Like most FMCG companies, Cadbury India too is bracing multiple economic headwinds, which has caused demand to slide to a two-year low. In an exclusive chat with CNBC-TV18's Farah Bookwala, Cadbury's India MD Manu Anand elaborates on the strategies for future growth and why it has been slow in its rural expansion plan.
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Below is the edited transcript of Manu Anand's interview with CNBC-TV18's Farha Bookwala
Q: Given the fact that all FMCG global players, the Unilever’s, the Nestlé’s have been talking about a consumption slide which is worsening by the day; do you at Mondelēz International also feel the same about the demand environment in India?
A: Every company is feeling a slowdown in demand; here I have got to say it is a slowdown in the growth that people are really feeling. The factors are pretty obvious. The slowing GDP growth, high inflation, the weakening rupee, high commodity prices all of which contributing to that. Certainly the demand is slower than it would have been say two years ago or even a year ago.
Q: From an MNCs point of view, how are you looking at India given that we have talked about India being a place where long-term demand environment remains intact but there are short-term cyclical headwinds? These short-term cyclical headwinds seem to be panning out time and again, quarter-on-quarter; do you feel that as an MNC it is likely to deter large ticket investments into India going ahead?
A: I will share the Mondelēz perspective. India is one of the top 10 markets for Mondelēz; not just today but even well before the future. We are looking at India with a much longer-term perspective because there will be ups and downs in any economic cycle. However, in a market where the fundamentals are right, the macros are right, the consumer profile is right, the talent pool is right it is a market which Mondelēz believes will grow in the future at a very healthy rate and we are continuing to invest at a very steady pace.Q: You are largely operating today in discretionary categories. Given the fact that there is a slowdown which is quite evident and even staples are today being impacted how are you looking to mitigate yourself in this scenario? Will you be looking at panning out or stretching your business into other categories which may perhaps be of a more essential nature in terms of product category?
A: What we are going to do during this period is really focus on the basics. We have got very strong brands and we are going to continue to build those brands. The second is going to be around innovation, provide consumers with new products, new innovations, new things to try out at affordable price points.
The third is going to be around expanding our distribution not just numeric reach but also what we do in store at the point of sale. To put it in context we have now put over hundred thousand visi coolers in the market place which allows us to take our full range of products to all the stores that are out there. The last is continuing to invest behind capacity because that is there for the long term, it takes it time and a cycle to add that capacity and we believe that we will have it well in time for continued growth of the market.Q: There is a lot being said today in the media about how companies will continue to make more premium offerings to customers but then you have to juxtapose this with an environment where people are constantly looking at ways to down trade. What view are you taking at Mondelez?
A: From a company perspective, we will grow both ends of the spectrum. There will be the premium portfolio and there will be more portfolio products like 5 Star and Perk where it will not just be about consumer values but also about very careful and sensible price point management to enable wider distribution, to get newer consumers to try these products as they come into our category. So, it will be both ends of the spectrum that we are going to continue to work on but very happy with the progress of our premium portfolio till date.
Q: Going ahead, how do you find your media and communication strategy pan out?
A: The communication strategy is really going to be on three platforms, one is the traditional media which is TV, newspapers and magazines and outdoor. Second is the fast emerging space of digital and the third in store and continuing to increase in store communication of our product and product portfolio, we take out more vise coolers into the market, you are able to create more communication at that point of demand itself and that point of purchase itself.
In the last couple of years, we had very good progress in digital. We have had some very good campaigns. We had it on Celebrations during Rakhi songs for your sister campaign, about 2600 songs were loaded, about 46 put on YouTube and they got over 1.7 million hits and so, very good progress there. They are just some illustrations of how we will continue to take our digital media. So, we will have to balance it around all three as opposed to the earlier reliance on just TV and print.
All three legs will have to play an important part in the communication strategy. So, gone are the days where it was just about that 30 second TV commercial. It will be about in store impact and the digital programme that will surround it. All three put together to create the right consumer communication and pull.
Q: How worried are you about the moderation in rural growth in India today? There are brokerages that are sounding alarm bells saying that the gap between the urban growth and the rural growth is narrowing by the day. Ofcourse the rural growth continues to be higher than the urban growth even today but the fact that the gap is narrowing today and for a company like Mondelez which operates in categories, which sells largely in the price point of Rs 1-5 and the bulk of your sales come from there is this something that really worries you?
A: We haven't seen that slowdown or the narrowing of the gap between urban and rural that I have read about. Maybe it is the way we are still penetrating more into the rural than some other companies who have seen that slowdown. When we talk rural, one factor we always have to keep in mind, for chocolates we have to have a distribution which has an end-to-end cold chain and therefore, the traditional way in which companies get into rural, which is more wholesale, is not really the lever we can pull the same way.
Therefore, we have to create a cold chain that can allow the product to be in that cold chain right till the consumer buys it and consumes it. As a result our rural expansion has been a slower than maybe some of the other companies that are now saying that there is a slowdown. We have been very happy with the rural demand and the way rural markets have been growing.
