Financial Daily from THE HINDU group of publications
Tuesday, Feb 24, 2004
Financial Daily from THE HINDU group of publications Tuesday, Feb 24, 2004 |
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Corporate
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Outlook Marico focusing on margins than volumes Aarati Krishnan
SHAKING off the commodity influences on its business is not easy for Marico Industries, maker of Parachute coconut oil and Saffola and Sweekar cooking oils. Vegetable oil prices are notoriously volatile and its consumers very price-sensitive. But Marico is taking a different route from its competitors to distance itself from the "commodity" tag. For Parachute and Saffola, Marico has stayed away from playing the "volumes" game, which involves tinkering regularly with the selling prices of products, to compete with the local brands. Nor is Marico slashing advertising spends and piling on the freebies, as are the larger players in the FMCG space. The company's advertising and promotion expenses actually rose in the first nine months of 2003-04. Seventy-five per cent of this spend was on advertisements, rather than promotional offers (read freebies). In the cooking oils business, Marico continues to promote Saffola and its variants, on the "good for heart" platform and Sweekar, for its "low absorption" properties. As cooking oil prices went through the roof last year, many competitors rolled out low-end brands, which would match the local ones on pricing. But Marico has no low priced offering in the segment. As price-sensitive consumers switched to cheaper substitutes, its cooking oil market shares actually dropped from 17.8 per cent in end 2002 to 15.2 per cent in December 2003. Isn't the company losing out in the bargain? Not really, says Mr Milind Sarwate, Marico's Chief Financial Officer, because the company is focusing on profit margins, rather than volumes. "The edible oil category has been facing stiff competition from large-scale volume players whose business model is based on low margins and pure price play. In this situation, we have consciously chosen not to get drawn into price wars and instead, have kept reiterating our brand's value proposition to consumers. As a result, while volumes may have dropped, our margins on Sweekar have moved up. We may be the most profitable in the edible oils business," he says. Marico's coconut oil brand - Parachute - has actually taken a 14 per cent price hike in 2003 and yet, improved its market share over the past year, from 54.8 to 57.1 per cent. Low priced packs, coupled with packaging innovations, have helped the brand retain its market leadership, amidst rising local competition in the coconut oil segment. In fact, Marico is investing aggressively in a pipeline of new products to improve its margin profile. "We have stratified our portfolio into high margin and low margin segments. We have consciously promoted volume growth in the high margin segment, while taking strategic drops in the low-margin product volumes. We will keep replacing low margin `commodity' products, with those which have a higher value addition," says Mr Sarwate. Over the past couple of years, Marico has rolled out a slew of new brands, even as others in the industry are pruning brand portfolios, for savings in adspend. Marico's new products - Parachute Jasmine, Shanti Amla, Mediker Anti lice oil and the Saffola range of blended cooking oils, contributed 18 per cent of its revenues in the first nine months of 2003-04. Also on Marico's radars are products such as Parachute shampoo and ambitious forays onto new businesses such as skin care clinics and cosmetics.
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