Slow consumption growth continues to be a cause of worry for most consumer companies. However, they have been able to cash in on the growing wealth at the top end of the consumer section by launching premium products. In an interaction with Dipak Mondal, Dabur India Chairman Mohit Burman says though rural demand continues to lag urban demand, the gap between urban and rural demand has shrunk significantly. An excerpt:
FMCG companies have been facing problem of slow recovery in consumption, especially in rural areas. Do you think 2024 would be any different?
While rural India had been a key driver of growth for the FMCG industry till a few years back, rural demand dropped below urban demand in the previous financial year due to the high inflationary environment. New-age channels like modern trade and e-commerce drove urban growth over the past year. While syndicated data shows rural demand continues to lag urban demand, the gap between urban and rural has shrunk significantly, showing a sequential revival in demand from the hinterland.
That said, Dabur has seen demand from the hinterland return to the growth trajectory and outpace urban demand in the third quarter of this fiscal. Rural growth for Dabur was 200 bps higher than urban growth in Q3. This is a result of several initiatives that we have rolled out to seed demand in the hinterland. We have been investing in expanding our rural footprint, which has grown from 100,000 in March 2023 to 117,000 in December 2023. We are working towards ending this financial year with a rural coverage of 1.2 lakh villages. Even syndicated data shows Dabur’s rural distribution has grown the highest among FMCG peers, giving us a distinct advantage and helped us reap the benefits of improvement in rural consumer sentiments.
We have also expanded our product basket in the rural market by way of newer affordable and rural-specific packs across categories to feed these markets and push demand growth. We have invested in consumer activations in rural India to better reach out to consumers in the hinterland, giving them an opportunity to touch, feel and experience our products.
Do you think inflation remains a cause of concern as far as consumption at the bottom of the pyramid is concerned?
While Inflation has been benign for most part of the current fiscal, which helped companies shore up margins, we are witnessing higher food inflation now. I think it will take a couple of quarters for full recovery in demand.
Most FMCG companies are pointing towards premiumisation of their product portfolio. What has been the case for Dabur?
As I mentioned earlier, we are looking at both urban and rural markets to drive growth. In urban markets, where expansion is driven by e-commerce, modern trade channels, and expansion of mini metro and class I towns, we are focusing on premiumisation with large pack sizes. We are also introducing new brands in the premium category, particularly on e-commerce platforms, that relate with the millennial and centennials.
We are restaging our core to reach out to Young India. We are looking at three key aspects here. The first is to build stronger scientific claims for each of our products and back them up with scientific data and clinical trials. In addition, we will be increasing the relevance of our time-tested and efficacious products by introducing new-age formats, and introducing aspirational packaging for our products. The repackaging exercise is aimed at tapping into this younger user base. The idea is to make a pack more consumer-friendly with ergonomically better designs that are easier to hold and use.
Are you planning any new product categories in the premium segment?
Yes, we continue to look at new and adjacent categories to expand our total addressable market.
How do you think the competition in the FMCG segment playing out given both Reliance and Tatas are upping their games in the segment?
Competition has always been a part of the landscape and it’s nothing new for us. It is, in fact, beneficial for both Dabur and for the category on the whole. To cite an example, we operate in Ayurvedic healthcare space, which is a highly under-penetrated category in India. The entry of new players would only help grow the size of the pie and get more non-users into the category. So, it’s going to be beneficial for the industry. And as the largest player in the category with a nearly 140-year heritage, we would surely benefit from it.
Do you see private sector capex increasing in the next financial year? What is your capex plan for next financial year?
Yes, I am confident private sector investment would surely increase in the coming months and years. At Dabur, our capex stood at Rs 478 crore in the first nine months of FY24. For the full year 2023-24, our expected capex would be about Rs 500 crore. This includes investments in our domestic plants in Indore and Tezpur, besides investments in Nepal and other overseas businesses.
Last month, Dabur also announced plans to invest Rs 135 crore in setting up a new manufacturing facility in South India to meet the growing demand for our products in the region. Our business has substantially scaled up in South India and today accounts for about 18-20% of our domestic business. With South India’s contribution increasing, we have decided to establish a new manufacturing facility there to better cater to the local demand. This is not only an opportunity to bring more jobs to the region, but also allows us to further expand our manufacturing capabilities and meet the growing need for Dabur products in South India.
Almost a quarter of your revenue comes from international market. Do you have a medium term target in mind in terms of revenue contribution from international markets?
Our International Business reported an 11.7% growth in constant currency terms during the third quarter despite the geopolitical headwinds. While we do not give any guidance, as a policy, we expect to report high double-digit growth in constant currency in the international business this financial year.