Govt should up rural spend to boost FMCG sector: Britannia

Consumer sentiment, particularly in rural India, is subdued, bringing down the fast moving consumer goods (FMCG) industry's growth to single digit, says Varun Berry, MD, Britannia.In an exclusive interview to CNBC-TV18, Berry says the golden years of rural development — 2008-2011 — are over, when the government had spent enough to create demand. He suggests the government should increase rural spending and work for better yields in agricultural output.Despite the constraints, Britannia managed to garner 30 percent rural growth and credits this to various factors. The company focused on building an efficient supply-chain system, presented consumers with a range of products and passed out commodity price benefits, he says.In its stride for operational leverage, the company doubled its outlets to 1.25 million, which helped it post higher volume growth than revenue, Berry adds. Below is the transcript of Varun Berry's interview with Latha Venkatesh, Anuj Singhal & Guest Editor Ridham Desai, Head of India Equity Research & India Equity Strategist, Morgan Stanley on CNBC-TV18. Ridham: What is your assessment of the consumer sentiment in the country right now?Berry: It's clearly a subdued sentiment. The consumption has been low, in fact growth have been in single digits as far as fast moving consumer goods (FMCGs) are concerned. So that's a miss. We are certainly seeing the consumers being tentative about their next steps. Ridham: Do you see a distinction between urban and rural or do you think this is across the board?Berry: Certainly we have seen the golden years of rural demand; 2008 to 2011 were the years when rural demand was good because the rural development ministry had spend a lot of money in generating demand, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme was working well. So there has been little bit of a downtrend in terms of what kind of money has gone into the rural economy. On top of that the agricultural economy has not been great. The agricultural economy is almost 18 percent of India\\'s gross domestic product (GDP) and employees almost 50 percent of the total workforce, so it\\'s a large force.Therefore, with the subdued agri commodity prices across the world, the minimum support prices cannot be increased. So the important thing was to get better yields out of the agri economy which has started but not yet come to a stage where it will start to produce results. So at this point in time the rural economies are subdued. The urban economies are also subdued but not to that extent, so that's the difference. We are seeing stymied rural demand as we speak.Anuj: Having said that for your nine months you have still delivered double digit revenue growth. What is it that you are doing differently and do you think this kind of revenue growth is sustainable if the overall environment does not change?Berry: If you talk about us as a company, what we have been doing is we have been looking at opportunities in filling those up. So we saw a big opportunity in distribution and we have started to make some big strides in getting to the rural consumers; getting to the retail outlets and through the retail outlets getting to the consumers, so that is what is giving us an up, in fact our rural sales are up almost 30 percent which is great but I was talking about the industry as a whole. However, we are seeing that the rural consumers today is very different, they are looking for variety and we are providing them variety and all our packages through making them available in the rural outlets. Latha: What are you doing in terms of volume growth and is there more volumes to be had if you passed on some of your price advantages?Berry: We have been passing our prices. If you were to look at the last quarter results, our volume growth have been higher than our revenue growth by 100 bps. So what we have done is we passed on some of the advantages of the commodities to the consumers but more than that what we have been doing is, we have been taking on this whole war on waste and efficiencies and that has been giving us pretty good results.What happens in times like this when demand is low, most companies would give big discounts to retailers and that certainly doesn\\'t help the consumer? It is just waste of money. In fact if anything we have down trended on what we do what discounts we give and similarly on backend supply chain efficiencies, so we have been working on efficiencies and a war on waste and that has been giving us pretty good returns from profitability standpoint.Ridham: When you came in as a CEO, you mentioned this, if I recall, Britannia\\'s distribution is not levered. It\\'s underutilised. How far do you think you have reached in terms of better utilising this awesome distribution that your company has?Berry: Within distribution there are two points. One, distribution whereby our salesman gets to the outlet and what that does is that it keeps the execution in our hand. We use to get to almost 650,000 outlets which was very low about three years back. We have doubled that almost to 1.25 million outlets and that is giving us a huge amount of leverage in terms of how we execute, how many stock keeping units (SKUs) we get into that outlet, how do we merchandise, how do we build a relationship with that retailer.The second part is about width and that comes through wholesale. Basically we get to about 3.4 million outlets which include the direct 1.25. Those 3.4 have gotten to 3.6, so that hasn\\'t gone up substantially but the category distribution is in seven million outlets. So we see a big opportunity in covering all of those uncovered outlets and there is no retailer in the country who does not want to buy a Britannia product. The inability lies completely inside the company. It\\'s our ability to get to these outlets and sell our products and that is what we are trying to collect.