Transformation Realized: Strategic acquisition nourishes, nurtures, and energizes the long-term health of consumer wellness company

5 minute read 17 Aug 2022
By EY India

Multidisciplinary professional services organization

5 minute read 17 Aug 2022

After three years of a major acquisition and an overhaul of its planning processes, a consumer wellness company has transformed itself into a front-runner that offers innovative, industry-leading products.

With an Indian heritage and global footprint, Zydus Wellness has repositioned itself in the consumer wellness market through a visionary and strategic acquisition. In the year 2014-15, the valuation of Zydus Wellness was INR400 to 500 crore, with a few well-known brands, such as Everyuth, Sugar Free, and Nutralite, under its umbrella. It made a giant leap in turnover by acquiring Kraft Heinz in 2019.

Zydus Wellness now boasts of seven leading brands in the portfolio, namely Complan, Sugar Free, Glucon-D, Everyuth, Nycil, Sugarlite and Nutralite, with a revenue of ~INR2,000 crore. Their five state-of-the-art manufacturing facilities across four locations in India and co-packing facilities in Oman and New Zealand with business spanning over 20 countries across three continents, have enabled Zydus Wellness to establish itself as a leading player in the consumer wellness domain. The company’s transformation journey started a few years back.

Our products were experiencing mid-single-digit growth for a few years. The Heinz acquisition gave a much-needed boost to the portfolio as these were well-entrenched legacy brands but undervalued. Also, the segment in which we operate in is well aligned with the four iconic brands of Heinz. We had very little conflict and saw a great amount of synergy in terms of product positioning and value proposition. We were able to provide a clean and fast executable structure to Heinz, which was quite important
Tarun Arora
CEO, Zydus Wellness Ltd.

The acquisition of Heinz was a tactical decision that marked the beginning of a new and exciting phase for Zydus Wellness. However, the acquisition came with its set of challenges. The immediate focus was to get the front end of the value chain up and running to avoid any impact on sales. The other critical aspect was to manage the communication within the organization and ensure that the company did not lose key performers post the acquisition and got their support in realizing the synergies. Lastly, the task was to drive the synergies across the value chain.

In today’s day and age, a plethora of brands are launched, all vying for the customers’ mind and wallet share. However, brand building and customer acquisition are extremely time-consuming and resource-intensive. Hence, to drive growth, a primary factor in acquisition becomes identifying brands that have a loyal customer base and channel pull due to their strong category presence.
Nishit Bhatia
EY India Business Consulting & Consumer Products Leader and Partner

EY worked closely with Zydus Wellness to help drive the synergies as well as the transformational agenda across its value chain’s backend functions of procurement, supply chain, network, and logistics. The EY team adopted a three-pronged approach for synergy realization. As a first step, the focus was on quick wins to generate momentum. The second move was to redesign and optimize the entire supply chain while improving service levels. The third step was to ensure that sustainability and capability were built through robust processes and stronger, tech-enabled decision making.

In the next phase, the focus was on long-term plans to drive value through manufacturing excellence and supply chain integration. Revisiting the manufacturing strategy to explore distributed manufacturing that could handle supply disruptions and ensure resilience, EY enabled Zydus Wellness to consolidate its plants and drive manufacturing excellence to reduce conversion costs. A consolidation exercise was performed across plants and warehouses to reduce the serving cost while improving service levels and response times to the outlet base.

The two entities — Zydus Wellness and Kraft Heinz — had different approaches to sales and operations planning. Therefore, there was a need to create a common governance model to establish visibility and control across the integrated entity’s complete value chain. Three crucial components of the sales and operations planning process — demand planning, replenishment planning, and sales and operations planning — were targeted.

The company’s forecasting and reporting mechanisms were overhauled, the responsiveness of replenishment planning improved, and a formalized decision-making process established.

Creating long-term value

The company’s supply chain was under strain due to unprecedented demand fluctuations and constricted supply capacity. To overcome this challenge, Zydus Wellness invested in Artificial Intelligence/Machine Learning-based forecasting systems. As a result, demand sensing improved and there was end-to-end visibility that could assess early warning signals.

The consumer wellness company’s supply chains have gone from being reactive to proactive in generating predictive triggers and effectively utilizing the information across the system.

Apart from backend functions, front-end processes were also integrated. Zydus Wellness optimized its branches and channel partners from 1,800+ to 800+ while expanding its footprint. 

Outlet coverage was increased 1.5x to reach

550,000

outlets directly by the end of 2020.

About 8 to 12% procurement synergies were realized across key packaging material categories. Another key milestone was the reduced logistics cost through warehousing and C&F optimization, which led to an opportunity of ~12 to15%. They were able to increase up to 2.5x of distribution at 1% lower cost to serve, and the number of warehouses came down from 60 to 35 and then to 21. The harmonized sales and operations planning along with improved inventory management practices led to ~20% inventory reduction.

Summary

The overall success of Zydus Wellness’ acquisition of Kraft Heinz hinged on how well and fast synergies across functions could be tapped. Collaborative opportunities across the value chain, be it in manufacturing, procurement, or warehousing and distribution, were an added incentive. The leadership at Zydus Wellness had a focused goal, which became the key anchor for all initiatives during the transformation journey.

This is part of the Transformation Realized - Powered by EY series currently being hosted on CNBC, wherein we feature stories of business transformation led by India's most inspiring business leaders who have created value by placing human@center, deploying technology@speed and innovation@scale. 

About this article

By EY India

Multidisciplinary professional services organization