Marico's Saugata Gupta on why kirana shops are a source of competitive edge

Mint

3 days ago

MUMBAI
:
Marico Ltd is focused on accelerating growth, after emerging from last year's intense competition made worse by high commodity prices. To tide over these challenges, the fast-moving consumer goods company (FMCG) bolstered its presence among mom-and-pop stores and streamlined its product line-up to concentrate on fewer, faster-selling items, Saugata Gupta, managing director and chief executive, said in an interview with Mint. Last week, the maker of Parachute coconut oil reported a consolidated revenue from operations of ₹3,259 crore in the June quarter, a 23% year-on-year increase. This was driven by a 9% volume growth in its India business. This growth came despite record high prices of copra, a key raw material for the company. He also emphasized that general trade, or the traditional, independently-owned small kirana shops are a source of competitive edge for Marico and other large legacy FMCG players, and that digital brands won't ever be able to crack this segment. Edited excerpts.
Have things drastically improved for consumers or do you attribute some of the volume growth improvement to better business decisions?
Improvement in inflation is gradual, so it's very difficult to put a number to this. Having said that, management has to execute well to grow irrespective of the conditions. One of the things we are looking at is that if the average market volume growth is 'x", how are we beating that. For this we have to innovate and diversify. A lot of large FMCG companies are highly penetrated and, therefore, if you have a double-digit revenue growth ambitions, you have to innovate and diversify.
Also Read: Marico eyes rapid revenue growth, fuelled by foods and digital-first brands
Diversification has to be focused on adjacent categories. What is important to look at is not just market attractiveness, but the right to win in that market. That happens when you cater to a consumer segment you know about, because we have the consumer insight, the distribution is the same etc.
You spoke about rationalizing some stock keeping units (SKUs)—why would you do that given that over the past few years and due to high inflation, companies have launched more bridge packs to drive volumes?
Fewer, bigger, better is something which we are doing. Sitting in the office you might think of 80 things, but the person at the last mile can only remember five things. Secondly, we now have channel-specific SKUs, and I think focus is very important. There is always this temptation to keep on launching and thinking we have innovated, but there is always a hidden cost to complexity. Ultimately, a great entrepreneur is all about focus.
Isn't that a challenge given greater competition, especially from digital-first brands?
We have to use organized trade as a channel prototype and then scale up new launches. We also ensure that we have a channel-specific portfolio. What we are saying is we might add the SKU, but in any one particular channel or outlet type we shouldn't have a proliferation (of SKUs). We also have vehicles via our digital business for such launches. To give an example—we are now prototyping cold-pressed oil. I'm not going to get into general trade; we get an option today of prototyping it (online).
You recently said that the company is looking at touching ₹15,000 crore revenue in the next two years. How will you do that?
I think the move from ₹5000 crore to ₹10,000 crore took too long. It was a combination of GST, followed by the pandemic, followed by one or two years of our performance not being up to the mark. However, the fact that this year we are pretty confident of delivering say mid-20s kind of a topline (growth) gives us some momentum. Last year, we ended at ₹10,831 crore (consolidated revenue from operations).
Also Read: India apparel exporters look to UK, EU to soften Trump tariff blow
We have to hit high single-digit to double-digit volume growth (with some inflation) along with international business delivering mid-teens constant currency growth. We will do some inorganic (acquisitions)—maybe one or two on the digital side.
Is the worst of urban demand slowdown behind consumer packaged goods companies?
Rural is fairly resilient—it is a combination of good monsoon, MSPs etc. Urban demand is linked to food inflation. I think one of the things we missed is that the commentary we hear from say NIQ (Nielsen IQ) or the listed companies doesn't reflect the kind of growth (we are seeing in urban areas), which digital brands have shown. Some of the growth has been taken away by digital-first brands.
Urban demand is improving; at the same time, I don't think the consumption was that muted. Especially now that food inflation has come down along with some part of the entire tax break. On the consumption front—you are competing with a lot of other things, and people want to invest behind experiences, travelling, upgrading to new cars, mobile phones etc. As a result, you have to innovate and continue to grow because if you are not innovating or are operating in categories with high penetration, then demand won't come automatically.
Lately, FMCG companies have made some adjustments to general trade business given online channels are eating into the business. How has growth in mom-and-pop stores been?
I think general trade has improved—it has come into a positive territory after a long time in terms of volume growth. We have done a few things—one is Project Setu, which is all about driving direct distribution. The second part of this Project Setu will be in urban areas. How do we drive the new businesses i.e. food and premium personal care brands—in channels such as chemist, cosmetics and specialty food outlets. For large-scale FMCG incumbents, it is imperative that we ensure a successful general trade system.
Also Read: Trump tariff-hit exporters chalk survival plans ahead of deadline
You always have the temptation to do short-term growth in organized trade (large chained stores and e-commerce), but the general trade system is a source of competitive advantage because digital brands are never going to be able to crack general trade. It's very difficult unless they sell to a strategic (investor). It's a completely different business model which requires significant and long-term investment.