Comments
Homegrown fast-moving consumer goods (FMCG) major Marico Ltd has cut back on over 100 stock keeping units (SKUs) ― across its core and niche brands ― as it looks to optimise cost and maintain margins. The company is eyeing cost savings to the tune of ₹150 crore, as it partly absorbs the price increase in key raw materials like copra, sunflower and rice bran.
Proceeds of the cost rationalisation will be further redeployed towards advertisement and promotion (A&P) investments in new focus categories like immunity, healthy foods, in-between meal snacking and so on. Advertising spends for Marico are already at pre-Covid levels, at 9.5 per cent on turnover.
According to Pawan Agrawal, CFO, Marico, the 100-odd SKUs that the company cut back on was contributing “nearly 1 per cent of turnover” and hence, it made “no sense to continue with such a long tail”. There was a hidden cost of complexity and unnecessary inventory accumulation too.
The decision to cut back on the long tail was taken in the April-June period of the fiscal when the company was operating at reduced capacities; and the need of the hour was to ensure availability of fast-moving high velocity SKUs into stores. Around June, when the situation started normalising ― post the Unlock ― the company identified the opportunity of permanently rationalising some SKUs.
“We cut back on the long tail that included more than 100 SKUs across brands, which simplified operations. Now, advertising spends are back to pre-Covid-19 levels and a large part of the cost optimisation programme that we initiated in May-June will accrue in the second half of the fiscal,” Agrawal told BusinessLine .
Cost and margins
According to him, there is a “transient cost pressure” across categories like copra, as well as in the non-coconut oil raw material prices, including sunflower and rice bran.
For instance, the cumulative price rise in rice bran has been more than 25 per cent over the last few months. However, in comparison, price hikes in Saffola edible oil was made only in Q3 (October- November) to the tune of 7-8 per cent. Another price hike could be looked at, if raw material prices continue to move upwards.
“We will absorb the majority of the raw material price hikes. We believe these are transient cost pressures and should ease out over the coming quarters,” Agrawal said, adding that EBITDA margins are expected at 20 per cent levels for the fiscal ― one of its best in recent times.
“The second half of the fiscal (October-March) should see us grow at around 10 per cent in volume terms, provided the pandemic does not worsen,” he said.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.