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Q: What are you doing to expedite that growth in the rural markets?
A: We started our journey about three-four years ago and continue to give it a very important part in our distribution expansion plan. We are allocating the right amount of cold chain resources to ensure that these markets get their fair share. Wherever we get into rural India, we get good through puts for our products and the demand is still there. We are still reaching out and getting into more and more villages and it will take another three-four years for us to complete the full map of where we would like to get to.
Q: Do you see customers in rural India consume the same way as customers in urban India do. What are your customer insights from that part of India today?
A: What we have seen in rural India is if you get the consumers right products, you get the consumption that you would expect from those products and in those markets. The products may need to be at a little lower price point. They do not necessarily need to be different products but more of the lower price point products. It should be more of the Rs 5 and Rs 10.
Q: What is your point of view also on the growth of modern trade in India given that FMCH companies even today continue to rely so heavily on the traditional channel of distribution which is through kirana's?
A: All three platforms whether it is modern trade, whether it is the traditional trade kirana or the wholesaler, all three will continue to exist in growing this country.
Clearly, modern trade plays a great part in our growth strategy and we always ensure that we build the capability and skill to do a great job in store merchandising and in store presence in this channel. We grow with the channel but at the same time, traditional trade is our largest channel and very important to us. Wholesale will always continue to be an important channel.
I am of the view we have got to develop all three because even 20 years from now all three will be there and playing a critical part in getting products to the Indian consumer.
Q: Can you elaborate on some of these strategies that you are undertaking both in the urban markets through modern retail and traditional retail as well as in rural India to sort of widen your distribution network today?
A: In rural India the focus in really on getting your product out there and that requires a cold chain. A cold chain right down to cooling apparatus in the store and then just ensuring that you service that regularly, your sales system calls in that store every week to ten days and make sure that the product is replenished and over time start building in store visibility and demand to drive consumption.
In urban India, it is now more about upgrading the range of products that we have in the store and that comes through the visi cooler strategy, ensuring that we put in coolers in more and more stores.
We added about hundred thousand stores last year and it has continued to add at a very healthy rate. So, you can offer an entire range of innovations to the consumers there and products that otherwise were restricted in their availability and modern trade will really be the fast moving channel where you really create large shelve space, large store sit place, drive your promotions, drive your visibility strategy and all three will co-exist very well.
Q: Will you require different communication strategies for rural India and urban India? Now we are also seeing communication platforms integrate in such a way that there are FMCG companies who are bringing rural driven ads to urban India and urban driven ads and promoting them in rural India. Will this kind of cross communication also pan out at Mondelez International?
A: Our advertising will be pretty consistent and I don't think we will be doing rural advertising or urban advertising. It is just about getting the right language, edits but most importantly around that would be how we can bring those ads to life in store in terms of when people see the product and see the merchandising they can correlate back to what that advertising is about. It will be a 360 surround strategy in all channels.
Q: Coming specifically to your investments in India, you have just launched or just sort of had a ground breaking ceremony of your factory in Andhra Pradesh. The first phase is going to be ready by mid 2015. What is the plan after this? Have other phases been finalized , what will that involve, if you could take us through their entire plan?
A: First phase is about 2015 and the idea is to get about 80000-1,00,000 tonne of capacity in that phase. We have certain plans and ideas for the next phase which will be about 2017 or 2018 and then the third phase which will be about 2020. Obviously there is a little bit of fine tuning, watching how the categories are moving, which category is moving at what pace, what the premiumisation is going to look like which requires us to probably hold that final decision out for another 12 months or so.
We know what we want to do, we know where we want to go and there is enough time to pull that trigger. Right now focus the team on making sure we deliver the 2015 expansion on plan, in time, on cost and be able to get the products out for launch in the second half of 2015.
Q: So, that first phase is very much on track?
A: First phase is locked in and well on track.
Q: What challenges are you seeing as you look to invest further in India and what challenges are specific to Mondelez in India? Is there anything apart from real estate costs, apart from economic headwinds, apart from the inflation, anything that specifically is a worry to you? I could think that one of the worries to you is the fact that cold storage in India is still now growing the way it should. This is a problem that you also encountered at your erstwhile company. You have spoken about it in great detail, has the situation changed in anyway?
A: We have got to just take it on ourselves to build out the cold chain. Our cold chain is unique because we don't need product to be stored at 2 degrees or at 0 degrees. We need it around 20 degrees so that you ensure that it doesn't melt right till the time it gets to the consumer.
We have taken it on ourselves to just build out our cold chain as required for our products because if we wait for something else to come infrastructurally we might just fall way behind the curve. So, clearly there is that infrastructural challenge and then there is the larger infrastructural challenges that we are going through but right now we have got our expansion plans for the next two years locked in. We have got a great site in Sri City in Andhra Pradesh and we are really confident about being able to deliver that in time.
