Consumer goods company Dabur India Ltd will continue to expand its portfolio across price points and build on its power brands, said chief executive Mohit Malhotra in an interview. The maker of Vatika shampoo and Hajmola candy reported an 8% rise in rural volumes in the June quarter, far more than the market’s 4% growth. Rural demand has been growing for Dabur, driven by the launch of bridge packs, an expanding distribution network and an overall demand uptick, Malhotra said. Edited excerpts.
You are bullish on a revival in rural demand. Can you elaborate?
We talk about rural so much because the contribution of Dabur’s business coming out of rural India is relatively higher compared to peers—they will be at 30-35%, we are in the 45-50% range. Rural is good for us. We have put up a lot of infrastructure—sub-stockists and rural yoddhas, etc. In the last two quarters, we’ve seen rural growth picking up. Volume is the barometer of our assessment of rural business, and volume has now turned from red to black. As India’s inflation goes down—last year, around the same time, inflation in Dabur’s raw material basket was in double-digits, now, we see inflation in the range of 2-2.5%. As inflation is ebbing, the cost of products is coming down for the consumer, and there is more money in the hands of the consumer. Therefore, spending is going up. Some macro factors behind a good rural performance were a good crop (rabi), but the harvest was impacted by unseasonal rains.
Going forward, even the sowing of rice, which requires a lot of rain, has been good. MSP, or minimum support price, has gone up since it is an election year. Wage rates under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) have gone up. However, one sign that is not so great is MNREGS enrolment is up. Ideally, infrastructure development should lead to unemployment going down. So, this has been a negative. But, rural should revive in my view; it is reflected in our results. It should be a more enduring trend, going forward.
Since Dabur’s relevance in the rural markets is already high, what will drive growth for you in those markets over the next five years?
You may say our penetration is high, but as far as I’m concerned, most of our categories you see, rural offers huge growth headroom for us, because 70% population is there. Our direct reach in rural villages is only 100,000 villages today. Its nothing compared to a coverage universe of 600,000 to 700,000 villages today.
Every village is now getting more urbanized. As villages urbanize, the infrastructure becomes better, they become more approachable to the feeder market and more branded products will get consumed in rural areas. That offers huge headroom and opportunity for us. In categories where we are market leaders, like Chyawanprash, the penetration is less than 10% pan-India. As I bring my price points down from Rs100 to Rs50, it becomes affordable. In hair oils, for instance, category penetration is 90%; in toothpaste, category penetration, too, is above 90%, but my market share is at 16-17%. So, we are trying to get into more affordable price points, and an entire pack price architecture that can be used by a rural consumer, a semi-urban consumer, urban consumer as well as e-commerce consumer. So, that’s what we are looking at, brand after brand.
Does this mean Dabur will always focus on mass-market products?
No, it’s horses for courses. So, there is e-commerce, which caters to the premium segment, and now is at 10% of the overall business; there is modern trade, which is urban-centric and premium, and is another 15%. The general trade market, which is 70% of our business, within that, the urban market contributes 70% , the rest is rural (for Dabur). Rural is a low unit pack strategy, while urban is completely focused on premiumization and large packs.
With input costs moderating, has Dabur taken direct price cuts?
Our price elasticity to consumers is not very high since we are into branded products, considering purchases. Once we raise prices, we don’t roll them back. As inflation converts itself into a deflationary environment, we will give some benefit to consumers because we are making more money.
We will provide value in terms of consumer promotions, so that effective prices come down, and will pass on some benefits to trade also. You have to become more competitive at the trade level, provide better value to the consumer, but not by bring down the MRPs. We are also coming up with bridge packs—Rs10 and Rs50 packs. There is a Rs20 pack. They are more affordable packs. For instance, we launched bridge packs for Amla.
With the Badshah Masala acquisition behind you, what is your plan for the foods portfolio?
Food is a good space for us. Food is a mass-market, volume business builder for us, in which there are two parts—beverages and foods. In beverages, we have a structured playbook with the Real brand, which is getting extended to nectars and carbonates. So, that’s the ‘power brand to power platform’ strategy that Real will straddle eventually.
In foods, we didn’t have a similar playbook. Packaged food is growing at a fast pace in the country, especially staples. Badshah is a power platform in foods space. That’s why we acquired the company, so that we can get into branded foods.
What is Dabur’s outlook on acquisitions, especially around new-age brands?
We’ve got Rs6,000 crore lying on our balance sheet; it’s meant for acquisition purposes. We keep scouting for strategic fits. That said, we have a guard rail of profitability. So, anything which is margin accretive to us is what we will acquire. If a good strategic fit comes my way, then we will acquire. It has to be an excellent fit in terms of the healthcare space or in home and personal care or in value-added foods, etc.
Will Dabur look at international acquisitions?
International is extremely volatile at the moment. With so much currency fluctuation, we can’t take too much risk at this point in time. India is where we have a great bandwidth, we have distribution, we have fantastic equity, and we are able to assimilate the newly acquired companies. So, India will be our first port of call for any acquisitions, international not so much. That said, within international, Southeast Asia is where we are not present. So, we keep scouting for targets there to improve our presence.
Several companies recently pointed to the presence of local players leading to loss of market share . Has Dabur been affected by the emergence of such brands?
We are not present in the commodity categories. So, that’s a cyclical phenomena and more relevant in commoditized markets. We haven’t experienced that because our products are more “considered” purchases, i.e. they are more thought about. But we have a brand in home care, Odonil—a lot of unorganized players have come in there. They mushroom as prices soften. We also sell rose water. In that, a lot of smaller players have mushroomed in the market. We are value-adding there. But we have not seen too much of an impact on our healthcare portfolio, for instance.