Companies

How Marico is readying itself for disruptions in the FMCG segment

Nandana James / Thomas K Thomas Mumbai | Updated on October 02, 2019 Published on October 02, 2019

Saugata Gupta, MD and CEO, Marico.

To change distribution and supply chain as part of its efforts to streamline operations and take advantage of digital platforms.

 

With the growth in FMCG sector slowing down to 6-8 per cent from 10-12 per cent, Saugata Gupta, MD & CEO, Marico is looking at a multi-pronged strategy to transform the company to adapt to the changing business environment.

To start with, Marico is looking to change its distribution and supply chain as part of its efforts to streamline operations and take advantage of digital platforms.

“We see a change in the traditional supply chain network. For example, 3-4 years from now, we may not need a distributor salesperson to take orders because there could be an App that does the job. Similarly, there are these supply chain logistics providers who can do the fulfilment. There are professional logistics who have economies of scale to do the last-mile delivery,” Gupta told BusinessLine.

Currently, most FMCG players in India manage their distribution network wherein their respective sales executive visit stores across the country for booking orders and supplying it. Globally, there are companies like DKSH, which does everything from sourcing, market analysis and research, marketing and sales to distribution and logistics and after-sales services. Gupta reckons that similar players will start scaling up in India too. “ I think the distribution system will change. I can use that same logistics courier system which the Amazons of the world operate. It's not about just margin anymore. It is about rotation, stock rotation. So, therefore, if you are number four and number five, in today's world, you will be much more at a disadvantage,”said Gupta.

No slowdown worries

Marico’s chief is not unduly worried about the slowdown in consumption, saying that it was not a structural issue. “Maybe 10-12 per cent was good earlier, now 6 per cent is good. We are recalibrating our aspirations. There is a problem in rural, but we are not seeing a situation in our segments where people do not have money to buy biscuit for ₹5. The slowdown, in FMCG, which really started in February this year, is temporary,” said Gupta.

One of the concerns is that in rural areas, the wholesale market is stocking less because there is a cash crunch.

“I would think that thinks it would be okay by January-March quarter. However, this quarter (July-September) is going to be perhaps the slowest. The recovery and everything should be better in Q4,” he added.

However, despite the confidence, Marico is not sure if it will touch its target of becoming a ₹10,000 crore company by 2020-21. “It’s an aspiration; there could be one year and ups and downs. Let's wait and watch because it's something which is three years from now. Moreover, even if you hit 95 per cent of the target, it’s okay. So we are staying on course on the medium-term strategy,” Gupta said.

New business models

One of the things Marico is doing to stay on course is to invest in startups to learn about new business models. For example, it picked up a 45 per cent stake in the Ahmedabad-based start-up Beardo, which plays in the mass-premium-to-premium men grooming category. “There is an untapped demand there which large players are unable to tap into because that requires high-velocity innovation. For example, for Beardo, their innovation cycle is at 60 - 90 days compared to 8-9 months for a traditional FMCG company. They are happy to put 5,000 pieces on an eCommerce site and check if it works or not,” said Gupta. “So you are now going to have clear two-three business models, emerging -there is a premium, niche model, there's an urban hybrid model, and there is a rural model. So it's no longer that one size fits all, which also means different capabilities. To give you an example: To sell some of the premium niche new things which we launched, I don't think I need a capability of mass marketing,” he explained.

To cater to the changing business models Gupta is also changing the way he hires. “ I find MBAs extremely risk-averse. Also, if you see, the new set of entrepreneurs are all undergraduates. So I like to push my system to recruit non-MBA. A person who scores well at colleges like St Stephens or SRCC is much brighter than some of the MBAs,” he said.

On international markets

Marico is also reviewing its presence in some of the international markets. The company is looking to consolidate its existing footprint instead an investment in new markets. “There could be some expansion, but what I am against is adventurism there. You can be far more experimental in markets where you are already active. For example, we are going slow in Africa, especially in South Africa, because I think there is a fundamental economic issue there.

One thing that Gupta doesn't want to do is to engage in price cuts like some of the other FMCG players. “We now have a reasonably sophisticated pricing model to avoid bleeding on margins. So unlike a multinational, who sometimes have pressures because their home markets, we have no such pressures,” said Gupta.

Product innovation

On the product innovation side, Marico is using technology to develop products that cater to real issues such as shortage of water. “ All products in the cleaning, washing, laundry segments that consumes less water would be a big driver. I may have a range of oil, shampoo, conditioner, body wash but if it requires much water, then it may not do well,” Gupta explained. Similarly, Saffola, which started as a premium edible oil brand, is being turned into a health food brand as consumers start using less oil.

Read also: Marico to expand brand Saffola, push edible oils

Marico is concentrating on five new verticals including male grooming, premiumisation of its hair nourishment business, health foods and skincare. “We hope at least two to three of them will attain critical mass. Today if they contribute to the overall revenue in single digits, they should be at least 14-15 per cent of sales. Each of them should become ₹300 to 500 crore brand,” said Gupta

Published on October 02, 2019
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.