Saugata Gupta, MD & CEO, and Jitendra Mahajan, chief supply chain officer, Marico Limited, are using innovations and acquisitions to steadily climb up the FMCG food chain.
By Mitalee Kurdekar
Come to think of it, Marico Limited is a late-starter in a world of old-timers. Yet, for a company that began its operations only in 1991 – decades after some of the FMCG giants that count as its direct competition – it has grown to acquire an almost cult-like status, thanks in particular to now household names such as Saffola and Parachute. Not many could have dreamed of such staggering success, but, of course, Harsh Mariwala is a visionary in the true sense of the word.
In fact, Mariwala’s brainchild has matured by such leaps and bounds, that, in 2014, the founding chairman decided to hand over its day-to-day workings to competent professionals, taking a back seat for the first-time since giving birth to one of India’s most loved packaged consumer goods makers. And the plan seems to be working rather smoothly. Because, taking Mariwala’s dreams to greater heights, is the able duo of Saugata Gupta, MD & CEO, and Jitendra Mahajan, chief supply chain officer, who are further backed by the force of Marico’s strong 2,000-odd employee base. And one of the pillars of this triumph is their unrelenting focus on innovation.
“We are dedicated towards driving success through an innovation strategy that we believe will accelerate business growth. As market leaders, we have to create the category and make it more relevant,” believes Gupta.
For instance, the company re-invented their highly-successful Saffola brand, by venturing into the oats segment back in 2010. In a short span of time, Saffola Oats has become the number two player nationally, both in terms of value and volume. This is solely thanks to the out-of-the-box thinking on the part of their team. Consumer research revealed that in spite of Indian consumers finding oats unquestionably healthy, they would choose other daily breakfast options over oats on account of the lack of taste. This gave birth to Saffola Masala Oats, pioneering the flavoured oats category in India.
Following the success of this product, Marico has identified an opportunity in the evening snacks segment, and is now targeting the healthy in-between meals segment through Saffola Masala Oats, offering consumers a tasty, yet healthy snacking option. “We will continue to increase the pace of product innovation and drive more consumers into the health basket,” Gupta proclaims.
Similarly, as part of their strategy to widen their styling and male grooming portfolio, Marico continues to invest in cutting-edge innovation and introduce new styling products. The male grooming market stands at Rs 3,200 crore, and is growing at a double digit CAGR, making increased penetration vital for Marico. In the male grooming range of products, Marico has expanded their Parachute Advansed portfolio into the men’s category, introducing the Parachute Advansed Men’s Hair Cream Range. They have also extended their portfolio for Set Wet, their marque male grooming brand, to include styling gels, deodorants and beard styling gels.
While they are keenly eyeing the urban grooming segment, they have not forgotten the rural market in India, and are actively strategising to unearth its hidden value. Gupta states that, “As FMCG players like us realise the growing potential in rural markets, there has been immense focus on captivating this segment, mainly through innovation in product design and packaging. With an aim to expand our rural footprint, one of our key growth pivots this year is targeting the bottom of the pyramid segment.”
To further strengthen their grasp in the low-unit pack (LUP) segments, Marico has been prototyping with sachet, spout and Rs 10 LUPs of its hair oil, serum and male grooming brands, focussing on availability and affordability of these packs to ensure conversion.
Desire to Design
Of course, any innovation starts at the design stage. And, like with any FMCG company worth its salt, this is an area of strength for Marico, who are investing in and sustaining a robust R&D division. Their R&D efforts are directed towards core areas of nourishing formats such as hair oils, leave-in formats, male grooming formats, deodorants, premium edible oils, oats, and packaging innovations across the global markets.
“The major change in our approach in new product development was to employ ‘Design Thinking’, which has resulted in products that create value in the consumer’s life through appealing sensory, effective functionality and best benefit/price ratio,” states Gupta.
Besides innovations like Parachute Advansed Body Lotion and Saffola Masala Oats, they have launched new value-added hair oils with aloe and mustard, male grooming formats, multi-grain flakes, blended olive and flaxseed oil, and a new shampoo range in Vietnam.
