‘No guarantee of demand revival soon’
What is a bigger concern, poor demand or the goods and services tax (GST) transition?
See, the biggest concern is demand recovery. It was appearing on the horizon last year before demonetisation. Then again the June quarter growth numbers were encouraging, so was July, but the numbers for August went down sharply. As we speak, the rural market growth numbers are encouraging but how long it will sustain is questionable. There are headwinds like an uneven and less-than-anticipated monsoon. Also, the recent disruptions at the macro level have hurt small and medium businesses. Unless growth revives quickly, it could have a residual impact on consumption.
On the other hand, we are now heading towards a period which will have a lower base. An important tool to revive consumption would be if the government came up with stimulus measures in the coming months. However, the fiscal headroom is not encouraging. It is a complex situation and we are cautiously optimistic. But there is no guarantee of a major revival in consumption soon.
Wholesale forms a significant part of business for Dabur but the lack of compliance has hampered the channel after GST rollout. What are the GST effects you dealt with on the distribution front?
The two major effects of the GST on the supply chain have been on the wholesale distribution channel and reorganisation of the network design and architecture. There is a clear shift of focus now on transition from wholesale, which accounts for 24 per cent of sales, to a super sub-stockist network. The stockist channel, which used to generate 20 per cent of the business, is functioning very well now. We had to add nearly 700 people to double our sales team to aid the shift. The stockist channel escalates logistics cost but it also allows us better control over the rural market. But wholesale will never be as big as it used to be.
Also, we have already started reorganising the sales network by shutting some warehouses. But the bigger changes, which will include the stock replenishment model, will be effected only after a detailed analysis of the system. We are yet to begin that project. Already, inventory at the distributor level has been brought down by 10 to 18 days and it will be gradually brought down to 15 days.
Your margins at the gross and operating levels dropped during the June quarter. Where are they headed?
Some of it is due to decline in revenue. At present, we are not looking at margin improvement. The focus is on improving the topline, which has been eroded in recent quarters. We will invest 20 per cent more in advertising to improve sales and reduce selling, general and administrative expenses for the next few quarters till topline growth revives.
Dabur is facing stiff competition from rivals. What measures are you taking?
The competition has intensified. New entrants in certain categories like ITC promote their products aggressively. In the juice business, we face competition as PepsiCo and Coca-Cola emphasise non-cola alternatives.
We are planning to launch a juice brand for the mass market with lower pulp content next year. Test marketing has been conducted. We will be adding capacity at the Assam plant for that. Also, we will accelerate new product launches in consumer health care and personal care. In beverages, we will be launching 200-ml pack sizes before next summer.
Dabur has had issues with Patanjali recently. Are you planning a concerted step?
In the past, they were not compliant with food regulations. So we informed consumers. But we never pointed a finger at them. They crossed the line recently over Chyawanprash, so we moved the Delhi High Court. This is not the way we would like to do business. We have to be very proactive and bring consumers on board with the message that our products are validated by science.
What about your plan of purchasing smaller, scalable brands?
We are working on it. Consumer health care will be the most important area as it is difficult to establish an OTC (over the counter) brand in that category. Also, talks are on in personal care and beverages. There is no budget upper limit, we have more than ~2,500 crore in reserves.
“Demand recovery was appearing on the horizon last year before demonetisation. Then again the June quarter growth numbers were encouraging, so was July, but the numbers for August went down sharply'”