Marico seeks big play in health food

Marico Ltd, the maker of Parachute coconut hair oil and a strong home-grown fast moving consumer goods (FMCG) player that has a significant presence in hair oils, shampoos, edible oils and skin-care services through its subsidiary Kaya, is now desirous of becoming a significant player in the foods category. In an interview with DNA, chief executive officer-consumer products, Saugata Gupta speaks about their plans to launch health foods products under Saffola, increasing rural reach, right-sizing portfolio, newer packaging and price points to cater to the hinterland. Excerpts:

How does the monsoon look this time, after the stutter of last year?
Last year was a bad monsoon. It did not impact the rural demand in the short-term — the government money that has gone behind NREGA and farm loan waiver increased the disposable income in the hands of the rural consumers and dependence on agriculture, as a percentage, has been going down — rural consumers had become resilient to one monsoon failure. But it had a lag effect. Food inflation hit us in October-November and the FMCG sector got impacted because as you go down in the socio-economic strata, the percentage of money spent on foods keeps going up. There was some downtrading (tendency to move to cheaper brands) in FMCG, especially on items of daily consumption. In other categories, consumers reduced consumption. So some companies, including us, passed on price benefits to consumers because at that time, input costs were lower compared to the year earlier (FY09). Companies who passed benefit down maintained volumes. Now, I think the tide is turning. It's much easier to get back margins and more difficult to get back the consumer if he gets out of your brand. Once you lose market share, it's much difficult to gain back market share. But it's easier to get back margins. This monsoon looks good and it will not only spur rural consumption, but also cool down food inflation. That will fuel FMCG growth.

When will we start seeing the benefits?
You have to wait for a crop-cycle, so technically it will be more towards September-October. Hopefully, the food inflation will start going down, but you will see a significant impact when the fresh crop comes in. Another interesting thing about agriculture is that it is not just about the total rainfall, but about the spread of rainfall.

Do you have any specific plan to accelerate the scale of innovation at Marico?
We are seriously interested in foods as a category. It is a strongly under-penetrated category in this country and packaged foods will grow with disposable incomes increasing, aspirations rising, more nuclear families and organised retail growing. Saffola is a powerful and reasonably under-leveraged brand, so we believe there is a story there. And that is what we are going to be serious about for the next 2-3 years. Another area where we want to grow is rural. Compared to some of our peers, our rural contribution is slightly lower at 25%. As per Nielsen, it is 33%, which is still a 7-8% gap versus the peer-set. We aim to take the rural contribution up a couple of percentage points every year, moving to 30% plus in 3-4 years.

You think Saffola is apt to extend into foods in a big way? You have tested the category by launching Arise and Zest (snacks) under Saffola...
Arise is doing very well. Foods is a sector that interests us. First focus is definitely ‘healthy foods’. It makes sense to fully-leverage an existing power brand than launching another brand.

Where do you see Marico’s foods portfolio reaching in 5 years?
Within the Saffola franchise, if 98% comes from oil today, I would be happy if 20-25% comes from foods in 3-4 years. We need to be a significant player in the foods space. If you look at home and personal care versus foods within FMCG, growth rates in foods in the last 2 years have been significantly higher. Category penetration of branded foods is quite lower. We are betting on health.

Any particular initiatives to drive rural growth?
We have already started increasing distribution in places such as Madhya Pradesh, Maharashtra, Karnataka, and it has given us handsome gains. And this is going to be an on-going initiative. We are now looking at the portfolio, we have not done much there earlier. So whether it is price points, packaging or formats, that is something which will unfold over the next 1-2 years. Just distribution need not achieve rural growth, we need to build a certain critical mass of portfolio that is more tuned to rural needs. Now a significant portion of media reach and rural infrastructure has improved. So in certain places we are now reaching 2,000- 5,000 towns.

What scope do you see in value-added hair oils?
In hair oils, we are keen to participate in cooling, so we are prototyping the cooling oil (both under Nihar and Parachute). Cooling is one of the fastest growing segment. To gain significant market share in hair oils, one needs to be present in that category. Hopefully, by this September-October, we should be able to get a read on that and then we can scale it. Value added hair oils is expected to grow in double digits.

What is the scenario on input costs? Are price hikes likely?
There is a cost push this year. Input costs are 6-7% higher versus last year. We do not expect it to go up as of now. So there would be some price increase this year, but the good thing is that if there is a good monsoon and inflationary pressures on input costs are managed, there will be relief. Translating from 6-7% input cost increase I don’t see price increases (on products) higher than 2-3% for us.