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Big trend is consumption and demand are absolutely fine: Rama Bijapurkar

Rama Bijapurkar-1200
The poorer they are, the more they love technology because people discriminate, technology does not, says Rama Bijapurkar, Management Consultant. Bjiapurkar and Milind Sarwate, Increate Value Advisors, discussed the FMCG sectors with ET Now.

Edited excerpts:


HUL told me that they have added Rs 12,500 crore of turnover in last four years. What is happening in the Indian consumer market? You have seen birth of Patanjali, growth of HUL, but there’s a big slowdown in other FMCG companies. What is the big trend according to you?

Rama Bijapurkar: The big trend is that consumption and demand are absolutely fine. The problem is that supply has to catch up with demand. Whoever is strategic and very good at execution and willing to walk the long haul, is doing well. Consumption it is not like a tide that sweeps in and out of companies. It is more like fertile soil where whoever sows and reaps patiently and tilts is actually going to do a lot better as compared to those that do not. That is the picture you are seeing. Firstly I must say my markets are different from your markets.

But they are all correlated, we track your markets, you understand our markets. Your market moves our markets. Let us just put it that way.

Rama Bijapurkar: Let us hope so. As far as the FMCG markets are concerned, the consumption on all sides, the lower, the middle, the end -- it is the era of projection and to you it is head, skin, stomach and productivity. To that I would add where the consumer spend is going and that is absolutely fine and healthy.

Which are the three categories where you think there is going to be exponential growth? Areas where you are reasonably confident of double-digit growth?

Rama Bijapurkar: Drivers from the consumption side that will drive this will be companies where productivity growth is more certain. That is durables and data, phones, everything to go with making your life better. These are all productivity tools in a country that is largely self-employed. Other than a few of you, the rest of us do not get salaries every month. So, that is certainly one.

The second is the era of projection. Everybody is in the selfie world. It is going to be how good I look and so it is largely the whole area of personal care that makes you look better. I think again in a country that is completely self-employed with all the lousy environment that we have, health is very important so anything that helps you eat better, stay better, not fall sick are going to work. Finally, when most people are slogging because we are in the 21st century, but we want to be an economy with an 18th century infrastructure.

Anything that enables people to be able to have some indulgences which are affordable indulges and I do not mean Rs 1,200 cinema tickets but I mean just day-to-day indulgences. Take your kids out a little bit in the evening, take a trip to Lonavala or a theme park or whatever. We are going to see those are the categories that are really going to make up for it. It is all pragmatic consumption.

I also want to point out that we really are spending more and more on electricity, on water, whatever the government is failing to give us, schools and a little bit on healthcare so that is going to be the primary driver.

Autos is a very small part of the rich people. The auto industry always bounces back. It bounced back in 2008, it bounces back every time we have a problem so it will bounce back. I would watch companies more carefully than consumers. The consumer is ready, willing, able, wants to go; income growths are slower, will stay so but there is enough to go around.

Where did Patanjali get it wrong because two years back there was the big Patanjali fear. Where do you think they really lost out in the race?

Milind Sarwate: Several things where Patanjali went wrong. After initially going right in breaking open the category, breaking open the notion that someone like Baba Ramdev can set up an industry, there was really no articulated path to execution.

Even as recently as yesterday I saw one of his TV interviews live and he is speaking of a turnover of Rs 1 lakh crore from wherever. He is around Rs 8,000 crore now. So his dreams and aspirations are intact but for executing those, you need your own organisation. Strategy alone is not enough, you need a structure. You need processes and you need people. On scaling up on each of these, he did not go right.

Secondly, you need some growth enablers. For example, you need a very strong IT backbone for any company today. IT is needed for not only your transaction processing but also sometimes for your cost reduction or elimination and demand fulfilment with the greater digital intimacy requirements. I do not think Patanjali is geared for these.

Secondly you also need a very strong chain of associates. You need a great supply chain. You need some credibility in the market. Trade equity is very badly needed which companies like HUL and Dabur and Marico and Godrej have cultivated over the years. So the trade got quickly disillusioned with Patanjali.

Many times, to use a market language woh maal dal ke chale jate hai, baad mein bika nahi, toh wapas kaun lega (They go away dumping the goods. Who will take it back if it is not sold?)

The FMCG industry is very deceptive at one level. From outside, you see all glamour and glitz but there is a lot of grime inside and I was very happy that she pointed out that. I have been making this point that companies which have a great supply chain are going to win the battle whereas people tend to watch the TV advertisements and feel that anybody who is able to present a very great picture, spending so much, will do well, get it wrong. Demand creation is not just enough because people are sold out on ideas anyway.

You need to supply them at the right time and the other area where I feel Ramdev and Patanjali went wrong is their organisation idea, their institutionalisation of whatever… actually he had great points in the sense that he is actually saying I will do all these for charity so he could have attracted some really good talent which could have really stayed with for long. It was kind of variant of the Amul story that is a new India but I think the execution watch…

I mean it almost at least started out to be the ayurveda revolution, pretty much on the lines of the white revolution.

Rama Bijapurkar: Absolutely.