Q: How real is the threat of regional brands coming in and making their presence felt and do you see that regional brands are taking away a larger than ever share of the wallet than before given the fact that customers are so quick to down trade today even in essential categories. So, is this something that you are also seeing?
A: The threat from regional brands is real and they are in a way important for some of the categories in the FMCG space because they really help driving penetration and driving category growth.
The important thing is that they play a very important role from the point of view of the consumer, they play important role from the point of view of the customer. They play an important role in making sure the larger national brands keep their value proposition right from the point of view of the consumer and just remain that much more efficient and affordable for the consumer. So, the two will continue to co-exist in almost every FMCG category that there are today.
Companies will have to learn to work with that and deal with that and make sure that the offerings they give to the consumer are superior in terms of quality and still retain good value for money.
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Q: Do you think that the environment further is going to become far tougher in terms of how you price your products given that even FMCG companies who had shown immense pricing power earlier are finding that they are unable to take price hikes without hurting sales today. Is that situation likely to remain the way it is for let us say the next one or two years?
A: I think that situation is likely to remain because while there will be a certain amount of premiumisation, the value for money concept is not going to go away. So, as long as consumers have choices, they will give to whichever brand gives them the best value for money and that means even the strong brands are going to have to keep their pricing within narrowest spectrums than maybe they did in the past.
Now, that does create business challenges given all the inflationary pressure and it is all about getting more productive in what you do, getting more efficient in what you do so that you can give that offering to the consumer at the right price.
Q: Given all of this, going ahead where do you see FMCG companies start cutting cost? How are they going to look at trimming cost given that they are trying both in terms of grammage, they are trying in terms of the value proposition, they are trying in terms of the offerings, where do you think FMCG companies are going to be – how are they going to look at optimising on cost going ahead?
A: I don’t think there is going to be any one single solution or silver bullet. It is going to be about going through every line item of your P&L and figuring out what you can do without and yet still deliver the same outcome.
Traditionally, companies have always gone either to marketing spends or immediately to their input cost. However, it is all about being more efficient in your conversion, being more efficient in your selling, how to get more out of the same organization; to be able to drive a lot more growth with the same number of people and continue to be more effective in your trade spends as well as your marketing dollars. So, there is no one single silver bullet. It is going to be going right across the spectrum and right across every line of your P&L and just managing it with a lot more rigour than maybe has been done in the past.
Q: So, at Mondelēz International how are you looking at driving up efficiencies and are you looking at some sort of synergies with your parent company? What kind of synergies can you look at, at this point?
A: Right now, the most important point is productivity programs throughout the company where almost every group goes in and looks at what their spends are and sees how they can cut, do without, substitute with something else and become more efficient in delivering the end result.
Looking at conversion efficiencies, looking at wastages, looking at new product lines with slightly different formulations, so, it is across the board that we are working with.
To the question about parent company, we have access to a lot of R&D and technical knowledge that exists across the globe, we have access to a lot of best practices across other developing markets as well and it is about being able to pick up the best of those and leverage those.
Q: Are you also looking at increasing your CSR spends given that there is so much being spoken about in the media today about the need to increase your CSR spends? Ofcourse you have got the government bodies also making it mandatory to spend a certain percentage of your revenues on that, so, what kind of CSR initiatives will Mondelēz be taking up going ahead?
A: We have always been focused on CSR in our communities around which we work and we will continue to do that in the spaces of education, in the space of providing water, in the space of exercise and helping the youth in those areas.
However, there is one bigger program that we are going to now take on in a much bigger way and a much in a much bigger scale in the future and that is around cocoa farming in agriculture. We are trying to promote the lives and promote the welfare of cocoa farmers. We do buy a lot of cocoa across from the states of Andhra Pradesh, Tamil Nadu and Karnataka and we are going to be focusing on there in a big way from a CSR perspective as well.
Q: How important is India? You have mentioned that India is one of your top 10 markets today for Mondelēz but when do you see Mondelēz India or Cadbury India becoming a significant revenue contributor to global revenues or at least to A-pack revenues; is this something that you are targeting in 2015, 2016? What is the outlook on that?
A: I can’t share figures, but I can tell that the growth that Mondelēz India is providing is a significant proportion of the growth for Mondelēz Asia pack and overtime, it will be a significant portion of the growth for Mondelēz International.
Q: As an MNC what is the view that you are taking about the upcoming elections? As an MNC do you think that this is going to be a game changer? Ofcourse like your company there are several others who are waiting for a positive outcome to be able to introduce or initiate the next set of investments, the next set of initiatives that they would like to but on the whole how are you viewing this particular situation with the upcoming elections which could go either which way?
A: We haven’t been holding back any investment or any initiatives waiting for the outcome of the election. What is the positive outcome we are looking for from election- a very stable policy behind which it becomes just that much easier to go and ask for even more investment and to have that much more clarity about how the economy is going to progress in the future. So, that is the one single outcome we are hoping for from this election.
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