Even in terms of the ingredients used, Marico funds research projects, says Mahajan. For instance, agricultural universities like Tamil Nadu Agricultural University (TNAU) are involved in studies revolving around coconut farming practices. On the other hand, sunflower-focussed research is carried out through the Directorate of Oilseeds Research (DOR), who deal with oil technology research.
R&D, Gupta suggests, will continue to focus on generating in-depth consumer insights, and develop strong technology platforms in the area of hair & skin nourishment and grooming. In addition, efforts are being made to harmonise products across geographies, design new products for specific lead geographies and re-apply the same to similar target segments in different regions. Improving measurement science, process engineering and innovation capability development, will be the other areas of attention.
It’s all about Procuring Right
In all, Marico operates in four key categories: hair care, healthcare, skincare and male grooming. To cater to them, the company has set up nine manufacturing facilities in India and five production units overseas. In India, their base is spread across all the four regions; there are three plants in the south, another three in the north, one in the west, and two in the east, with the most recent one being set up in Guwahati and commencing commercial production in March this year. Internationally, their manufacturing footprint is divided as such: two factories in Bangladesh, two in Vietnam and one in Egypt.
“Apart from our own manufacturing plants, we also have contracts with many co-packers and third-parties around these units. These would amount to around 40 manufacturers, whom we deal with in this space,” says Mahajan.
The key to managing these manufacturing operations well is creating a fool-proof procurement strategy and well-oiled supply chain network. “We have developed our own in-house procurement excellence model. It works on eight pillars and each pillar takes care of one of the core excellence functions in the procurement arena. For example, since we deal in agricultural commodities, it is very important for us to also understand what is likely to happen in the future in terms of the pricing, supply, demand dynamics and so on. Hence, forecasting becomes a very critical part of our procurement strategy. Therefore, forecasting as a pillar takes care of how to refine and improve forecasting accuracies year-on-year, and that is where the team then carries out multiple initiatives and projects,” confesses Mahajan.
About 55% of the business is completely agricultural commodity-reliant, given the use of raw materials like coconut oil and edible oil. The two major brands of Parachute and Saffola are edible oil brands, involving sourcing from pure agricultural produce. Almost 50% of their sourcing is done directly from farmers through multiple collection centres that they share across Tamil Nadu & Kerala. This is possible only by building a high degree of trust and transparency in the entire procurement process.
Having said that, this market sees huge volatility, with prices sometimes moving between 50% in both the plus and minus range. Due to the agricultural commodity portfolio, the raw material cost to the sales ratio is always likely to be high; unlike in personal care, which makes up about 37% of Marico’s exposure. While it is imperative to indulge in forecasting for the former, in the case of the latter, the higher cost is attributed to the packaging material and the marketing spend, requiring a special emphasis on packaging innovation and marketing strategies.
In terms of cost, Marico also utilises reverse auctions or online auctions, as well as annual and period contracts, which are indexed to certain available published indices. For example, because some products have linkages with crude oil, which sees drastic price fluctuations, they simplify the procurement process by adopting multiple price discovery strategies.
“We can’t change the product prices to a great extent, so it is important for us to remain price competitive when we source material, but also to ensure that there is a sustained availability of raw material in the long-run. While the business may grow in double-digits, the crop is not likely to grow with the same pace,” Mahajan states. To ensure continued availability of raw materials, Marico indulges in contract farming, not only in India, but also in Australia, Argentina and Mexico, thus de-risking themselves from weather related issues.
In addition, they have a very large team on the ground that continuously works with the farmers, visiting them almost every three weeks to impart knowledge, resolve any problems they may have – within a 48-hour window – through agronomists, and conduct enrolment programmes to have more farmers join their ranks and commit to their practices. Presently, around 950 farmers have been thus enrolled, and in the last two years, they are believed to have seen an almost 20% increase in productivity by adopting Marico’s practices.
One such practice ingrained into the business is sustainability. “We now have almost 74% of our energy requirements fulfilled through renewable energy,” says Mahajan. In fact, the unit in Perundurai, Tamil Nadu, which manufactures coconut oil, is now run 100% on renewable energy. For thermal energy, it uses the solid waste generated in agricultural produce such as rice husk, coconut shell and so on; whereas for electrical energy, it uses wind energy.
