At a time when most fast moving consumer goods (FMCG) companies are lowering their growth projections amid weak consumer demand, the Indian arm of the $8 billion German firm Dr Oetker registered its best year of operations, growing at a rate of 22-24 per cent.
The primary reason for this is its pure play into comfort food and focus on the taste-seeker category of consumers, which account for 56 per cent of the total base in the country.
“This year, it has been the strongest year for us in India and we fared well across the globe too. Although our sales numbers are yet to be consolidated, we can say that this year (calendar year 2019), our growth is in the range of 22-24 per cent,” Oliver Mirza, managing director (MD) and chief executive officer (CEO) at Dr Oetker India and SAARC told Business Standard.
According to Mirza, in the past 12 years of its operations in the country, Dr Oetker, the market leader in the Rs 300-crore mayonnaise category in India, solely focussed on the comfort food category (which is a discretionary spend) and targeted around 56 per cent of the consumer segment. Besides, smaller stock keeping units (SKUs), like the 100 gm mayonnaise and 150 gm peanut butter, also helped the company grow sales.
“It is because we offer products which give you pleasure and some people obviously need pleasure. We see mayonnaise and peanut butter growing and with the additional launches, this should give us an additional leg of growth. Within the peanut butter category only, our growth was 35 per cent,” he said.
Peanut butter accounts for 20-25 per cent of the company’s sales with the mayonnaise category accounting for 50 per cent of the revenue. Both these categories, according to the company, had grown despite muted consumer sentiment. Ten years ago, mayonnaise was only a Rs 8-crore category and has grown to Rs 300 crore now.
Recently, Marico stated that overall consumption trends during the third quarter of the ongoing financial year belied expectations of the beginning of a revival in sentiment.
This was seen on the back of good monsoon and announcement of various measures by the government. Categories like personal care had remained under pressure, while foods and allied categories fared relatively better.
Hindustan Unilever (HUL), too, while declaring its results for the second quarter of the 2019-20 financial year, had also shared a similar view. It maintained that the near-term outlook for demand, especially in rural India, remained challenging. Emami is of the view that despite a good monsoon, the rural market is yet to pick up fully in the country.
In fact, CARE Ratings has estimated that as compared to a five per cent growth in the sector in 2018-19, the overall growth may taper to only two per cent in the current financial year.
A revival, much to the disappointment of the FMCG industry, is expected as late as September 2020.
The ratings firm is of the view that expectation of a personal income tax reduction in Budget 2020 may lead to improved consumer sentiment and higher disposable income in the hands of consumers. Besides, increase in reach and distribution network as well as targeting untapped rural markets may be growth drivers for the sector.
Asked about these concerns and if smaller SKUs drove the company’s growth in times of the ongoing slowdown, Mirza said, “Our growth in India had accelerated since 2015. Incidentally, a 100 gm pack was launched back then, and now, it is our biggest SKU in the market.”
A company official said the introduction of lower SKUs is not based on shielding the firm from any effects of lower consumer demand. It is rather to provide a gateway for consumers to try the product first and then scale up their purchase.
“It is no longer the time where you just throw a product into the market and try out whether it is selling; you need to do research, you need to understand consumer sentiment and build the product on the basis of consumer proposition. Or else, it is going to be a flop,” Mirza said.
After 12 years of operations in India, Dr Oetker is expected to break even at the earnings before interest, tax, depreciation and amortisation (EBITDA) level this calendar year.
AGAINST THE TIDE
Dr Oetker’s focus is only on 56% of total FMCG consumer base in India
It outpaced the 18% category growth in the peanut butter segment
Smaller SKUs driving sales growth for firm
Food category of Dr Oetker fared relatively better than others during slowdown
Source: Business Standard
