Consumer goods major Marico Ltd made a strong play in digital a few years ago with a string of acquisitions. This has emerged as a strong pillar of growth for the group, complementing its core portfolio of Saffola and Parachute oils. It has parlayed the Saffola brand into foods, as well, and expects this to be a big play in its portfolio soon. In this conversation, Saugata Gupta, MD and CEO of Marico, talks about the group’s digital brands and the strategies it has adopted. Excerpts:
What is Marico version 3 all about?
Sometime in 2020 we expressed ambitions of double-digit growth but realised that our core portfolio, which is highly penetrated, will not be able to deliver that growth. So, we started two things — one was digital. An interesting insight we got is that, in many countries, digital brands have been able to take a significant share of growth. They don’t take a share of the market initially, but they take a share of future growth from traditional incumbents. They are far more nimble and high-risk; you start small, scale up fast, and you do far more high-velocity innovation. The business model is completely different, and the same organisation cannot co-exist with two models.
So, we dabbled in the digital business by taking a stake in men’s grooming company Beardo. We usually take a stake, work with the founders for three years or so, learn the business, and then the founders have an earn-out model. Apart from Beardo, we have Just Herbs, True Elements, and Plix. We keep them on a separate business model. The only four things we control are portfolio, capital, quality, and compliance; but they are run independently. They have different operating models, processes, different talent and compensation systems, and we allowed them to thrive. The other Marico 3.0 is about food. So, in 2020, we diversified into foods… from six per cent, today it’s 21 per cent and, in another five years, it will be 30 per cent.
What about the Saffola brand? That, too, you have transitioned to foods, right?
Saffola would make a great case study of how one has expanded the total addressable market. There were hardly any foods under Saffola;, it was just some masala oats in 2020. Today, 30 per cent of the Saffola franchise is food, 70 per cent is cooking oil. I believe, in the next 5-7 years, it will be the reverse: 70 per cent will be foods and 30 per cent will be cooking oil. In India, packaged food penetration is still in single digits and the runway is huge. Having said that, we don’t want to get into staples because they don’t make money and, therefore, we want to get into value-added food. Staples are nothing but a commodity, and in India today, more than premium personal care, food has far higher scalable potential for the long term.
You had mentioned in an earlier interview that you want to be in intermediate foods, where some amount of cooking is involved. Are you in that space now?
No, we are very clear. We are in the breakfast space; in-between meals snacking; immunity-giving foods; and plant protein. We also have a brand called Plix, in which we have a majority stake, and it is about plant-based skin ‘food’, hair ‘food’ and nutraceuticals, and apple cider vinegar. The brand is growing well, and we believe Plix will be the first digital brand to hit ₹500 crore revenue in the next three years. Beardo is another brand which should hit that. There is a great opportunity in the nutraceutical space, as penetration in India is low; but after Covid, we have seen a shift in the kind of adoption for nutraceuticals.
You have three growth pillars: the core business of traditional brands Saffola, Parachute; digital brands; and the international business. So, in the overall Marico consolidated group, how much will each of these contribute to your revenues?
International business contributes 27 per cent now and the diversified portfolio of food, digital and premium personal care contributes 21 per cent. So, technically, the core is quite less. We have done a reasonable dramatic kind of transformation. Having said that, even internationally we are diversifying our portfolio, entering far more premium personal care, focusing on new countries for growth. We are very bullish about the Middle East and North Africa, where we are growing well. We have our Southeast Asia business out of Vietnam; we have a South Asia business out of Bangladesh. We also cover Sri Lanka, Nepal, Bhutan and we now have a South African business… we are looking at East Africa. We are expanding in the US, as well.
Virgin coconut oil is in very high demand; it’s considered a super-food there. So, our international business today makes significant profits. We are focused on far more organic-driven growth rather than inorganic — it’s capital-efficient. Yes, there are risks in international business, currency and political-economic risk, but our ability to handle adversity and our resilience is pretty good. So, we are not particularly perturbed about some of the black swan events that happened in some parts of the international business.
In international business, are you looking at both organic growth and acquisition? You have acquired brands in the past.
