Saugata Gupta | We will make acquisitions but at an acceptable cost6 min read . Updated: 24 Aug 2010, 12:47 AM IST
Saugata Gupta | We will make acquisitions but at an acceptable cost
Saugata Gupta | We will make acquisitions but at an acceptable cost
Mumbai: Mahatma Gandhi’s injunction to ‘Be the change you want to see’ may well hold true for Marico Ltd. The consumer goods company, which positions its Saffola cooking oil brand in the healthy living space, has started encouraging employees to maintain a healthy lifestyle through a diet control programme. Chief executive officer Saugata Gupta says he has himself lost 8kg in three-four months, thanks to the initiative. In an interview, he also speaks about the consumer goods industry’s high-expense growth strategy and his company’s product and expansion plans. Edited excerpts:
We find many in Marico sporting a lean and mean look these days.
We have invested a lot in initiatives like dial a dietician, or free cholesterol checkup. We are now working with a hospital to help our people to a rehab for lifestyle decisions, what to eat and all that. Therefore, products will come in.
There is a trend for diet. In Marico itself, there is one dietician who has made tremendous money as I and my team have gone to her—7-8 of us and I have lost 45kg together. I have lost 8 kilos in 3-4 months. This started with one guy losing 20kg and maintaining it. We got inspired. It started with the sales team shedding 50kg.
Across Marico we are implementing a complete nutrition and diet programme. This is not just about diet and losing weight, it is about leading a holistic lifestyle. We are doing it as a service to our employees for their well-being. It is being run at one factory and our head office.
The second step would be to ensure our members’ financial well being. This is a part of our ‘Be more every day’ (initiative).
Is this trend the Saffola journey?
Saffola is a mass premium brand. The level of premium is not significant. The reason we are not a tempering with it is because it is riding a trend. When you piggyback a trend the growth accelerates. Because you are riding a trend you are not changing consumer behaviour. It’s a healthy lifestyle, it’s good for the heart. I am not selling a product but a way of lifestyle and that is the larger focus of the brand.
For a year, the packaged consumer goods sector has been focusing on volume-led growth, with higher sales and advertising expenses. Giving consumers better value at reduced prices or larger packs for the same price has also become the norm. Is this sustainable in the long term?
If you look at the India market, there are a couple of things that have happened. In categories which have become mature, like take the biggest mature category, say soaps and dets (detergents), in terms of penetration. Here, the game played is changing. Earlier, we had products in the upper tier, middle tier, lower tier. In a lot of cases the MNCs (multinational corporations)...used to leave the lower tier. Now you are giving a middle tier product at lower tier prices or an upper tier product at middle tier pricing. It is creating disruptions, but it is a good disruption.
If you look at India, volumes and scale follow profitability—either in extremely profitable niche where I am only going to operate here, or only in high street shops, or supermarkets, hypers, shop-in-shop kind of category. If you get mass and scale, the threshold level of media spends are high; therefore it makes sense to get scale then you can be profitable. Rather than say that you are going to nibble, if you are a mass product then you can get a nibble of the market. If you are (an) 8% marketshare player, given the high threshold level of media spend and cost of media, you will never be successful. A volume-led strategy may have a short-term loss of margin but long-term growth will come.
But is this sustainable?
The definition of disruption has changed. Earlier it was product price right. Today the disruption is, can I get a same quality product at a lower price and that value disruption automatically will give long-term volume. There is empirical data which supports it. With scale at 2x-3x, margins go up by 4-5% because costs are same. That perhaps is a better way to drive India growth. (The) Issue is ultimately if you have the long -term volume expansion, maintaining consumer franchise is far more important than short-term margin expansion. It is much more difficult to get a consumer back to the franchise once they leave it. Just to give you an example, last year we took pricing correction on our recruiter packs of Parachute and Saffola. That has resulted in volume growth. That is good, now inflation is setting in and automatically there will be a topline growth.
How does the Indian consumer benefit?
The Indian consumer is value conscious. On (the) one hand he is asking for same cost, higher value, and on the other hand he wants same parity product for lower pricing. One of the interesting things of Indian, or rather rural, consumers is that they are individually poor but collectively rich. Just add up the numbers. That is the same funda (logic): it’s better to make 20% say (at) 2x margins than 3x because (in the) long term that 20% scale will become 25%. This is one of the long-term FMCG (fast-moving consumer goods) trends we are seeing that scale will see profitability follow. The change is not just value for money.
Will you get back to snacks with Saffola Zest (Marico’s pilot project on snack foods that was withdrawn)?
In India the big opportunity is foods....categories have connotations of health. Yes, of course. We are excited about foods. Our approach will now be different. We had focused on health earlier. Our biggest learning is that consumers want taste first. Zest will be far more different in a completely new avatar. There are other opportunities for healthy food. Snacks, yes. But might not be in that format.
If we look at your acquisition history, you come across as less aggressive compared to peers like Dabur, Godrej or Emami...
It’s actually not. We have a long history of acquisitions and....our acquisition strategy is focused. It is in beauty and wellness, and in emerging markets. We will look at Asia and Africa, where we have long term synergies. You should look at acquisitions in a long-term horizon of 4-5 years and the track record of integration.
It is also said that you are more conservative than your peers?
The word is not conservative. We are prudent. As long as there is a strategic fit, at what price? We will do acquisitions, but not at any cost, but at a cost which we believe is acceptable to us. Look at our track record. We have given 40 quarters of consistent topline growth.
We don’t yo-yo in our performance. We create shareholder value. One has to look at a long-term horizon, not from one quarter or one year performance.
What about creating new brands and new platforms after Saffola and Parachute?
Zest was our first foray into snacks. It has given us a lot of learning. We are accelerating our NPD (new product development) contribution. Now with the present trends we are excited with our NPD trends. We believe that between rice and oats, this year we could have Rs35-40 crore contribution.
You have frozen expansion plans for Kaya...
Kaya Middle East is doing well. In India we have taken some mid-term corrections. By September-October we will see the first same-store sequential growth.
Two things. We had some problems with the business model, like when we started the clinics, the rentals at some locations were high. It was seen as a problem. Solution? High ticket. We have done a lot of mid-term corrections and we are seeing the change happening and hopefully by next quarter we will see the results. Therefore... we will get the business model right and then expand.