Indian exporters of organic soaps have been making ‘clean’ hits across overseas markets for quite some time now. As a result, exports of this product from the country has risen steadily. So, what really makes this product a popular choice amongst foreign buyers and Indian exporters (who enjoy high average margins)?
Neha Dewan | April issue 2017 | The dollar Buisness
As one walks past the glitzy brands vying for attention in the popular Select Citywalk Mall in South Delhi, a bevy of organic and herbal stores stand out amongst the crowd. Shahnaz Husain, Forest Essentials and L’Occitane are among the slew of famous herbal and organic beauty brands that can be seen attracting throngs of shoppers to their fold. And it’s not as if only the domestic market is reaping the dividends of the ‘go organic’ and ‘go natural’ philosophy. While beauty and hair products have always been a hit, another category which is now drawing the crowds – within India as well as internationally – is organic and herbal soaps. With the host of benefits they promise to offer, should one be surprised?
Exotic & POPULAR
A look at the statistics lends more credence to the statement of their popularity. As per the Ministry of Commerce (MoC) data, exports of organic soaps (HS Code: 34011190; including organic and natural soaps) in FY2016 were to the tune of $51.96 million – with UAE, US and Saudi Arabia topping the charts as biggest destinations for India. While the export demand has grown at a CAGR of 7.5% between FY2012 and FY2016, in FY2016 exports fell to $51.96 million from a high of $58.12 million in FY2015. The exports generated in FY2017 (as of November 30, 2016) stood at $35.43 million, and is expected to show a decent increase by the end of this fiscal.
However, it is Germany that dominates the global exports market of herbal and organic soaps. The country’s exports revenue from herbal and organic soaps in CY2015 was $398.09 million – the European nation is followed by US and Indonesia at $332.67 million and $312.63 million, respectively.
As far as the domestic market is concerned, as per a AC Nielson report, in CY2015 the soap market in India was pegged at Rs.14,093 crore. In fact, a report titled ‘India Personal Wash Market Outlook 2021’ by Bonafide Research, a global research company, concludes that personal wash products industry is expected to clock a CAGR of 8.45% till 2021. The personal wash market consists of products such as soaps, body wash, shower gel and liquid hand wash. Though the industry is mainly driven by the bath soap category, the shower gel products too are a fast-expanding segment, both in India and across international markets.
"European manufacturers give us a tough competition in global markets"
India has had a long association with herbal and organic products – be it consumer products or pharmaceuticals. And as consumers have grown more health conscious, their affinity for natural and organic products have increased too.This is also apparent from India’s FMCG giants’ expanding portfolio of organic body care products. Hindustan Lever, for instance, will soon launch new products including soaps under its ayurvedic brand Ayush. And, similarly, Godrej Consumer has broadened its line-up for Godrej No.1, the brand’s natural range of soaps. Of course, this addition in portfolios has also been triggered by the big daddy of herbal and ayurvedic products, Patanjali Ayurved Limited, which manufactures and exports a wide range of such products across the world. In the soap category, its product offerings include aloe vera body cleansers, lemon body cleansers, etc., which promote a healthy and herbal way of natural care.
And while the larger players are aggressively promoting their organic soaps portfolio in India and abroad, the real action on the exports manufacturing front is being lead by small and medium scale companies. These companies are actively innovating with a range of essential oils and fragrances, adapting their product and packaging to meet the demands of international consumers and exporting through both bulk (contract manufacturing) and retail routes.
So, what is driving consumers away from traditional body soaps towards organic counterparts? Essentially, while herbal soaps constitute extracts of various herbs and are known for their antiseptic and healing properties, organic soaps are made from ingredients that do not contain any herbicide, chemical fertiliser or pesticide. And not to say, their advantage is fairly obvious over regular soaps which use chemicals and can cause dry and irritable skin over a period of time. The chemicals in these soaps are allegedly known to impede the process of fighting off bacteria apart from delaying heals from cuts and bruises.
