In rural market, we divided the portfolio and team into health care and personal care, put in massive infrastructure and increased the density. We also added 400 people. These measures have earned us rich dividends in the recent quarters.
After being cornered by Patanjali and macro-headwinds, ayurveda major Dabur is pulling up its socks. With better sales and improved margins, the firm is now looking to leverage the renewed popularity of ayurveda, mostly ignited by rival Patanjali. Sunil Duggal, bottom, left, chief executive officer, Dabur India, shares his plans and insights with Arnab Dutta. Edited excerpts:
Dabur’s sales have improved in recent quarters. What worked for you?
Towards the end of 2016-17 and early 2017-18, we had our back to the wall due to a number of factors such as subdued demand, demonetisation and competition from Patanjali.
The demonetisation and the Goods and Services Tax (GST) were indicating the need of going deeper into the market through our own infrastructure.
We wanted to reach out to more entities. Thus, pulled money from everywhere - cut down advertisement and promotions, cut down on bonuses - for infrastructure building.
In rural market, we divided the portfolio and team into health care and personal care, put in massive infrastructure and increased the density. We also added 400 people. These measures have earned us rich dividends in the recent quarters.
Do you see demand recovery is nearing?
In most categories such as toothpastes, shampoos, hair oil, the industry growth rate is still muted. Home and personal care growth rates are at two-year low. A high growth regime is still some time away.
You lost market share to Patanjali in certain categories in 2016 and 2017. What is your strategy for your ayurveda portfolio?
Our higher than industry-average growth in past two quarters have helped us regain market share in categories such as honey or oral care.
Our strategies are different for different categories. The size of the herbal or ayurvedic oral care products has expanded to 25 per cent, so we have to come up with more options for the consumers.
While for honey, we may have to bring in more consumers on board with better communication.
We have already slashed price. We are planning to set up a plant, which will cost Rs 100 crore, to ramp up our production capacity for ayurvedic products.
Despite causing trouble, wasn't Patanjali's entry a blessing in disguise?
Yes, I am sure it was. The size of the ayurveda market has increased, which has aided our growth. We are now getting traction for our ayurvedic products across categories like never before. This factor is perhaps playing a biggest role in our performance.
In the short term, Patanjali brought in headwind for us. But in the long run it expanded the size of the market. After all, it is a new entrant that can cause disruption and consequently expand the pie.
Now, we have to be very aggressive and innovative. That is our current challenge and so far, we have managed to execute our plan well.
Why haven’t you acquired any brand despite planning for two years?
We are continuing our search but abundance of private equity (PE) players have caused significant uptick in pricing.
A couple of deals slipped away due to higher valuation by PEs, despite bidding aggressively. Consumer health care brands such as Honitus, which have strong recall, will be scaled up.
We will pick a couple of brands every year and scale up such brands that have exponential growth potential. Also, switching prescriptive products to OTC will be done.
Dabur's operating margins have improved by over 500 basis points in the past four years. How much was the contribution of lower inflations? Also, with rising oil price and depreciating rupee, is a threat looming?
Operating margins have improved by 300 to 400 basis points due to continued low inflation and benefits from the GST.
Half of our portfolio is home and personal care but our dependence on oil derivatives is much lower compared to many other firms.
Only 30 per cent of our portfolio is facing the issue of inflation but other areas prices are downwards.
Thus, rising oil prices or depreciating rupee is a lesser concern. While scope for further improving margins is less, I don't see the danger of slipping margins, despite inflationary pressure in the horizon. It should remain stable now.
If the government raises MSP, wouldn't it impact your costs?
I am sure minimum support price (MSP) hikes will happen and would be favourable for us.
Higher MSPs mean higher disposable income in rural households. While it would increase the cost of raw materials to a certain extent but incremental sales would be much higher. Thus, inflation is not a concern as long as it boosts demand.
What is your expectation from Walmart's probable entry into Indian e-commerce?
Now, with two big players - Walmart and Amazon - into grocery space, a big boost is expected.
We created a separate team for e-commerce channel six months ago. By 2020-21, I expect e-commerce could be up to 5 per cent of our sales.
Photograph: PTI Photo
