Marico to invest in more D2C brands; food, digital in focus

Marico Ltd plans to invest in more direct-to-consumer startups to expand its bouquet of digital-first brands, as the maker of Parachute and Saffola oils hopes to harvest the benefits of scaling up smaller consumer brands.

“We look at spaces where we believe that digital-first has a right to win, and where we are not present and we can’t grow organically. So, we continue to look for portfolios there,” Saugata Gupta, MD and CEO, Marico said. “I think we now have an operating model where Marico is a preferred strategic investor in terms of helping founders grow, and ensure that they build good businesses. We will continue to look for these opportunities. And I hope that over the next 12 to 24 months, we add more to this portfolio,” Gupta said in an interview.

Marico has already invested in companies such as male-grooming brand maker Beardo and skin and hair care brand Just Herbs. Last year, it acquired a majority stake in digital-first breakfast and snacking brand True Elements. Its own portfolio of digital-first brands includes bath and skin care products under the Pure Sense brand, and Coco Soul, a range of cold pressed coconut oils.

The company has set a target to reach ₹450-500 crore revenue in FY24 for its digital-first portfolio.

Food business and digital business are two places where Marico will scout for investment opportunities, he said.

In the December quarter, Marico’s revenue from operations rose 3% to ₹2,470 crore, with the domestic volumes rising 4% from a year earlier. For the digital-first portfolio, the company expects to exit FY23 at an annual recurring revenue (ARR) of ₹250 crore.

The move comes as large fast-moving consumer goods companies step up investments in direct-to-consumer brands tapping small but growing markets for personal care, well-being and packaged foods. A funding squeeze within the start-up ecosystem is presenting an opportunity for traditional companies to raise their stakes in the direct-to-consumer market.

“Having said that, I think there is still a journey, we have done well...but there are there miles to go. As we grow the digital business, how do we accelerate our path to profitability, and what will help us is perhaps, I think there will be much more sanity with respect to advertising and promotional (A&P) investments in the digital space as things have now cooled down a bit,” he added. Gupta said the higher cost of customer acquisition within the ecosystem of digital-first brands had made advertising and promotional spends prohibitive.

Commenting on the demand for packaged consumer goods, Gupta said the worst is behind the industry in terms of inflation but demand may take two more quarters to improve. According to data from researcher NielsenIQ, FMCG volumes were down 0.3% in Q3.

“The worst is behind in inflation. We see gradual demand improvement. Rural is more stressed. In urban, modern trade and e-commerce is doing better than general trade. Food is doing better than home and personal care. If a catch-up happens, the recovery will be gradual. Negative (sales) will start reversing within two quarters, especially in rural, and home and personal care,” Gupta added.