More importantly, the FMCG business typically requires one to be cost-competitive, because it’s a fiercely competitive market. “There are constant changes in the marketplace; hence it means that you need to be agile and responsive to cater to the new needs of the market. And lastly, you need to be reliable, because that’s why the consumer continues to repeatedly buy your product; so, the quality needs to be maintained,” summarises Mahajan.
Obviously, this is no easy task, given an ever-growing product basket that is spread across geographies. Marico’s product portfolio currently consists of 25 brands, spanning Indian and international markets. This is the result of local products as well as global acquisitions. In fact, Marico uses Mergers & Acquisitions (M&A) as a major growth strategy.
“We evaluate strategic inorganic opportunities that have attractive valuations and will accelerate our growth agenda – there is a constant trade-off between build and buy models. Having done a lot of acquisitions over the past 10 years, we have now incorporated our learnings for the future,” admits Gupta.
Just in March 2017, Marico acquired a 45% stake in a male grooming start-up Beardo, which sells men’s hair, facial hair and skincare products. “We are confident that this partnership will fast-forward our journey towards nurturing a future-ready male grooming portfolio and brand in the online and salon space. This is also in line with our emerging focus of venture investments into start-ups to incubate new engines of growth,” professes Gupta.
This move is also a means to access the emerging niches at the premium end, and will turbocharge Marico’s digital marketing and social media engagement capability. The company sees an opportunity to learn from an online brand like Beardo, using it as one of the growth tools for the future. This is reflective of their belief in e-commerce as a good channel. They hope to be able to double sales from e-commerce within this year, with more than 10% of sales of the ‘youth brands’ category coming from e-commerce.
Another aspect of their acquisition strategy is the cross-pollination of brands between international and national businesses. While in Bangladesh, they have launched brands like Set Wet Gels & Deodorants, Saffola Active and Parachute Body Lotion, X-Men has been introduced in Myanmar. In the near future, there is an intent to improve this blueprint further.
Highlighting the advantages of the process, Gupta points out that, “Through M&As, we obtain a direct access to new, emerging markets, garner a deeper understanding of upcoming categories like the male grooming segment, as well as provide opportunities for our key talent to experience diverse career opportunities.”
Another commendable move has been Marico’s conscious pursuit of the strategy to reduce its revenue reliance on core brands such as Saffola and Parachute. While these brands continue to remain the company’s marquee brands, having gained market share and profitability, the company has, in the last few years, made significant investments to expand its non-coconut oil portfolio such as value-added hair oils (VAHO), deodorants, gels, leave-in conditioners, body lotion, masala oats and premium edible oils.
“Ten years ago, Saffola and coconut oil constituted ~ 70% of the group revenue. However in FY17, it has been reduced to 55%. Simultaneously, the share of value-added hair oils has gone up from 15% to 25% and the male grooming portfolio, which was almost non-existent, today contributes circa 8% to the group turnover,” Gupta proudly declares of their progress on this front.
Over the medium-term, Marico aspires to be a leading emerging market multi-national with a leadership position in the two core categories of nourishment and male styling within emerging markets across Asia and Africa. “We have already initiated definitive steps to meet this aspiration by seeking to win amongst consumers, trade and talent. Towards this goal, we will continue to step up efforts in five areas of transformation, where we aim to develop top quartile capability and processes. These are innovation, go to market transformation, talent value proposition, IT & analytics, and value management,” declares Gupta about the way forward.
The company continues to perceive its brands and talent as its key assets, and is investing in nurturing both for a long-term, sustainable and profitable growth. While they are trying to maintain marketing investments in the band of 11-12% of revenue, over the last few years, they have made a conscious investment in digital marketing, and understandably so, given that more and more consumers are now becoming digitally active.
“In maintaining a judicious balance between demand generation and consumer promotions, Marico, as a company, aspires to retain its number one or number two positions in whichever categories and markets that it operates. In its India business, the company aspires to grow volumes at a CAGR of 8-10% in the medium term, while in its international business, it aims to grow at a constant currency growth of over 10%,” concludes Gupta.