions that prove the rule, which is that FMCG majors can’t get enough of D2C brands. 

Not Godrej Consumer Products (GCPL), though. 

The company broke with the dominant trend last week when it said that it would buy the FMCG business of Raymond Consumer Care for Rs 2,825 crore (US$345 million). Raymond owns deodorant brand Park Avenue and condom brand Kama Sutra, among others. 

Maybe GCPL considered acquiring a D2C brand but passed on it. Even if it didn’t want to go down that road at all, I wouldn’t be surprised. And that’s because GCPL desperately needs brands with scale, a lot more than its rivals. 

Let me explain. 

Why Godrej needs brands with scale

GCPL is India’s seventh-most-valuable FMCG company. That’s hardly surprising since it’s home to some widely recognised brands, including Cinthol soaps, Good Knight mosquito repellents, and Godrej Expert hair colours. 

But GCPL has struggled to measure up to larger rivals in terms of business and profit growth. 

Take HUL, for instance. India’s largest FMCG company grew its sales at a compounded annual rate of 10% between the years ended March 2017 and 2022, according to brokerage Anand Rathi. GCPL, on the other hand, managed to increase its domestic revenue (GCPL operates across Asia, Africa, and Latin America) only 6% annually in this period. This is striking; considering HUL has 4X of GCPL’s India business, one would have expected GCPL to grow much faster on its smaller base. 

The difference between the two companies’ profits is even starker. HUL’s earnings before interest, tax, and amortisation (Ebitda) rose 15% annually between 2017 and 2022—3X the growth GCPL achieved. 

So it’s not hard to see why the two stocks’ trajectories have been so different over the past five years. 

GCPL’s woes forced Nisaba Godrej, daughter of Godrej Group chairperson Adi Godrej, to take the reins of the company in July 2020. But while her tenure was to last over two years, in just over a year, the company brought in Sudhir Sitapati to steer the ship as MD and CEO.