We have acquired brands, but we are now doing much more tuck-in rather than entering new countries. Yes, we did acquire a couple of years ago in Vietnam and South Africa. Most of the acquisition in recent times has been in digital business in India. We may continue to be hungry for digital businesses. We believe that we are a strategic partner of choice. We are extremely focused on becoming one of the most successful, skilled, profitable digital business in India; and, maybe, globally it will be one of the few cases where an incumbent company in consumer goods has been able to transform itself into a consumer digital company and co-exist with the core. Another interesting thing is, as recent as September, we started selling Kaya, which was earlier sold in clinics (100-plus) mostly. So, now Marico has a franchise arrangement to sell Kaya beyond clinics, and we believe that itself is a huge opportunity for growth. We started selling Kaya in the digital space and in modern trade. Tomorrow, we might get into beauty outlets. We believe that’s a huge opportunity because it’s an under-leveraged brand again.
What else are you doing with the Saffola and Parachute brands?
For Saffola there is enough opportunity in snacking and breakfast. We started the journey from plain to masala oats and now we have millets upma, masala millets and other things. The Saffola brand has transitioned from ‘heart health’ to ‘better for you’. It is about a healthy alternative, ‘Roz ka healthy step’ is what the Saffola brand stands for.
How are you leveraging your digital brands in foods?
True Elements, in which we have a majority stake, is a founder-driven brand in a slightly more premium food space. So, between the two (with Saffola) we have enough opportunities to grow. I don’t see either entering majorly into new categories or launching a new brand. Having said that, if we believe food is one of the drivers of growth, we’d be open to acquisition in foods also. But food has to be scaled up… as a niche it doesn’t work.
What are the learnings for traditional Marico from the digital brands you’ve acquired? What is the reverse learning?
Speed, agility, high-velocity innovation, risk-taking, working with different sets of talent, overall digital capability, because today these brands do 100 per cent of their spend in digital. Digital is only 26 per cent of Marico’s revenues, but it’s growing. There is a lot of capability transfer. The last one, which we have not harvested so far, is first-party data. We have a unique set of first-party data because of the D2C businesses. About reverse learning, it’s still a journey and we have much to do. The two business models are completely different. Sometimes we have done talent migration. One or two have worked brilliantly but some have not. While it’s aspirational to work in digital brands, the operating model is completely different. So, a large company’s talent sometimes struggles.
To give you an example, the Beardo CEO, when we took over the brand in 2020, was a management trainee of ours working with large brands. I think he has marvellously transformed himself and adapted and done this Beardo journey. Today we are a ₹250-crore brand, and we should be in double-digit EBITDA. So, we have made an amazing transformation of the brand with the so-called traditional talent.
Over the long term, sustainable, profitable growth can happen if incumbent companies can run digital successfully, provided they run a different model. If I had ‘Mariconised’ Marico Digital completely, they may have struggled.
All these acquired brands — Beardo, Plix — are they profitable today?
So, Beardo is profitable. Plix is turning profitable. But the burn is very low. I think one of the things is we know how to run them commercially and there are enough synergies by being a part of the Marico system. So, compared to any founder-driven standalone digital brands, we should be one of the leading examples in the consumer digital space getting scale and profitability. I don’t see many companies that are able to do that.
And how are you attracting a younger audience to your brands, and also to work for you?
This entire diversification of our brands has been very interesting. As for Next Gen, it’s not just about attracting them to the brands, it’s very important to attract them in terms of a talent value proposition. And one of the interesting things we realised is that today’s generation wants to work in a company that believes in sustainability, believes in brands with a purpose. And we are a very empowered kind of culture; it’s a very young workforce compared to some of the other traditional companies, and we are consciously investing behind that.
Also, you say you strongly believe in the philosophy of ‘start quick, fail fast and withdraw the brand, if needed’? Perhaps you can’t do this in brand extensions of Saffola or Parachute?
It’s basically ‘think big, start small, scale-up fast or drop it’. And that’s the philosophy we are using in our digital realms. And you are absolutely right. See, if I look at the average cycle time for an innovation in our traditional core business, it can be eight to 12 months. In the digital ecosystem, it’s 30 days or 60 days, where you do 5,000 pieces. If it sells, you scale up; if it doesn’t you stop. So, it’s a completely different model and that’s why I said that we realised early on there are two different skills and competencies, and don’t try to mix them. If we had integrated the digital business into a Marico, they wouldn’t have been as successful.