Marico Ltd, the maker of popular oil brands Saffola and Parachute, is set to launch a new range of premium skin and hair care, and health and wellness food products in a bid to expand its portfolio mix and tap modern retail and online channels. The health and wellness space is not new for the listed homegrown FMCG player which has launched several such products (including flours for lifestyle-related issues like diabetes) over the past 10 years, but it has seen limited success with the exception of Saffola Oats. Marico will now launch soups, protein shakes, edible seeds, and health beverages such as green tea. All this is a part of what Marico managing director Saugata Gupta calls ‘Engine 2’, which will be a new business unit run like a young, entrepreneurial venture, creating new products. Edited excerpts from an interview:
How are you going to sustain growth beyond your core businesses of Saffola and Parachute?
We believe there is enough headroom for growth and penetration still available for our core businesses. To give you an example, the entire journey from unorganised to organised is still underway. The question for us is whether we have to grow 15-20% year on year, which has been our track record, the core is not going to grow at that rate, so what do we do next? Secondly, we believe there are certain significant transformations happening in our CPG (consumer packaged goods) structure in terms of innovations, and if one is an agile company, which we feel we are, we think we have to leverage them. There is a significant mass of Internet penetration. While online and e-commerce may be 10-11% of the overall CPG category, in five-six metros it may be 25-30%. Earlier, independent of the turnover, there was a threshold of advertising that one had to do. Today, you can actually operate in a model which is digital advertising and visual advertising and get critical mass.
So, how will you innovate?
One of the things we are doing now is slowly carving out a new business vertical which will look into these new brands. We have started the process and in the next 60 days, we will launch it. We are calling it Engine 2. So Engine 1 is our core, which will still be 90% of the business as it runs on a repeatable model of scale, efficiency, and growth. Engine 2 is a bit more entrepreneurial, the people working here could be under different remuneration and long-term incentive policies. This will work differently, it will have a different time cycle because we believe that right now if we don’t explore it, someone else will and that’s an opportunity. We have identified male grooming, premium hair nourishment and maybe skincare, and food as the segments that will drive growth. Currently, they may be 10% of the business, but we believe that 30-40% of the incremental growth over the next four-five years will come from these. And it could be a different brand also, so some things we have already launched in the market like an anti-greying product, oil replacement cream, Livon Colour Protect serum. The kind of innovation we have is unprecedented. We are saying, can we triple or quadruple the pace of innovation in the company? This has to operate with a different mindset, a different model, and different risk appetite. We would also be looking at different sets of people who have those entrepreneurial mindsets. It will be a different SBU [strategic business unit]. We are also getting into nutraceuticals in a big way. We will get into far more superfoods, which are a focus area. Restricted distribution via e-commerce and modern trade, maybe speciality outlets, digital marketing, a huge number of innovations, fail fast. We have to segregate this business from the core business; else, it won’t work.
Will we see you making acquisitions in these new categories?
I think this model works but it works to a certain level. One may get a ₹50 crore opportunity [for investment or acquisition] but the thing we are looking at is 8-10 such ₹50 crore opportunities. So that’s where the lens changed, where it is not about doing ₹300-400 crore opportunities but can we do two to three of these ₹50 crore opportunities every year, which also means a differentiated operating model. We are primarily looking in the areas of male grooming, skincare, superfoods, etc. If you look at male grooming [like] hair serum Livon, those portfolios are growing at 30% today. It took us some time to get the models right. But what we have learnt is you need to be a fast follower, far more connected and develop by picking up a trend and run with it, and keep an eye on what’s new every two to three months, rather than too much market research. It is aided by e-commerce and modern trade as they need new products and ranges all the time. If that [demand] hadn’t happened, this new strategy would not have been needed in the first place as well as the need for digital penetration.
What will be the triggers for volume growth in your core business?
For Parachute, the scope is still huge from unbranded to branded; we have a market share of 58% and our rural market share is 42%. In value added hair oil, our value share is 26%, so there is enough opportunity. The juice is still very much there in the existing businesses. The question is: Is it enough to grow 15-20%? The core can grow 10-12%, so the gap of 2-3% has to be made up by the new initiatives. Online is 2%-plus now, we will soon be hitting 3%. I would be happy if it moves to 5%. Can we double the e-commerce business every year, that’s our objective.
“We are also getting into nutraceuticals in a big way. We will get into far more superfoods, which are a focus area.”
How is your target of increasing revenues by 70% to ₹10,000 crore by 2020-21 coming along?
We are a bit behind by a year or so due to demonetisation and GST which caused some disruptions. The question for us is, how do we change the portfolio mix to make it far less dependent on Saffola and Parachute coconut oil and if we can bring down the dependence by 10-15% we would have achieved most of it. Our margins were under pressure last year because of the inflation in copra. We are fairly okay for the next 12-18 months now.
(This story was originally published in the January 2019 issue of the magazine.)