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Business News/ Companies / People/  Rural consumption needs to improve: Marico’s Gupta
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Rural consumption needs to improve: Marico’s Gupta

Whenever there is significant volatility, you see the strong (players) getting stronger, and the weak, weaker, says Saugata Gupta, MD & CEO, Marico

Saugata Gupta, MD & CEO, MaricoPremium
Saugata Gupta, MD & CEO, Marico

NEW DELHI : Fast-moving consumer goods (FMCG) company Marico Ltd reported a 3% rise in domestic volumes in the September quarter. The maker of Parachute oil and Saffola edible oils brand said retail inflation impacted volumes during the quarter. In an interview, Saugata Gupta, managing director and chief executive, Marico, said rural demand continues to be subdued, but its premium portfolio has been holding strong. Edited excerpts:

What was the reason behind the subdued growth in the September quarter? Did the situation improve in October?

I think foods, discretionary (products), and digital are doing well. As far as value-added hair oil is concerned, it mirrors hair and personal care (HPC) growth. If you look at the HPC growth, it has been negative for some time. There are two things for value-added hair oils. A significant portion of it is rural, which is stressed as the bottom of the pyramid. Two, there’s been a significant (price) increase in crude and other related things, but instead of taking price increases, we have brought down the pack quantity. The move also leads to the volume getting depressed.

For Saffola, we have got it back; in the last quarter, considering the inflation and volatility, the performance was extremely subdued. In Saffola, we have a one-shot price correction. Parachute hair oil is a unique situation—usually, in the off-season, copra (price) starts inching up, but this time it started tapering. Therefore, we have been taking multiple price drops on Parachute. If you look at a three-year CAGR (compound annual growth rate), we are still at 7%. I would say volumes will gradually grow from here. Sequentially I see improvement in margins.

Therefore, we are in an okay spot. Obviously, one thing that needs to improve is rural consumption because that is what has been troubling us.

What are the macroeconomic factors that need to change to push rural demand?

If we look at discretionary categories, both urban and rural are doing well. What is happening at the bottom of the pyramid and at the mass end is whenever there is high food inflation, people either titrate or downgrade on FMCG. In high-penetration categories, there is downgrading that happens. So I think we need inflation to settle down a bit. Inflation in vegetable oils has settled a bit. I think the crude (inflation) related part has to settle down, and if it comes down, the overall food inflation basket will also settle down to a large extent. And this is not just for rural. It’s for the bottom of the pyramid in urban, too.

What’s the gap between rural and urban volume growth?

The gap is reasonably significant. Earlier it was narrow, and, of course, it also depends on the portfolio. If we see the quarterly results, food companies have done much better than those operating in consumer discretionary. However, the gap will start narrowing a bit due to the base effect in the second half.

Did Marico report a fall in rural sales volume in Q2?

Yes, so did the overall FMCG sector.

When will it improve?

I believe it should get into positive territory in the next two quarters.

Most large FMCG firms gained market share during covid-19. What’s happened to small manufacturers?

Post-covid, when we faced supply chain disruptions and working capital issues, smaller players had ceded market share to large brands. Whenever there is significant volatility, you see the strong (players) getting stronger and the weak weaker. Two, wholesale as a channel is perhaps reducing in saliency, and small brands who depend on wholesale, as they did not have direct distribution, are suffering. Brands investing in direct distribution, especially those expanding distribution in rural areas, are gaining market share. And within this, brands that straddle various price points are gaining market share more than the premium brands. For example, in our category of value-added hair oils, some of the brands that operate at a premium end are losing market share because there is downgrading happening. If you are actually participating across price points, chances are consumers may be downgrading to a brand within your portfolio.

In view of the recent funding crunch for startups, how have your D2C brands, Beardo and Just Herbs, performed?

An abundance of funding led to D2C players upping their spending. So the cost of (customer) acquisition went up in the digital space because to maintain your share of voice, you had to spend far more. Better sense has prevailed now, and the cost of doing business has actually gone down. Having said that, yes, we are exploring some of the brands moving to general trade (GT) as well, where we have a system advantage. I think it’s important to ensure that each brand gets a critical mass. In my opinion, unless you get into 80-100 crore run rate, just getting into GT (doesn’t make sense) – because GT is not easy. You have to create salience, create demand, and there are infrastructure costs. For us, the cost is marginal. So we have started slowly taking Beardo into it. We’re experimenting with the premium cosmetic channel to see how Just Herbs does.

This overall squeeze on funding has actually helped us in terms of taking the cost down.

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ABOUT THE AUTHOR
Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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Published: 09 Nov 2022, 01:13 AM IST
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