ET Now: Macro indicators are pointing up, so are our stock markets. How are things looking at your end?
Sunil D’Souza: I think that second wave is well behind us and we are seeing month-on-month recovery coming through — whether it is in the packaged businesses or even in the out-of-home businesses that we do.
In the packaged business, we have got stability right now across the entire range of parameters. It was hard hit by the second wave. Everything has now settled back into normal.
Number two, we see consumer confidence coming back from the rock bottom of the second wave. There are improvements month-on-month. As people are venturing out, our out-of-home businesses coming back to close to pre-pandemic levels.
As for inflation, we actually are on the reverse curve. A significant portion of our business is tea. During first lockdown we had seen tea prices shoot up. From there on we have seen a steady decline. Now, tea prices have starting to more or less normalise. They are still above where they were pre-pandemic but not the peaks that we had last year. So inflation for us is in the reverse direction.
We are seeing stress on packaging, freight, etc, and the team is trying to figure out ways to tackle this. Given that we have improved our execution significantly — in terms of distribution, new products, expanding footprints, brand strengthening — we remain confident that we are in a position to bounce back very strongly.
Talking of tea prices, what is the impact on margins one can expect?
One can’t see too far ahead. During the disruption, tea prices in September last year was about 70% to 80% above September 2019. After that when things got normalised we saw tea prices coming down. When the second lockdown happened, again around June we saw a spike but it has normalised now.
As for margins, they are the function of your cost and the price that you are selling at. It has also to do with things like what your competitor is doing, how much the consumer elasticity of demand is and most importantly, if you are a business with momentum, what pricing will do to your business momentum. So it is always a fine balance.
We have not been taking all the cost and translated that into price. I would say we had translated about 75%. Now as the curve on cost starts coming down, margins will improve. You already saw the improvement in Q1 versus Q4 of last year. I think now on a quarter to quarter basis you will start seeing margins coming back. I do think by Q4 of this year you would see a broadly normalised margin for the business.
What would you next focus on — improving your margins or volume growth?
It is not a question of or but of and. The mandate for growth is very much out there and growth is both organic as well as inorganic. We remain committed to delivering double digit top lines as we go forward, but only delivering top line is not good enough for building a valuable company for the future. The bottom line is also important.
Towards that end, you will see us taking two, three or four very tangible actions. Number one is portfolio growth. Number two is strengthening our brands. Number three is costs. We have derived synergies from the merger, but that’s now largely behind us.
You will see a very tight focus on cost — strong top line growth driven by portfolio, by mix, by pricing power, market share, strong cost which then translate into the bottom line.
It is not a straight-line graph. I like to call this a snake in a pipe. Directionally it is in the upward direction although there will be a bit of ups and downs from time to time.
How do you plan to increase market share? Is the large delta really coming from the shift from unorganised to the organised sector?
Anywhere between 30 and 40% of tea in this country is unbranded. As consumer incomes go up, you will see that gradual shift happening from unbranded to branded. So that is one place where you will see volumes and share going up.
More importantly, within the branded play itself, I think Tata Consumers has got an opportunity to increase its market share. There are a few ways we are going to do it. We had an aim to double our direct reach in 12 months and our indirect reach in 36 months. We are on track to deliver the doubling in 12 months. By end of September, we will be north of a million outlets covering directly.
Number two, our brands. We thought we needed to power our brands a little more than what we were doing earlier. We’ve raised ad & promotion expenditure by 50% in Q1 this year versus Q1 of last year. That is creating consumer pull.
Lastly, of late, we’ve had a series of launches, the most recent being Chakra Care. There also is Gold Care which is a product with five herbs to enhance immunity and build health benefits. We are already seeing traction for that going across.
Distribution, brand equity, innovation — all the three pieces need to fire. We do think that we are gaining share from branded players as well. This is borne out by the Nielson numbers. It’s still early days; we need to stay the course to make a significant difference going forward.
Tata Sampann products are priced significantly higher than other brands in the same category. Will it be a deterrent? And why the high pricing?
It is about volume at the right margin. But to do that, it’s critical that you are providing the consumer a good price-value equation. To provide that equation, our products have to be differentiated versus competition.
