Urban demand is challenged owing to job losses, migration: Marico4 min read . Updated: 29 Sep 2020, 02:46 PM IST
- 'The government will need to adopt short-term measures and boost domestic manufacturing to create meaningful employment to tide over the economic slump'
NEW DELHI: Packaged consumer goods companies, reeling under the impact of the pandemic-induced lockdown, are now seeing shoppers turn frugal. Saugata Gupta, managing director and chief executive officer, Marico Limited, said the government will need to adopt short-term measures and boost domestic manufacturing to create meaningful employment to tide over the economic slump. Edited excerpts from an interview:
Nielsen reported slowing demand in August. What’s your take?
It varies from portfolio to portfolio. Initially, in quarter one and up to first two to three weeks of April there was a lot of pantry loading and a good skew towards foods. Also, the lockdown and covid cases were concentrated in a few metros and therefore it was far more predictable.
With most of the items of daily consumption, the industry started showing growth in May and June which reflected on the FMCG performance. Because of increased consumption at home, things like health and hygiene, food and immunity were growing. In Q2, the covid spread became a little more unpredictable. There's also some trend of people moving out, ordering food. I think in September, there has been escalation of covid cases. Given all that, I would think there would be a mild slowdown in September. Again, it depends on company to company because a lot of the growth would be a function of larger players and trusted brands gaining market share.
How is the September quarter looking for you?
We are almost at the end of the quarter, so I will not get into the details. But all I can say is that we started seeing growth from May, and the trend continues.
What steps can the government take to boost consumer confidence?
The situation is tricky but we have to take some steps now to drive a little bit of consumption. I think, accelerating the execution of encouraging manufacturing for exports—because that will give jobs.
After covid there is a clear imperative for a lot of nations to diversify supply chains and India has the opportunity. But it has to be executed well for it to capitalize on it otherwise other South-east Asian nations will capitalize on it. To me that creates significant amount of employment. Secondly, there’s need, maybe, for some short-term measures to drive consumption. Having said that, hopefully covid cases come down because when there is anxiety, the feel-good factor also gets impacted and people are usually careful in terms of spending. So a combination of all these three has to work. I think the worst is over, but the speed of recovery will be a factor if all three converge somewhere.
Is there a difference between rural and urban demand? How can urban distress be managed?
Pre-covid, you would recall that rural had slowed down last year. I would say in relative terms, rural is more stable. The harvest has been good, significant money has been poured in, whether it's grains or MNREGA and also there has been migration from urban to rural. So companies with direct rural distribution are more likely to gain.
Now coming to urban, the covid cases are higher, therefore, there would be outlets closed, people not coming to work hundred percent so I don’t think anyone is operating at 100% optimal capacity of pre-covid days.
There is also channel change – whether it is topping up from the local kiranas or buying from e-commerce. People are unwilling to drive or travel 6-8 kms to shop in organised retail —so Modern Trade has declined. To top that, I think the distress due to job losses and migration has led to urban demand being slightly more challenged.
So are you seeing downtrading?
That's currently the trend. It is very important to pass on value to the consumer because people still want trusted brands, and that gives them the opportunity to down-trade within a brand.
And although discretionary spends on personal care, like skincare, are limping back to normal, but it is still not delivering growth as a category. So, again, the focus is on essential categories, items of daily consumption.
Will new launches boost Marico’s topline?
We are focused on two things—health and hygiene and food. Food is far more aggressive strategy to grow. Last year we did something slightly below ₹200 crore (in foods). We are extremely confident of getting into ₹300 crore plus this year and then getting into a Rs450 crore to Rs500 crore number in the following years so that becomes a critical mass. We believe food is something which has significant tailwinds.
We are also changing our strategy on food. Instead of trying to do niches, we are looking at slightly larger categories having single incumbents with high market share. One of the places we're looking at is immunity, we have launched honey, initial trends are pretty positive.