‘FMCG volumes likely to grow in tandem with GDP’

The 11% underlying volume growth in the December quarter reported by Hindustan Unilever Ltd (HUL), India’s largest consumer packaged goods company, indicates that the consumer goods’ sector has recovered from the twin shocks of demonetisation and the implementation of the goods and service tax.

While Sanjiv Mehta, managing director and chief executive of HUL, is bullish about the growth potential of the country, he is paranoid of the possibility of the growth getting disrupted again. In an interview, Mehta comments on how the maker of Dove soaps, Knorr soup and Surf detergents is preparing for the future. Edited excerpts:

You have reported double digit volume growth in the December quarter. Can we take this as an indication of markets recovery and demand picking up?

If we look at the period between 2013 and 2016 the FMCG market volumes grew at 3% whereas the GDP growth rate of the country was on an average 6-6.5%. The GDP growth rate was ahead of the market volumes growth rate. However during this same period till 2015, rural volumes were growing at 1.5-1.6 times that of urban volumes. It was in 2016 that the rural volumes came down and grew at the same rate as the urban volumes. The rural slowdown was a consequence of the two consecutive years of drought and inflation.

Now, going forward, it would be fair to expect that India’s FMCG industry volumes growth should be in tandem with the GDP growth rate of the country and that is based on the premise that we take steps to have more inclusive growth.

We keep talking about India’s huge growth potential but we are yet to see consumption take off. When will it happen?

If we look at it from a purchasing power parity basis we have now reached over $6,000 per annum and now from here even if we continue to grow at 6-7%, leave aside 8-9% that we aspire for, we will see the compounding effect as we have reached a certain threshold base.

And if we repeat the performance of GDP growth rate of the last 25 years into the next 25 years, India will become a very different country. When I was out of the country for over 20 years, 20% of the population came out from below the poverty line into the lower middle income bracket.

So, I am very bullish about our country and for Unilever to realise its potential.

You spoke about inclusive growth earlier. But some studies have pointed out that India’s growth has not been inclusive and the gap is widening between the rich and the poor..

If you look at the figures by Thomas Piketty (French economist) it certainly indicates that there is room for much more inclusive growth.

For us to reap the benefit of demographic dividend, we have to have inclusive growth. Inclusive growth would certainly mean that we would have to create more source of livelihood, more employment. Today in India, urbanisation has not even started and if we step back and look at the last 20-25 years, India and China were at the same level of urbanisation at about 25%. Now urbanisation will definitely put less stress on rural India but then the country will have to create jobs and the infrastructure.

The market is changing rapidly. How do you remain agile and competitive?

We have changed the structure of the company with winning in many India’s (WIMI), where we have defined 14 clusters and are looking at competitiveness in each of these clusters at a granular level. We have also defined country category business teams (CCBT’s) led by young general managers who are fully empowered to deliver the results. So this is a big shift where we have delegated authority on one hand to WIMI clusters and on to the other to CCBT teams. We have also redefined the roles that the different teams play in the organisation.

Jubilant FoodWorks Ltd, which operates Domino’s Pizza and Dunkin’ Donuts outlets in India, on Friday said fiscal third-quarter profit more than tripled on higher sales and better cost management.

Net profit rose to ₹66 crore in the quarter ended December 31 from ₹19.97 crore a year ago. Operating revenue rose 20.7% to ₹795.16 crore from ₹658.83 crore.

The growth in revenue was backed by a 17.8% increase in Domino’s Pizza same-store sales, a measure of sales at outlets that have been open for at least a year, the company said in a statement.

“Our emphasis on driving the key strategic pillars is translating into healthy same-store sales growth year-on-year, while setting the base for consistent growth in line with the potential of the QSR (quick service restaurants) space. The lowering in rate of applicable GST (goods and services tax) to 5% has allowed us to demonstrate our commitment to deliver the best value proposition as we passed on the benefits of lower tax rate to the customers,” Shyam S Bhartia, chairman, and Hari S Bhartia, co-chairman, Jubilant FoodWorks, said in a joint statement.

Shares of Jubilant FoodWorks rose 7.73% to ₹2091.55 on BSE.

The promoters of HT Media Ltd, which publishes Mint, and Jubilant FoodWorks are closely related. There are, however, no promoter cross-holdings.

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