‘Only companies that make aspirational products will succeed’

Nihal Kaviratne, a veteran in the FMCG industry, has worked across the globe with Unilever for 40 years. He also serves as an independent, non-executive director in various listed companies. He spoke to Shailaja Sharma about his observations on the consumption story in India — the growing aspiration for premium brands, the way consumers are now demanding products and how companies are responding to it. Excerpts:

Do you see any significant changes in the way the Indian consumer sector has evolved over the last 6 years?
The first major change is that there is a large aspiration for premium brands, and even people who can’t afford them are beginning to buy them, initially in smaller sizes and then to larger packs. The second observation is, increasingly, the young are going to lead the way in terms of consumption in India, because the young and affluent have a very different attitude towards consumption from their parents.
 

Is there a change in the way consumers demand for products too?
I notice a strong demand for products that have to do with well-being, wellness and health, food and nutrition or exercise-related products. Indians have begun to travel much more and have exposure to international brands. All these are having an impact on the quality of Indian products, the packaging, and the consumer choice.

Earlier, there was acceptance for mediocre quality, but today Indian brands have to really compete with each other on international standards and qualities. Even in smaller families, it is no longer exists that one product is being brought for everyone in the family. You are getting many more opportunities for individual choice, individual selection. Also, earlier if you knew what was happening in the four metros, you knew what was happening in India.

Today, you can’t really depend on that. Pune, Baroda, Chandigarh … are now having three-five times more growth than the national average. Consumers in these towns are beginning to shape what the national picture looks like much more than earlier, when Mumbai, Delhi, and Kolkata had the majority share. Consumers are increasingly going to place their money behind the brands that are made by companies whom they regard as having a social and environmental consciousness.

The marketing era that lasted for 30-40 years is dead now. The brand is now managed by the customer. What the company does now is managing relationships with the customer. Earlier in India, the recommendation of the retailer helped consumers decide what products to choose. Today, hardly anyone depends on retailers’ recommendation.

Even television advertising, which was powerful through mid-70s until the last decade, is beginning to fade. Facebook and Twitter are becoming powerful mediums, and are going to be the most powerful communicators and persuaders.

Many categories and products are not even present here. Does this make India a dull market for consumer companies?
There is an enormous opportunity, but in order to exploit it you cannot do it the old way. The old rules don’t work anymore. The companies that will succeed are those which are able to listen to the consumer, humble to learn from the mistakes they make, and continue to develop iconic brands which are aspirational.

Very often, companies make the mistake of going for today’s market rather than making aspirational brands. As soon as the money comes into consumer’s hands and if the aspiration is already there, there will be an explosive growth.

What can the new-found aggression of home-grown consumer companies to go global be attributed to?
The Indian companies who have global ambitions can fulfill those in three ways — the first is, they can combine skills of their people with the brands that already exist in those countries. I think the most successful Indian companies are those that have actually taken their people and set them to manage brands which they bought in those countries.

For instance, Tata one year ago bought Tetley in UK and made great success with that; and they also went on to buy Jaguar and Land Rover. And Godrej recently bought a successful business (Megasari) in Indonesia. The second is to try and sell Indian products in conventional categories globally and there I think it will be largely limited to the emerging world because in the developed world there is saturation, there is very little growth and high concentration in trade.

Which categories, according to you, are going to witness growth?
If it is health and wellness alone, it will not sell. But if you add health and wellness in food area, if you add health and wellness to taste and convenience it will work. One category that has a huge opportunity is skin. A 1,000 different variants or brands in skincare have been launched in the last three years in India. We are going to see an explosion of brands in skincare, and they have very high margins.

Lowering margins are a concern in FMCG. Do you see the sector adjusting well to the input cost inflation?
Certain companies have actually managed to achieve revenue growth and keep cost growth below revenue growth. Margin is a very good separator of the successful from the unsuccessful. You need an innovation machine, a powerful group of alchemists who are constantly churning out a stream of innovations. You need an interlocking circle of operational excellence.

And then you need a third interlocking circle of cost effectiveness, of continuously managing, as scale develops, to get greater productivity, capital, or capital expenditure, and people. Most companies are successful in an input cost inflationary environment than a deflationary environment.