'The spurt in demand for Ayurvedic products has exhausted our production capacity.'
The pandemic may have disrupted Dabur's business initially, but the firm recovered quickly to post healthy double-digit growth in the past four quarters.
Mohit Malhotra, CEO, Dabur India, tells Arnab Dutta/Business Standard that a steep rise in prices, changing consumer preference, and a dynamic business environment are keeping him on his toes.
What are the key changes in consumer preference?
COVID-19 has made Ayurveda a mainstream category and I believe this will continue even after the pandemic. We have a large portfolio of Ayurvedic medicines and immunity boosting products. Demand for products like Chawanprash and honey is growing very fast.
How has this change impacted business?
Share of our healthcare portfolio went up to 45 per cent from 30 per cent and essentials like oral care did well, while share of skin-care, hair oils, and foods shrank.
We had anticipated that our discretionary portfolio may not do well, so we diversified into areas like edible oil and launched several products.
What's the impact of commodity price inflation?
We haven't witnessed this kind of inflation in eight years. It has jacked up input costs by 5-6 per cent as it has hit the entire bucket of our business.
Fossil fuel linked packaging costs have jumped, cost of key raw materials like edible oils is going through the roof and prices of herbs and honey have spiked significantly.
To mitigate this we need to hike prices by 10 per cent, which is not feasible as Covid has strained household finances. We effected a three per cent price hike in the first round and initiated cost optimisation measures.
We planned to cut down Rs 100 crore (Rs 1 billion) worth of costs in FY22, but that will not be enough. I can't rule out pressure on operating margin till the December quarter.
What are your plans on new investments and capacity augmentation?
The spurt in demand for Ayurvedic products has exhausted our production capacity, we don't have any option but to augment capacity.
So, we have begun construction of our eighth plant in Madhya Pradesh at an estimated cost of Rs 550 crore (Rs 5.5 billion) to meet current and future demand, taking advantage of incentives provided by the government under its 'Aatmanirbhar Bharat' programme. The plant will help us meet demand for the next 10-12 years.
How have the two waves of Covid impacted your business?
The nationwide lockdown in 2020 caught us by surprise and impacted our profitably significantly, as seasonal products like juices were severely hit due to supply chain related challenges.
Since then, we overhauled all key aspects of our operations and managed to post 12 per cent volume growth last year, which was higher than the 6-7 per cent pre-Covid rate.
So far in FY22, we have posted decent growth, albeit on a low base. But the business has now stabilised and is more immune to such disruptions.
What's the share of e-commerce channels now compared with pre-Covid days?
Sales through e-commerce channels have grown to eight per cent from two per cent before Covid. In FY21, in spite of travel restrictions, we raked in six per cent of sales through e-commerce.
How have advertising and promotional strategies changed?
From primarily advertising through TVC in general entertainment channels, we are now focusing on religious and national TV channels like Doordarshan because they were attracting more viewers.
Thus, we diverted money from channels like Star, Zee and Sony. Earlier, we were spending 5-6 per cent on digital media, but now we are putting 25 per cent of our budget into digital.
Last year, we had increased media spends, but we now have to cut it down to 8-10 per cent of sales as growing costs are a threat.
Do you expect disruptions from a third wave?
People are eager to go back to offices and the government is ramping up vaccination. So, it seems to me that a probable third Covid wave will not be as severe as the second one, and its impact on businesses and operations will be much lesser. I am not very concerned about the third wave.
At present, it is the management that is discouraging employees from coming to offices, but I think normal office operations will resume within this year.