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Omicron less likely to disrupt businesses unlike the second wave: Marico CEO

Omicron less likely to disrupt businesses unlike the second wave: Marico CEO

In a candid conversation with BT, Saugata Gupta, CEO, Marico, shares his views on the business landscape and what to expect in 2022, especially in the context of the Omicron variant.

Saugata Gupta, CEO, Marico Saugata Gupta, CEO, Marico

The COVID-19 pandemic has not only impacted lives of Indian consumers but it has also altered the way large multinational used to operate. From keeping the operations management on their toes to capturing the changing consumer trends faster, the past two years have been transformative. Industry veteran Saugata Gupta, managing director and chief executive officer of leading fast moving consumers goods major Marico shares his learnings and thoughts in a candid chat with Business Today. Edited excerpts:

BT: What is the kind of impact you are expecting from the fast-spreading Omicron variant of COVID-19?

Saugata Gupta: The new variant is highly transmittable but it hasn't yet caused mass hospitalisation among the infected as we had seen in the previous wave. So, if the administrations can maintain strict vigil on international travellers and the speed of vaccination that would make a great impact. We, as citizens, would have to behave responsibly too. Given the extent of vaccination and immunity that we have already developed, it seems we shall be able to cope with it.

On the operations front, our supply chains have been tested under extreme conditions during the past two waves. We may still have to weather another round of disruptions and 2022 will not be a normal year. We have to wait and watch.

BT: Given the high levels of inflation the households are reeling under, will manufacturers continue to pass on the entire additional costs or will there be an impact on the margins?

SG: There will surely be an impact on the margins because one cannot fully pass on the additional costs. Currently, there is input cost led inflation coupled with crude oil-based cost inflations. On the other hand, the economy is slowing recovering to pre-COVID levels. Thus, one has to be prudent about the pricing decisions. Thus, in the short-run one has to sacrifice the margins, which will slowing improve. This also puts huge impetus on cost management initiates in the organisation.

Having said that, I think, in an emerging market like India, where penetration levels in a lot of categories is relatively low, volume growth and market shares are far more important than margins. Margins will anyway come back to the desired levels.

BT: So, for now, margins are going to be secondary in comparison to volume growth?

SG: If you focus on margins so much and pass on all additional (cost) burden to the consumers, then volume growth may get impacted. Maintaining this balance is important.

BT: The pandemic hugely impacted out-of-home consumption, while boosting in-home products. Is it coming back?

SG: Fortunately, majority of our portfolio is targeted towards in-home consumption. In the discretionary space, we are noticing a come back. For example, styling has not yet recovered as it is directly linked to people moving out. While many in-home categories that got a major boost earlier, growth is moderating. Ultimately, it's a zero-sum game.

BT: From the beginning of the pandemic to till about early-2021, growth in rural areas was towering over urban markets. But that has changed. What kind of changes you are observing now?

SG: In 2020, rural population was less affected by the virus, monsoon was okay and so was farm harvests. While consumers in urban centres majorly suffered from loss of jobs, got impacted from the disease and stricter lockdowns. These factors gave a boost to rural markets, compared to urban.

But this rural growth now slowing down is more of an optimal one. Firstly, we are now dealing with a very high base that we had enjoyed during the second half of 2020. In terms of the rate, I would say, we are observing a moderation and not a slowdown.

BT: In urban markets do you see a recovery in growth?

SG: Yes, absolutely. Urban markets have recovered to some extent and if lockdowns don't break the trend again then the recovery is now expected to sustain. Urban consumers are spending more on discretionary now, compared to last year. While earlier consumers were spending more on indulgence, in-home food items etc., now out-of-home products are doing better.

BT: How the pandemic has changed the management used to plan and operate?

SG: Firstly, the cycle time for planning is now much more curtailed. Overall, while the management will still have a three- or five-year plan, they are also required to have alternatives based on different prospective scenarios. Now we have to be prepared for disruptions and ambiguity.

Secondly, de-risking the business has become even more crucial. Risk management has to be embedded into your strategic planning. For example, not only the raw material costs and availability have become a tethering issue in past few quarters but even ocean freight is now way more costlier, even though it has turned slower. There are certain (new) costs of doing business and the right risk management strategy is even more important now.

Thirdly, resource planning which includes human resources as well, has changed significantly. Unlike earlier, many positions have become location agnostic and the gap between full-time and part-time responsibilities have blurred to some extent.

And finally, the typical command and control structure that most of the large multinational corporations have been following is undergoing transformation. There is way more empowerment and trust on local leadership now. For instance, during lockdowns physical audits were replaced by videoconferencing, which was unimaginable earlier.

BT: Ready-to-eat and ready-to-cook are Marico's new bets. What's the overall plan?

SG: We started our journey with oats and Indianised it by making is a savoury product and placed it as 'between meals' category. Since then we have ventured into fast growing categories like healthier noodles etc. We believe that Saffola is an under-leveraged brand. It stands for health; it stands for a proposition like 'better for you'. So far our growth rate has been good and we intent to rake in close to Rs 500 crore from the segment in FY2022. And targeting a Rs 850-1,000 crore yearly business by 2024. We are planning to venture into a couple of more categories and food business will be a major driver in our overall growth in coming months.

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