FMCG major Marico is dealing with inflationary pressure which has squeezed margins, and challenges from Dabur since it entered the honey segment. In a conversation with Moneycontrol, Pawan Agrawal, CFO, Marico, talks about how the company is tackling both of these, the impact of the pandemic on consumption and the plans for the food portfolio. Edited Excerpts:
We have witnessed India’s consumption story evolve over the last 14 months. Which of these will sustain in the long run and which ones will be short-lived?
There have been a lot of shifts in consumer behaviour. But this new behaviour can be classified into three broad categories. Some of these are more transient. For instance, increased price consciousness amongst consumers cut down on discretionary spending and the impact on modern trade from a channel standpoint. Similarly, the spike in sales of hygiene products that we witnessed during the first wave and to a certain extent in the second wave too. These trends will emerge when the waves will peak and then flatten as things normalise.
Others are more semi-permanent such as the rise in at-home consumption, in-home cooking. These trends will stay around for some time because people will continue to eat more at home. The resurgence of traditional trade, too, is more semi-permanent.
However, consumers from now on are going to be more conscious towards health and immunity and it is more of a permanent shift. The pandemic has accelerated the pace of digital adoption not just for e-commerce but in all facets of life and this trend is irreversible.
Given that the trend towards hygiene is not permanent, how have your recent forays in the segment with products such as fruit and vegetable cleaners, sanitisers, surface disinfectants worked out?
This time around, we have not witnessed the kind of surge that we had seen for these products during the first quarter of the last financial year. Of late, we have also realised that it was more of a tactical opportunity for us to provide consumers what they needed then. However, these products do not fit into our scheme of things as we realised that consumers will go back to the strong legacy brands with strong equity in hygiene, and hence three-four brands will have a larger play in the segment. Subsequently, we withdrew investment from this category and channelised it towards our food portfolio where we have seen huge promise and growth.
How has been the traction for your D2C platform – Saffola Stores?
E-commerce today contributes about 8 percent of the business, which was about almost 5 percent last year. So it is a significant shift, which we saw in FY21. The entire industry has experienced this but we are slightly over-indexed. The industry average will be around 5 percent but we are about 8 percent. In our endeavour to reach consumers directly, we also launched our e-store last year. Though it is still early days for the platform, it is slowly and gradually building up. So, we definitely see that this will grow. But at this point, it is not very significant. That said, we are focusing on it, and investing in it.
You were able to achieve the Rs 300 crore in revenue target for your food business in FY21. However, this was driven by the rise in at-home consumption, do you see this momentum sustaining as we emerge from this crisis?
The entire growth cannot be attributed to higher at-home consumption. If you look at our food strategy, we have diversified significantly during the last year. We have several products in the healthy category. We have also identified some segments, which are quite large but with one or two incumbents. Hence, we saw an opportunity of creating differentiation and launched products such as Saffola Honey, Saffola Arogyam Chyawan Amrut Awaleha, Saffola Oodles and Saffola Mealmaker Soya Chunks. If we had a limited product portfolio then we would have been impacted. These are various other growth engines that we have created and will help us reach the target that we have set for ourselves.
We had a target of Rs 300 crore for FY21 and we surpassed that last year. For the next year, we want to clock Rs 500 crore in revenues from our food business and if we look at our run rate for the last couple of months, we definitely are on course. And if we can achieve this target, we will look at Rs 800 crore-Rs 850 crore in FY24.
Are there new product launches slated going ahead too?
We would rather consolidate, because we have launched a lot of products in the last 12 months, and many of them have been doing very well. For example, we went national with honey in November and within six months we had about 10 percent market share in modern trade and about 25 percent in e-commerce. The initial response on Oodles is very encouraging. Hence, we would rather want to concentrate on these categories.
Honey has been embroiled in controversies since its launch. Given the heavy pushback from the competition, do you see yourself achieving the Rs 100 crore target by next year?
We have a very differentiated and best quality product. And we believe the brand equity of Saffola is very strong in the space of health and wellness. We have a great product and we are investing in communication and the brand. Besides this, the market is pretty large, so Rs 100 crore despite being aspirational, is an achievable target. Looking at the numbers, we believe that we should be able to reach closer to that mark by the end of the year.
Also Read: Dabur takes Marico to court over Saffola Honey packaging
What do you have to say about Dabur’s allegation that you have not complied with the court order?
The matter is sub-judice. It is yet another frivolous attempt on the part of the competition. This is baseless. It is like any other case they had filed with the Advertising Standards Council of India. We have always been vindicated.
Your margins in Q4 were at their lowest in the last 20 quarters. What’s the strategy to regain this going ahead?
This was because of the unprecedented increase in the cost of raw materials in the fourth quarter. But we are already seeing signs of deflation. Copra prices have already corrected by more than 15 percent from their peak in February. Similarly, edible oil prices have shown some signs of cooling down in the last couple of weeks. Also, we had not taken a commensurate price increase as we did not want to pass on the entire to the consumers. In this kind of environment, we want to be more competitive in the market. As prices will start reversing, they will start reflecting on margins and we will proactively pass the benefit to the consumers. Though in the first quarter we will see some pressure on our margins, in Q2, we will be closer to our threshold of 19 percent.
Given that general trade stores and modern trade stores were allowed to open for a limited window. What kind of impact is expected on your Q1 earnings?
We had great momentum in the fourth quarter of FY21 and we carried that in April. We had a very good start but things started slowing down towards the end of April as various states went into lockdown. But again, this time most of the states had provided a limited window of operations to stores so the impact was very limited. Given that unlock has started in June, so overall, we expect to report healthy growth in the first quarter. Let me also qualify that this will also come under a low base from last year, so it will look better.
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