Shahnaz Husain, who ventured into the organic soaps category in 1985 with ‘Shasoap’, says that the terms organic and herbal are being now used interchangeably. She says that their range of ayurvedic soaps, which largely contain plant products and natural substances find a great demand internationally. “Due to the ‘back to nature’ and ‘total well-being’ trends, there is a robust demand worldwide for holistic ayurvedic and natural products,” she says.
Currently, the brand exports soaps to a large number of countries and plans to introduce a wider product mix in ayurvedic and medicated soaps in the coming year. On the anvil are also plans to expand the company’s presence further in countries such as US, UK, Oman and New Zealand, among others.
Amidst the positive trend, exporters believe that India still has a long way to go in the category of organic and natural soaps. Ramit S. Malhotra, Director – Business Development at Aster Luxury Soaps, a manufacturer and exporter of premium organic bathing soaps, says that there are many issues that are hampering the growth of this industry. According to him, logistics cost is a huge concern when it comes to exports.
“High cost of logistics is a concern for the industry because most of our shipments are sent via air. The reason being, our international clients prefer to try smaller quantities in the initial stage, which is because India does not have a strong foothold when it comes to quality standards,” says Malhotra. However, Aster Luxury Soaps is trying to change this perception by taking the initial hit in its margins. “The profit margin will eventually grow once the buyer is satisfied with our products,” adds Malhotra.
Another issue exporters face is stiff competition in international markets from EU countries and countries where quality natural ingredients are easily available – interestingly, some raw materials are not easily available in India. And not to say, importing raw materials adds to the overall cost of the product.
In addition, organic soap being a niche and relatively nascent product category requires both market and brand development. “It is not an easy avenue to step into, particularly for MSMEs. Our company, however, could pass this hurdle as we hold a strong background in pharmaceuticals exports,” adds Malhotra.
Husain on the other hand feels that lack of R&D centres in the country poses a huge challenge for manufacturers of organic soaps. “Innovation is very important if you want to stay ahead of global competition,” she asserts.
On the way to Glory
Despite ongoing challenges, exports of herbal and natural soaps remain a lucrative business. Husain is hopeful that ayurveda will soon receive the same kind of recognition that yoga has received worldwide and that in turn will fuel exports of organic soaps from India.
Exporters today earn a handsome 18-20% profit – better quality can fetch even higher margins. And with Indian exporters now focussing on innovation & quality, demand for the product is only going to go up from here. We can already hear profit bells ringing. Can you?!
“China is not a threat to the organic soap Industry”
Shahnaz Husain CHAIRPERSON AND MANAGING DIRECTOR,
SHAHNAZ HUSAIN GROUP OF COMPANIES
TDB: What is the difference between organic and natural soap? Which of the two is more in demand?
Shahnaz Husain (SH): The terms organic and herbal are now used interchangeably. We have introduced ayurvedic soaps, which contain herbal extracts, and they are made using ayurvedic method. Organic products are natural products, grown of the soil, without any chemical fertiliser or pesticide. We have our own herb and flower farm, where only natural composts are used.
Our clients demand ayurvedic soaps, which contain products from plants and other natural substances. Currently, we export soaps to many countries including Argentina, Australia, Austria, Bangladesh, UAE, UK, Ukraine and US.
TDB: Do you have any plan to introduce new categories of soap this year?
SH: Yes, we plan to introduce more ayurvedic soaps using extracts from different plants. Some of these will be medicated soaps for specific skin types and skin problems.
TDB: What are your global expansion plans? What’s the current revenue from soap exports?
SH: We plan to concentrate on international branding – to strengthen and widen our global chain of franchisees and appoint distributors in under-represented markets. We have plans to widen our presence in major countries like US, UK, UAE, Canada, Kuwait, Bahrain, Oman, Australia, Singapore, Malaysia, New Zealand and Russia. Currently, the Shahnaz Husain Group exports to over 100 countries, through franchise salons, spas, shops, beauty training academies and direct product distributors. Soaps comprise 13-15% of our total exports and we plan to increase this number.
TDB: What challenges do you face as an exporter?
SH: Maintaining global production and packaging standards is a challenge. We overcame this by adhering to the requirements of different countries and by improving our packaging. We have also emphasised on the benefits of ayurveda and ayurvedic ingredients through our franchise salons to promote our products. Another big challenge is the lack of good R&D centres – innovation is very important in this segment.
