With a sales milestone of ₹10,000 crore within an impressive distance, the major player Marico of the fast-moving consumer goods (FMCG) sector is looking to expand not only its product portfolio but also geographically. Saugata Gupta, CEO and CEO spoke to business on reducing reliance on Parachute and Saffola, emerging market trends, and acquiring and expanding the company’s overseas business.
The company expects to hit the $10,000 revenue mark this year. How did the journey go?
Revenue ₹10,000 crore is not the problem, it is bringing growth. The pandemic has grown our portfolio. We have reduced dependence on Parachute, Saffola and Shanti Amla oils in India. Abroad, we have concentrations of coconut oil and parachute oil, but over the past three years we have reduced that. We will have better volume growth compared to last year with improvement in margins.
Will Marico’s volume growth remain moderate?
We consider value sharing, not volume sharing. One of the reasons is that many categories with high penetration rates and volume will stay in the mid to high single digits for a while. In the pandemic food segment, we grew from less than 200 billion yen in 2020 to nearly 600 billion yen in 2023. We saw 18% value growth in the fiscal year. 23 compared to the previous year.
The food segment has a much higher runway and the reason is that from branded to unbranded has an important story. Food also has the advantage of being a huge unorganized market. If we were a food company, our chances of delivering double-digit growth would be much higher: however, food margins were also low. What we launch in the food sector has to be more profitable and longer lasting than Saffola oil. Snacks and marshmallows are the next big thing. Food tends to be better and more consumed.
Marico has made a discount. Stable materials, will there be another price drop?
I don’t see the price drop anymore. Saffola may be cut as prices are affected by imports. Commodity prices are difficult to predict but it is expected to remain range-bound.
Do you see a rural recovery? How effective has the product upgrade been for Marico?
Rural recovery will take place gradually, not suddenly. This is because the facility is self-regulating. FMCG segment in this quarter has returned to positive value after a long time. Revenue growth will be slightly revised next year. This year, there is an inflation component. The choice is with companies on how much to pass on to the consumer to get volume versus keeping the additional margin. The municipality is largely unaffected and it is stable and moderate. The pressure on consumption is largely in the countryside. In the value-added hair oil category, we’ve seen people discounting premium brands. This year, consumption will be better.
What is the impact of inflation on Marico’s business? Do you foresee the impact of inflation on the domestic market?
Inflation is generally under control. In some markets, it is quite difficult. Bangladesh is coping better than Türkiye, where inflation is 50-60%. Compared to that, India’s situation is better. At the end of the day, we are a domestic consumer market. Unless there is some big change like El Nino or rainfall, the worst is over as far as inflation is concerned. When there is high food inflation, the volume of use does not depend on your income tier in the FMCG. For arbitrary products, going up the chain is more used. As a result, when inflation is high because their disposable income is relatively lower, they do not compromise on food. Pressure is mounting on FMCGs, whether tight or discounted, branded or unbranded.
Will Marico acquire D2C companies in a new category segment?
It has to be strategically aligned with a fair valuation, and we’d love to work with founders who want to build to last rather than build to sell. We have identified a number of attractive categories and we never buy again because of vanity. We now have a handbook with handling a lot of brands and are much more confident on the path to profitability. I believe Beardo and Just Herbs are two brands that will see the way in 12-18 months.
Is the digital disruption of the supply chain continuing?
India is a large country and direct distribution in rural areas will continue to be a barrier for D2C players. Organized retail or e-commerce does not easily penetrate beyond a certain threshold.
A traditional distributor takes orders; We ship and give credit to the market, while keeping inventory. Maybe in 5 years people will still be able to take orders but I can reduce the frequency and do it through an app.
How is Marico using AI to drive product innovation?
Consumer Packaged Goods (CPG) companies are still not the best of the bunch; We are better than average. We’re using a lot of analytics in supply chain and talent management. We have a digital marketplace capable of social listening. We design and package for general and modern commerce as well as e-commerce, even digital. Our digital spend has exceeded 20% overall, and some brands have 60%.
Marico is looking for talent outside of the MBA. How did that work out?
We have an undergraduate program and attract a lot of talent from digital brands and startups. It is paying us good dividends. Over the past six months, people have turned to startups and I think they will come back.
Can we see the journey from $10,000 to $15,000 completed in 8 years?
I definitely want to speed it up. However, it must be responsible for sustainable, profitable growth and, more importantly, a differentiated portfolio.
Published on May 23, 2023