Saffola cooking oil maker Marico Ltd expects household demand to improve in the second half of FY24, provided no major global headwinds impact the commodity cycles. On Monday, Marico reported a 3% jump in domestic volumes for the September quarter. Demand for fast-moving consumer goods was broadly in line compared to the preceding quarter, the company said. In an interview, Marico’s managing director and chief executive Saugata Gupta said the urban markets continued to outperform rural for the food and personal care firm, but he expects a gradual recovery in rural demand in the coming months. Edited excerpts:
Marico’s ad-spending for Q2 was at a multi-quarter high even as it plans to pump in more money toward marketing its brands. Is this the outcome of cooling commodity prices?
We are on a diversification journey. So, whether for our digital brands—in foods, in premiumization of the core—it requires investment. Besides, we have invested significantly in analytics and we are ensuring there is lower wastage in spending. For example, I believe a lot of trade spending we do, leads to just loading (of stock) and not necessarily off-take.
So, resource allocation should be towards creating long-term equity for brands and category penetration. Cutting advertising and promotion costs to manage short-term profits is something which we don’t believe in. Historically also, we have not cut A&P drastically to manage high input costs.
How has been the on-ground demand across categories for Marico in Q2?
Anything urban and a little premium, things are still okay. There was no impact there. That’s the kind of a divergence we are seeing. When we look at personal care and food, within foods the headroom for growth is far higher because there’s a large unbranded-to-branded shift underway, plus packaged food penetration in India is still low. Moreover, food as a category has far more salient in modern trade as well as in e-commerce, which as channels, continue to grow. These are the tailwinds for food. We are not seeing any stress in premium personal care and food. The stress is far more in mass categories not just for us, but in broader mass categories as well.
Which categories are still sluggish?
Value-added hair oil, or categories at the bottom of the pyramid are still slow, as they have some rural dependence, besides significant competitive intensity. Food and other categories are fine. For Parachute (oil) we have done some price action, with price cuts of 6-7%. We are confident it will ensure that volumes come back.
As we near an election year, how do you anticipate household demand?
Unless there are any global macro surprises, say, on oil, things will improve. As we step into an election year, we have had a decent run as far as the monsoon is concerned, GST collections last month have been pretty good. All this gives the government space to encourage demand. I think while there is some lingering inflation, major inflation is broadly under control. There were some proactive steps, be it controlling exports or managing costs.
Is Marico done with integration of its recent acquisitions?
Within all our digital brands, there’s been a significant reduction in cash burn this year. We expect Beardo to cross the ₹150 crore mark. Plix has a run-rate of ₹150 crore. I think we made significant improvement also in Just Herbs (personal care) and True Elements (food). We will go in for 100% stake in Just Herbs by the end of this fiscal (currently at 60%). Within our digital journey we are trying to ensure there is commonality say in terms of supply chain, in sourcing, etc—there are a lot of synergies we have not yet fully tapped. The way we look at our digital business is that we might not be the best in creating brands, and their founders are far better than us, however, when it comes to scaling up profitably, we want to be seen as a top quartile in that regard.
Which areas have seen a reduction in cash burn?
A brand like Beardo, for example, is burning far less cash now, and in fact, it’s going to turn profitable this year. We are looking at a Rs400 crore kind of exit run rate of our digital businesses. So, this scale gives us much better synergies. The overall cost management has been good. We have also set up a “nano” manufacturing facility in one of our plants for our digital brands. Ultimately, large FMCG companies can only handle large manufacturing. So as we scale up some of these cost advantages will come up.
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Updated: 02 Nov 2023, 12:17 AM IST