TDB: Is China a threat to India in this product segment?
SH: Not really! Since we manufacture ayurvedic products, we are doing well in niche markets and do not face any competition from China.
TDB: And how lucrative is the exports business?
SH: Export of organic products from India is considered lucrative because of our rich heritage of ayurveda, which is manufactured using organic ingredients and natural fragrances. With the world going ‘back to nature’, the demand for natural and handmade soap is increasing.
TDB: Do you think the government has done enough to encourage organic and herbal soap exporters? Is there any new trend in the emerging market?
SH: I feel that cultural industries play an important role in the economy of a developing nation – not only in terms of economic growth, but also to achieve social stability, generate employment and preserve culture. India is a country with a rich cultural heritage and immense economic potential. So, in the present scenario of globalisation, the challenge is to develop our cultural industries to compete in the international market. Our hand-made soaps contain natural ingredients and oils and are rich in antioxidants, vitamins, minerals – nutrients that are healthy and safe for the skin in addition to being the bearer of our culture. The responses from the emerging markets has been amazing!
“Maintaining global quality Standards is Expensive”
Ramit S. Malhotra DIRECTOR – BUSINESS DEVELOPMENT
ASTER LUXURY SOAPS
TDB: Where did the idea of Aster Luxury Soaps germinate from?
Ramit S. Malhotra (RSM): Aster Luxury Soaps was established in the beginning of 2014. The basic idea was to diversify our business operations from pharmaceuticals to natural and organic soaps along with various other premium products which are dermatologically approved in India and abroad. The essential oils and fragrances used in our bathing bars are sourced from authentic manufacturers and used only after subjecting them to stringent quality control methods.
TDB: What varieties of organic soap do you export? Is there any particular variety that is in great demand?
RSM: We have developed more than 100 different varieties of soaps, using various essentials oils and other natural ingredients for our potential clients in India, CIS and GCC countries. All our bathing bars are 100% natural with active ingredients. We have unique handmade varieties such as coconut, coffee, sandalwood, etc., to keep our customers satisfied.
Lemongrass, eucalyptus, tea tree and rose varieties, in that order, are popular choices among customers.
TDB: Do you plan business expansion this year or any time soon?
RSM: We are one of the leading manufacturers of organic soaps in northern part of India and are very aggressive as far as business operations and expansions are concerned. By mid-2017, we plan to double our capacity, which currently stands at 2 million pieces annually. Our toilet soap finishing line is one of the finest in India – we use a British manufacturing technology. We act as a quality certified contract manufacturer to our ever-growing overseas clients and our aim is to achieve over 80% of our sales from global markets in the near future.
TDB: Do you receive any incentive from the government? How do you think the government can give a leg up to the industry?
RSM: We get a waiver on import duties on our machinery under the EPCG scheme. Going forward, as a part of our expansion plan, we would like to set up another small manufacturing unit and classify it as an 100% export-oriented unit (EOU) as an EOU gets more benefits. Once our EOU becomes active, we will receive 100% exemption on import duties of raw materials and machinery required for production.
TDB: What kind of competition do you face in the global market? How big a threat is China to your business?
RSM: China is not a threat to our business because we do not export to price sensitive markets. It is European manufacturers who give a us tough competition.
Essential oils and natural ingredients are the key ingredients for manufacturing a good soap. But since they are not easily available in India, we have to import them. The other option is for our researchers to innovate and work with superior ingredients that are available in India. And naturally, the latter option gives us the advantage of offering these soaps to international markets at more reasonable prices.
TDB: Do you think enough is being done by the government to encourage organic soap exports from India?
RSM: The government is doing its bit, but manufacturers must also strive to provide the right quality for international markets. Our product quality must match international norms and standards, which is an expensive process. Moreover, there is an inherent lack of awareness about the product in the domestic market. And since India is a price sensitive market, it is very difficult to introduce premium products here for trial. But since the percentage of people using organic products worldwide is small, I believe that the category has great potential for growth.