Godrej gets out of another JV

New Delhi: For the Godrej group, another parting of ways is round the corner - it plans to snap ties with the US-based Selviac Nederland BV (Pillsbury), part of the $21-billion global food and drinks giant Diageo.

The US-based company is buying out the 43.5 per cent equity stake of the Godrej group in the joint venture Godrej Pillsbury.

With this acquisition, Pillsbury's stake in the venture will go up from the existing 56.5 per cent to 100 per cent, making it Pillsbury's completely-owned subsidiary in India.
It is not yet clear what price Pillsbury has paid for the stake; the turnover of Godrej Pillsbury is more than Rs 60 crore and the size of the entire atta (wheat flour) market is close to Rs 400 crore.

Godrej Pillsbury, a marketing joint venture between the Godrej group and Selviac Nederland BV (Pillsbury), was set up in 1995-96 with the Godrej Group holding 49 per cent equity and Pillsbury the rest. Associate companies Godrej Foods and Godrej Soaps put in equity to the extent of 29 per cent and 20 per cent, respectively.

The Godrej Pillsbury joint venture markets and distributes popular brands such as Pillsbury Chakki Fresh Atta, Green Giant canned corn, Jumpin' fruit juices and Cooklite oil. The 49-per cent stake allotted to the Godrej group was in lieu of transferring Godrej Foods' distribution network to the joint venture. The group also transferred the distribution rights for four of its popular brands - Jumpin', Cooklite, Godrej Sunflower Oil and Shakti - to the joint venture.

Managerial control of the joint venture rested with Pillsbury and those close to the companies says that Pillsbury had greater say in the operations, due no doubt to its 2 per cent higher equity stake.

Indications that all was not well with the Godrej Pillsbury joint venture came when Godrej called off the distribution arrangement with Pillsbury in October 2000 saying that it was not happy with the way its distribution network was being handled by Pillsbury. It said the joint venture was not interested in expanding the distribution network of Godrej's brands as a consequence of which the market shares of its brands were stagnating. The market-share of the Jumpin' brand of fruit juices fell from about 35 per cent in 1998 to about 24 per cent in 2000, while refined sunflower oil Cooklite's market share was at a stagnant 12 per cent. Following the calling off its distribution arrangement in October last year, Godrej initiated talks with Pillsbury in January this year to divest its 49 per cent holding in Godrej Pillsbury. After this Pillsbury has successively hiked its stake in two instances. In March this year, Pillsbury hiked its stake to 56.50 per cent through a preferential issue and now, when the company has become its wholly-owned subsidiary.

Godrej has entered into alliances with three multinationals - the Godrej P&G alliance, the Godrej GE alliance, and finally Godrej Pillsbury - and all of them have come a cropper. Through all its alliances Godrej has lost out one thing and that is market share of its main brands. In the P&G alliance - for Godrej soaps - the Godrej Cinthol brand lost considerable market share, and popular, low-end brands like Ganga were hit badly.

While in the GE case before the alliance, Godrej was the market leader in refrigerators. Not so now, while in the Godrej-Pillsbury alliance, Godrej's fruit drink Jumpin's share whittled down and that of its edible oil brand Cooklite remained stagnant and refused to grow.