What about the kind of growth that we have seen? Consumption has definitely been in a sweet spot. You spoke about the grime in the sector but at least when you are looking at it from outside, is it double digit growth? Do think that that is likely to continue, what could spur the continuation of demand?

Rama Bijapurkar: We are not fully appreciating the amount of a cross category fighting that actually happens. Can you project yourselves using a better shampoo and making your skin better as well as by flashing a better phone which you are changing much more often.

Cross category is absolutely severe and so consumption overall is okay, but today, if data prices go up, we have to choose between our WhatsApp and our maybe not lipsticks but our WhatsApps and our skin creams I think it would be a real fight.

I mean I know that there was a hoarding that came up from one of the electronics retailer a few years ago that said this Diwali buy electronics, do not buy sweets, sweets make you fat. And to me that that summarises the whole cross-category fight that we are going to have. So, does FMCG have the potential? Is there enough demand and by demand I mean peoples’ desire into the income, there is plenty of that but you are going to have to fight hotels and you are going to have to fight phones. You are going to have to fight taking your kids to eat that pizza and you can signal status as well as through services. Today with UrbanClap, if the person is going to come in, do you need a head-to-toe makeover?

At home?

Rama Bijapurkar: At home and blow dry it using whatever it is that they use. Do you really want to spend that much more? To Milind’s point that there is a lot of hard work inside, the hard work is now just in the execution and in operationalising what it is that you want. Does it have the potential? Yes. Am I betting on the winners? Yes. Is it a free for all? No.

If I look at the IT pecking order in India, there is still TCS, Wipro and HCL Tech. Within FMCG, it is still HUL, ITC and you can argue the third is Patanjali or Nestle. Do you think the market will still be dominated by three, four large players because they have supply, they have reach and they have comfort of the millennial also?

Rama Bijapurkar: Firstly about millennials. If you look at Indian millennials, the majority are poor. The millennials mirror the population in a young country. A large majority of them have very low incomes, come from families which are still struggling to get their homes and so we have to discount.

The bottom half of India is going to continue to fuel whatever it is going to fuel and therefore it is advantage the incumbents because they know how to do this absolutely right. As far as the upper end is concerned, and that is where all this talk of premiumisation comes in. Premiumisation is about moving the benefit and the price up. That is going to happen to some extent.

Disruption already came from Patanjali. On the supply side, maybe it did not work out but on the other side, we have seen how quickly consumers can move when you have an attractive proposition to offer. That is what we have to watch out for. In the categories in which the big boys are, maybe not much change. I would continue to bet on the big boys exactly as Milind says.

Milind Sarwate: I also feel that the big boys, some of the overseas MNCs operating in India, have had a size impression which is much bigger than their actual clout in the market. If you look at say Kellog’s as a food company, it has not crossed Rs 1,000 crore as yet but if you look at some of the smaller companies, for example Patanjali, which have run up a turnover of Rs 8,000 crore with whatever limitations he has had. So, disruption possibilities exist but breaking into the top three is going to be difficult.

FMCG companies have a advantage of reach and internet has taken the advantage of reach out. It is no longer a premium to imagine that somebody sitting in a small town in Uttar Pradesh is going to order online. What happens now?

Milind Sarwate: I feel the top three, five companies will still continue to benefit from that because even if you have a reach, let us say somebody from Jhumri Telaiya wants to order something, that person still wants to order some known brand. It is very unlikely that an unknown brand will go to a new customer.

So, incumbents will continue to benefit from this. I also feel that the whole digital intimacy is something which some players have got right. Some have realised what it means and some have not. Unit price in FMCG is again a big issue. How do you build a digital window for products costing less than Rs 100? All will get settled over the next three, five years.

Also digital is still for people like us who want to save on time and therefore order online?

Milind Sarwate: Not, necessarily. Not at all.

Rama Bijapurkar: The poorer they are, the more they love technology because people discriminate, technology does not. So to that extent if you want to two pieces of something sitting in a small town somewhere, you can do it digitally rather than in any other way. But having said that, we are also seeing mass markets being created now with urban and rural differences going away and in the middle way finding approximately the same income levels.

Such huge scale markets are obviously going to benefit people who understand scale and you are right that if you look at the turnovers there is one and then there is the other and there is the rest.

Milind Sarwate: I also feel that there is some kind of disruption already happening with the retailers getting into their own brands and they have an advantage in that they are able to offer an experience to the consumer. For example, most FMCG companies sell to somebody who then sells to the consumer. In fact, there are two three layers in between but retailers actually see the consumers in the act of convention.

All of them are doing so.

Milind Sarwate: And therefore, their ability to disrupt using their own experience based brands is very high. Secondly, in the other part of India, in Bharat as opposed to India, for example, the consumers treat shopping and buying as an experience in itself. For us to go to a mall and buy something is not necessarily an experience but for some people going to the mall itself is like going to the weekly bazaar as it used to be earlier excepting that the weekly bazaar is now held in a little bit better kind of a building.

Rama Bijapurkar: Also if the parking improves, we would enjoy the experience a little more as well.

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