Like many of its peers in the consumer goods industry, Marico, maker of blockbuster brands such as Saffola and Parachute, has been on an acquisition binge abroad, taking over brands in South Africa and South-East Asia. In this interview at the Marico office in Bandra, Mumbai, Saugata Gupta, CEO, Consumer Products, Marico Ltd, discussed the rationale behind these acquisitions, Marico's growth strategy, commodity price fluctuations and the impact on its brands, diversifications and much else. Excerpts:

Marico has seen a spate of acquisitions abroad. Are you looking at bringing those brands into the country?

There's a huge threshold level of investment in creating a brand. To an Indian consumer, whatever it's called doesn't matter, it's new anyway. What it has done is given us access to certain product categories (in male grooming) and should we decide to participate in the category, it gives us access to technology and shared sourcing. Common distribution, media footprint and consumers determine a brand launch. But, I don't think we have acquired scale right now.

Is this a strategy that other Indian FMCG firms are pursuing? Acquiring companies in Africa and South-East Asia? Does that insulate them from Indian competitive pressures?

All of us are looking at multiple pillars of growth. If you look at Africa, there are lots of similarities. Category penetration is low, the scope for potential growth, also, it's a complex market; one of the competencies of Indian managers is to work in a slightly chaotic environment. The distribution system is still not organised. Also, the market is still not competitive. These are the factors driving acquisitions. It's still not a focus market for many MNCs, but a focus market for Indian companies. While complexity is there, the relative competitive intensity being low, we're investing ahead of the curve.

You have bought brands in categories in which you are not present in India, right?

Essentially it's in nourishment and styling. In the case of Vietnam, there are shampoos and gels; in South Africa, it's a lot of ethnic hair care products. Here we have a wider range and more sophisticated products, so there is obviously an opportunity.

If you do bring in products, would they be under the Parachute brand, where you already have male grooming products, or a new brand?

That will depend on the size of the opportunity. For me, it makes strategic sense if the existing power brands are stretched to the extent possible.

What about taking your brands to those markets?

Parachute is already in the Middle East market. Again, it's the same thing, do you want to use an existing brand name and stretch it? For example, we have Code 10 in the South-East Asian markets, which we bought from Colgate, it is available in surrounding markets apart from Malaysia. I think what is interesting is tech formats and category knowledge that will help, not necessarily the brand transfer. Our approach is essentially market-forward and not necessarily category-forward. But, having said that we have a method by which we focus on certain categories. While we have been defining beauty and wellness, we are ensuring that we are getting critical mass in that.

What about the other thrust area for you, functional foods? You launched atta additives earlier?

Yes, we launched oats, which is doing well. Atta additives is small, but we are serious about foods and are looking at other stuff in health foods. You will see some more this year.

All your forays in food will be under the Saffola franchise?

Health food will be under Saffola. I don't see Saffola getting into indulgence, but we will get Saffola into areas where taste and family values are involved.

You said you would look at products that are in the ready-to-cook area, not so much ready-to-eat?

I was talking in general about the market, not particularly about Marico. In India, I don't see RTE products having a big market, because there is still a concept of ‘fresh', there's labour available and the housewife would still like to prepare the food. Now, because of time and convenience, what she doesn't like is negative labour, it could be cutting vegetables, preparing a masala , there's a huge market for intermediate foods. For example, the breakfast category has grown on the health and convenience plank. There's an increase in double-income families and people are time-poor in the morning. You can have help cook a meal later in the day, but you won't have help cooking breakfast. Talking generically, that's why the breakfast category has grown.

Has Marico's attempt been to reduce the dependence on the commodity cycle? You sold Sweekar, but Parachute too remains prone to these cycles, doesn't it?

There is a difference between Parachute and Sweekar. Parachute is a strong brand and can command a premium, there would be some fluctuations in margins but our ability to pass on to the consumer is reasonably high. What is most critical is to provide certain values to consumers, long-term benefits, and not look at short-term profits. If there is commodity inflation, we need not pass on everything to the consumer. Parachute is a far stronger brand. Sweekar was different — it was a combination of two things: One, we didn't see a huge growth opportunity. It was a drag on our bottomline and growth. In edible oil there are only two business models: extremely high levels of volume and economies of scale, like what Fortune has achieved. But, the other is the Saffola model, which is a strong brand and has the ability to command a premium. So you have to continuously innovate. If you're in the middle, you are stuck, you are neither a volume player or a premium one. Sweekar, we were looking out for buyers for a long time. At the end of the day, we were ensuring that in the last 3-4 years, we were maintaining the brand value, not destroying it and it contributed 6-7 per cent of our revenues. Obviously, there is a right time when we got out of it. At no point was there desperation to sell.

You are not showing an aversion to buying or selling brands — you've acquired many but also sold brands such as Sil and Sweekar?

The reason is that Sil didn't give us strategic fit at that point of time.

But, weren't processed foods the way to go? And Sil as a brand had gained some traction?

We have said that we will be in the beauty and wellness space. Apart from that, Sil was a marginal player. If you don't have a certain scale or brand investments, you have to make choices. One of the things we did in the last two years, which is beginning to help us, is focus. We were chasing too many small things and too many initiatives across the organisation. One of the things we decided was to have a ‘stop doing' list! Even the brands which we are supporting or putting in our investments — we had a few big bets, and are persisting with it. Opening up multiple channels, obviously the escape button is up. That's one key strategic shift we've done and we've seen results and will continue to do so.

The mistakes people make, if you look at a growing market such as India, you will come up with the same list of categories which are attractive. What is critical for any organisation is the ability to win in that category and that happens when you have shared customers and supply chain. People don't look at competencies. One of the reasons we withdrew this brand called Sparsh … the product was wonderful but we didn't have a right to win because for its distribution, the key influencers were paediatricians and mothers, but our target group did not have shared consumers. The mother wants a safe product, she does not want to experiment.

For example, I have about 25 lakh Saffola households. Now, if I can cross-sell even to 10 per cent of this, I have a Rs 250-crore business. We have power brands and a set of loyal customers. The extent of extensions possible, that we need to see.

Yes, we have to reduce our dependence on commodities but that doesn't mean I can get into every category which looks attractive. We need the entire competencies across. Many companies fail because they think they have been successful in one category, they can move on to others without the real ability to win.

So, a lot to be said for C.K. Prahalad and his core competency concept?

A lot of companies falter in their growth; any sector which has heady growth, process and capability follows that growth. But in a sector which is reasonably stable, process and ability should lead growth, otherwise, growth falters because of a lack of processes. So, they are critical. For us, the India business is Rs 2,000 crore, from 2003, our journey has been upward from Rs 500 crore, we had to have the next level of organisational capability to drive upwards. We believe a strong foundation is required for the next level of growth. Culturally, we prefer doing and talking! That's why we say we are boringly consistent, but then we are growing at 20 per CAGR. The exciting news is less, but that's okay, as long as the pace of growth is good. The focus is something we believe in.

What about growth in the hair oil category? Is it set for a slowdown as consumers cut back on the practice of oiling their hair?

If you look at the value-added category of hair oil, in certain top-end markets there is a reduction in frequency, but if you really look at it, as a category it has grown the same way / rate as any other personal care category. People have an inherent belief in the nourishment category. A lot of usage has moved from post- to pre-wash. This is something which we are cognisant of and therefore our endeavour is to improve benefits. Specifically, for hair fall, we've introduced a product that is doing well in the South, Parachute Advansed for hairfall; developed along with the Arya Vaidya Sala.

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