A few industries that I have been seeing from close quarters – and have very strong views on are food and health, pharma, financial services.

One thing clear in all the 3 industries – the more you complicate, the more money you can make. So whether it is a Kellog, or a Gillette they can take a simple thing to great heights and charge a premium. There is a big set of people willing to buy the products – MAKE NO MISTAKE about the size of the market.

Caveat: I am a shareholder of Gillette

The food industry is the GREATEST CONTRIBUTOR to what is called the ‘life-style disease’ industry. Obesity, Cardio Vascular diseases, blood pressure, lung and throat cancer, etc. have been CAUSED by the likes of Coke, Pepsi, McDonalds, and a slew of high fat, excessively processed food. Most of these items have an excess of salt, sodium, sugar, …etc. They can take a healthy product like potato and convert it to an unhealthy product like chips!

In the US the Medical Insurance industry got into the act and pushed the anti-tobacco legislation. However will they get behind the Big Food industry and lobby for a tax on cola, processed maida (fine processed wheat), sugar laden snacks, etc? I hope they do.

The general insurance industry in US is pampered because of the HUGE clout that they have in Washington. They have fought for every piece of legislation and have had their way through – they can change the way Big Food behaves!

The pharma industry has a vested interest in TREATING/CURING diseases like obesity. It is far more lucrative to TREAT rather than prevent.

If a doctor PREVENTS your being ill, what is the incentive to pay him a fee? Zilch. However if you are in pain and he helps you come out of it, you will be willing to pay him a fortune!

See only bad news sells….even to one own self! ha ha ha….

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  1. Subra: How did the anti-tobacco legislation help the general public at all? How did prohibition help curb alcohol? Each individual has to decide about whats good for them, that’s all. Legislation only helps fill the government coffers.

  2. of course people can make their own choice – they have to pay the bill that is all. If a 18 year old drives a SUV after drinking and runs into a wall, I am fine if he is killed – he pays the price. However if he kills 3 people on the road, and his father has to pay a compensation of Rs. 1.5 crores as compensation, I am fine as long as his father pays.

    In smoking the cost that society pays is too damn high – cancer, other illnesses etc. NOBODY, NOBODY,…calculates all that. Try debiting all that to the TOBACCO industry, they will revolt.

    ps: I am a shareholder of ITC…once in a while I feel guilty, but then look at the dividend, and keep quiet about the guilt.

  3. I agree (passive) smoking has a collateral cost, drinking too (eg. if mixed with driving). In case of food though, I say that most places that have a McDonalds have a Subway too. It’s our choice which one we walk into.

  4. Off-topic!
    *
    Talking about Gillette. Those Gillette blades (esp. the MACH III version) are high-priced for Indian Mkt. Indeed, they are of high quality – no doubt about it. Is it for normal Indian man? Probably not. When we visit the Super Market, we instinctively pick the Mach III version – and add to the profits of Gillette. For those who can afford it – yes, its worth it. Is it for typical midddle class Indian (TV ads are aimed at common man)? Debatable.

    As they say, James Dean used the single blades and he always sported a clean shave & a Great face. A shave with single blades will probably cost one-tenth of Mach III.

    Caveat: Am not a shareholder of Gillette :)-

  5. Subra Sir,

    As said by Upton Sinclair “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
    This factor also incentivise people to make things complex.

    Genius is always simple.

    Agree with your view above.

    Ashish

  6. it is simple Pandu…if there is a product a person can make and find a buyer, there is price. If it is profitable, more players SHOULD come and reduce the manufacturer’s profit. That is the Economic Theory. So if HUL was(is) making money on selling soap, there will be Nirma, PnG, Colgate…all wanting that market.

    So if somebody thinks Gillette needs competition, and they can make the product, they will, will they not?

    Long live Economic Theory. It works.

  7. @Pandu : “typical midddle class Indian” is one subjective phrase I find very hard to grasp. Apparently it means anyone making from 10,000 to 10,00,000 a month. So affordability of MACH III razors and other supposedly frivilous items remains subjective too.

    Caveat : I’m a MACH III user 🙂

  8. the beauty of pharma is that generics is a volume and development skills game, and pharma has an annuity-like gleam to it.

    correction subrabhai– all the sector’s (costly) efforts to treat obesity have gone down the drain, most treatments have had to be withdrawn. Check orlistat. Not easy to make something that will prevent fat absorbtion but not mess up a lot of metabolic pathways.

    caveat: pharma pays my salary. 🙂

  9. I need to write about Mach III here. It is expensive no doubt, but I have not found any other blade that gives as smooth a shave (both to the face and the pocket !) as Mach III.

  10. Its pretty surprising that Gillette even though is a virtual monopoly the results are disappointing. They definitely need to do something to cut costs. No doubt they pay hefty dividends!

  11. It will always be expensive considering its a monopoly. I don’t look at p/e, but even from mcap perspective its expensive!

  12. Dr Mohammed Ali Khan

    @McDonalds etc..
    If your grandmother does not recognize something as food.. It is better to avoid eating it.. Simple rule of thumb!

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