Just for example, the daal we sell is unpolished — which is actually the best form of daal to be consumed in terms of the overall nutrition levels — and therefore we do think that we can command a bit of premium for that. Our quality levels are top-notch, bar none. Then there’s the backing of the trust of the Tata name.
We are very comfortable with that. If you take spices, the quality of our spices is up there. We can tinker around with the quality to drop prices, but we would rather provide high-quality, right-priced products to the consumer.
And you know, the Indian consumer is responding. We are seeing very good traction on our Sampann portfolio.
In FY21, the share of your ready-to-eat products was 5%. Post-pandemic, amid rising demand, how are you looking to diversify this portfolio?
There is a whole bunch of trends that have changed significantly in the past 18 months or so. We need to take advantage of that. Convenience is a huge factor now. Keeping that in mind, we are looking at expanding our whole portfolio. But we are making sure that we are not launching me-too. Our products are significantly differentiated.
That was about the organic space. In the inorganic space, in the whole foods segment, we had a gap in the on-the-table, on-the-go area. Therefore, we did this inorganic move with Soulfull. The reason we bought Soulfull is that it’s a great brand built very strongly in geographies which they operate. There was a huge opportunity to expand it; that was one reason we bought it.
More importantly, we also looked at it because of the fantastic product pipeline that it had. They have mastered how to treat millets and make great products out of millets. If we get it into the right formats in front of the consumer, we do think we have a winning proposition.
So, both organically and inorganically, we are moving in the direction of taking advantage of this trend of consumers of moving to convenience and ready-to-eat sort of products.
What are ecomm sales currently as a percentage of your total revenue? How is it that you see Bigbasket further accelerating this?
We are playing ecommerce in three distinct buckets. First, for scale, you have to play the platforms — Amazon, Swiggy, Flipkart, Grofers, Bigbasket — and we are playing that.
Second, there are certain brands that only appeal to specific consumers in specific geographies. Online gives you the advantage of targeting based on profile. We have already started out on this journey; we have got three products in the basket — Tata Coffee Sonnets which is microlots coffee, Tata 1868 which is a range of curated piece, and 8 o’clock coffee which is the number four brand from the US. It is available on the website. It’s delivered to you directly at home, so it gives us the ability not to scatter our resources all over the place and do focus targeted execution.
The last piece is we have got our flagship store launched in Delhi and Mumbai. We are still trying to perfect that whole mix. Once we perfect it, we will launch it cross.
In terms of percentages, when we started just before the pandemic the ecommerce sales were about 2.5% of our total. We exited March at about 5%, we have exited June at about 7% and they continue to go from strength to strength. So this is something that is here to stay, and we will play the game in all these three pieces.
As regards Bigbasket, it’s is an acquisition by Tata Sons which is our parent company. We will work closely with them to figure out what are the synergies that we can leverage.
What is the progress on the much talked-about Tata Super app?
That is something you should ask the Tata Sons. All I can tell you is whatever happens on the Tata Super app, Tata Consumer will be a very active player.
Let’s talk about Soulfull.
Soulfull is healthy, in line with trends, ancient Indian grains customised to the consumer of today, great appeal in a nutritious way. If we can contribute to building the brand and expanding distribution, I think we could make magic.
The most important thing is we got the founding team to come along with us to help us realise that vision. As of now, the entire front and backend have been completely integrated. From about 10,000-15,000 outlets which they used to service, we are now north of 50,000 outlets.
About the product overlap between Bigbasket’s private label and Tata Sampann…
Every single retailer everywhere in the world will have private labels. The important agenda for Tata Consumers is to make our brands more relevant to the consumer — both by ways of innovation as well as making sure that we are building brands stronger.
Online big platforms will have their private labels. The key for us is to make sure that our brands are more exciting, more relevant to the consumer.
As for Starbucks, what next?
In FY20-21, we added as many outlets as we did in FY19-FY20. This year too, we will continue that momentum. We have expanded geography, we have expanded formats.
The good part about Starbucks is a strong brand name and very strong brand equity. Consumers love the products that are there. With competitors stressed a bit, this is our opportunity to continue expanding our footprint.
We were severely impacted with the first wave. The second wave did hit us significantly too. But in the last two months we have seen the consumer come back very strongly. We have already starting to see growth beyond where we were pre-pandemic.
