Of all the home-grown FMCG companies that have pursued the overseas acquisition route to growth, Marico has sewn up most such deals. In this interview to Business Line, Mr Saugata Gupta, CEO, ConsumerProducts Business of Marico, articulates the key factors that have driven acquisitions and shares his views on what makes an acquisition click.

Excerpts from the interview:

Marico has consistently pursued an inorganic route to growth, shopping for brands in unusual markets such as Bangladesh and Egypt. What has driven your inorganic growth strategy?

Of the organic and inorganic routes to growth, inorganic growth can be pursued where you would like to forge a market entry. We looked at Bangladesh because a market opportunity was present there for us to tap into, in terms of the soap brands. We looked at Egypt because of our presence in West Asia.

We tend to look at clusters in a region so that we can have synergies in operations using local manufacturing. The Egyptian economy is growing at a healthy pace…once we made one acquisition in hair care, another came up.

We saw that as a good addition because the two brands put together gave us a good critical mass. With one acquisition you have to put in place a supply chain, a local team and so on. With the second one, these were already in place and we had greater synergies.

Have you been successful in selling your Indian brands in the markets overseas?

Not all of our portfolio have a match with the overseas markets. That is why you have to look at overseas acquisitions in the product categories that you do not have in India. Our approach to acquisitions is glocal. We aren’t looking at owning global brands that we can extend to all the markets in which we are present. Instead, we are looking at creating local hubs — possibly for different brands. We now have a hub that comprises West Asia/North Africa because of our presence in the UAE, Egypt and Qatar. We can potentially have a single sourcing base there.

In pursuing growth, Marico has a three-pronged strategy — growing existing brands, looking at acquisitions, and looking at new categories. Can you expound on that?

We have said that as an organisation we will be in the areas of beauty and wellness. We have identified ‘wellness’ as a focus area and think that is a big trend. Given the trend of lifestyle diseases, higher levels of stress and so on, wellness is a key growth area. We have a strong brand in Saffola.

We think that brand is quite a bit under-leveraged. Therefore, our entire thrust area is going to be in the area of foods, especially functional foods. We have just made a beginning in functional foods under the Saffola brand by launching an atta mix that is a cholesterol-management product.

We test-marketed this brand two years ago in Chennai and found that the marketing mix that we used didn’t click. We have reworked this and the brand is now doing quite well. We initially launched it in Mumbai and have now launched it nationally. I think we are lucky to have a product portfolio that rides a trend, that of wellness.

If you see globally, it is very difficult to run a business that is against a consumer trend…it brings into question the long-term sustainability of the business. Products such as a soft drink or a McDonald’s are all fighting a consumer trend. The other trend that is helping us is the growth in modern trade. Our modern trade market-share is higher than those in traditional trade. This is because our products are somewhat niche in character and cater to high-end consumers.

Apart from that, male grooming is a high potential category. Our After Shower hair cream has garnered a 43 per cent share of the market in just two years. This market is growing at 30-35 per cent. We are excited about this growth.

In the gel market, we have been around for only five-six 5-6 months and have a 10 per cent share. We believe that we need to stay invested in markets, drive category growth and wait for the inflexion point to arrive. Every new product will not immediately grow to a Rs 100-crore brand!

Branded staples haven’t delivered much as a category for several players. So how will you position your food brands?

Our launches will be functional foods and not staples. Staples are a low-margin high-volume business and we do not want to get into that. Having moved away from branded commodities, we have already moved up the value chain and wouldn’t want to undo that.

Marico’s overall strategy has been to focus on niche products. Are there any plans to break into large FMCG categories such as soaps or shampoo?

We are not ruling out entering into big categories; if you have to grow you have to participate in certain categories. But we have to see if there is a differentiated space available. We are not into “me too” products. In soaps, we acquired Manjal because we believe it’s a differentiated product.

Our entire soap strategy is based on the point that we don’t intend to play the national game, but would like to have products that are suitable for specific regions.

As to the question of a foray into categories such as shampoos, you need to take a call on investments needed and the allocation of resources. Having said that, we are not saying we will never do shampoos, but as of now we will concentrate on pre- and post- wash segments.

Will you continue to look for new categories such as conditioners or liquid starch, for instance?

Our appetite for acquisitions is pretty high, but we believe that we need to have solid organic growth first. When you have 18-19 per cent organic growth, it gives solidity to the business. You can’t build in acquisitions every year, there’s a time and price to that.

There should be both topline and bottomline growth that acquired companies deliver, otherwise they will drag down our growth.

The other thing about acquisitions is that you have to look at overlaps between brands. If you are already in a category where you are competing with another brand with a similar footprint, it doesn’t make sense to acquire that brand. If you’re catering to the same set of consumers, in the same space, it doesn’t make sense.

What would be the contribution to your sales from modern trade?

Currently, it would be about 5 per cent. But our definition of modern trade differs from the usual one, which classifies all standalone open format stores as modern trade. But we define only supermarket chains as modern trade. We have different service levels for chains; we have a complete vertical to deal with modern trade. We believe that the modern trade contribution will go to 12-15 per cent in three-fouryears. I think both the traditional and modern formats will co-exist simply because of the fact that the former also offer a unique proposition in India.

Would modern retail demand higher margins of you?

We believe in having a win-win relationship with modern trade and have a completely transparent pricing mechanism with them, for two reasons.

One, it helps build trust when you are doing business with several retailers on the same terms. We have consciously taken a call that not many have taken. We have a completely business-based, turnover-based margin structure. Second, fortunately we didn’t have any legacy deals with any retailer. We realised that we need to use a P&L approach to modern trade. We also made sure that our landed cost for goods is not lower than distributor’s landed cost.

As long as you have a transparent menu-based pricing, I think you are okay. We have to work at reducing supply chain and logistics costs.

What are the new product launches that we can expect from Marico?

We have explored a few options in personal care. Our skincare services business has given us insights into the consumer in this business. We hope to use that to launch products. We plan to expand our Kaya outlets to a shop-in-shop format where we can retail products some time down the line.

We believe that we can explore mass skincare. We have a huge repository of knowledge compared to FMCG players who do not directly interface with the customer.

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