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Companies facing multiple black swan events: Saugata Gupta 

Saugata Gupta, managing director and chief executive officer, Marico Ltd


Inflation is hurting household budgets, especially in rural markets, and prompting companies to tighten their belts, said Saugata Gupta, managing director and chief executive officer, Marico Ltd. The maker of Parachute oil reported just 1% volume growth in its India business in the March quarter, while revenue growth stood at 5%. In an interview, Gupta said “multiple Black Swan events” were exacerbating inflationary pressures, and companies will have to absorb short-term margin erosion. Edited excerpts:

What are the reasons behind the rural slowdown despite distribution of free foodgrain?

Free rations are distributed to a large section of the population. Though a significant portion of the people is insulated because of the free grains scheme and direct benefit transfers, there is inflation and, that inflation squeezes. So, disposable income towards fast-moving consumer goods (FMCG) gets affected. People tend to either downgrade or titrate depending on the category.

We are also lapping a very high base. If we look at Q4 (March quarter), we are at 25% base volume growth. So, on a two-year compounded annual growth rate (CAGR) basis, we are still double digits because we are lapping that high base. Now, a combination of good monsoon, if it happens, the fact that the farmers will get good realization, especially in wheat, and if the base gets corrected—we believe it will lead to growth coming back sometime in the second half of the year. Having said that, obviously, we have to be mindful of how long this geopolitical conflict in Ukraine continues because that has an impact on inflation, which is both crude-related and food-related.

What can the government and private sector do to drive demand?

The government is taking a lot of steps to control inflation. You must appreciate that some of the factors are beyond (their) control. If I look at crude prices and edible oil prices, the two biggest drivers of inflation, because India imports a significant part of its edible oil. The consumer industry needs to continue to keep tightening our belts, and ensure we absorb the short-term margin erosion that could happen. Also, continue to reconfigure some of our pack sizes so that people don’t have to give incremental outlays. Having said that, we continue to see opportunities at the premium end, where, in terms of demand, we are not seeing that shrinkage. So, we have to play at both ends.

The interesting thing is, because of covid, there is far more resilience in the industry. Therefore, I think it is a question of weathering it out in the next six months. We are a little lucky because 50% of our cost base, which is copra, went through inflation last year and it is reasonably soft. So, we are in a little bit of a sweet space because of that and also our international business is doing well. We have some insulation.

This inflation is not structurally demand-led, it is supply-led inflation. So someday, it will give in. We were obviously hoping that the Ukraine situation will come to a resolution but it looks like this is a bit of a long haul. Then Indonesia banned (palm oil) exports. So, there’s a combination of multiple Black Swan events which are happening and therefore, I think we have to cope with it for at least a couple of months.

When you speak about tightening belts, what cost control measures are you taking?

Over the last two years, we have obviously tightened our belts considerably and a lot of the savings have been structural. We have to continue to drive efficiencies.

But three costs that we must ensure we cannot cut are long-term capability-based cost—leadership capability, digital capability and innovation. Second, we are not going to cut down on employee costs because the startup environment has led to a significant war on talent. And third, the reason we are not cutting on advertising and promotion costs is because if you keep on arbitrarily cutting A&P spends, it hits you in one or two years because it dilutes brand equity somewhere.

There is a sense that direct-to-consumer (D2C) brands are seeing a slowdown in growth. What has been your experience with Just Herbs and Beardo?

Actually, I don’t think that demand has tapered. What has happened is the cost of doing business has significantly increased. That is because of some of the changes that happened in Facebook and due to other privacy rules—the cost of consumer acquisition has gone up. As far as Beardo is concerned, we continue to grow and are in line with our aspiration—we have an exit run rate of 100 crore-plus. Just Herbs is tracking well. Our overall digital business in terms of the exit run rate in Q4 was 180-200 crore.

Will you put acquisitions or launches on the backburner?

Not at all. I would consider this a better opportunity to diversify and innovate. I believe fundamentally, there is nothing wrong in the sector. It is a short-term pain. At Marico, we always have a philosophy that market share gain, volume growth, and innovation are far more important than short-term margins; those will come back. We will continue to look for inorganic opportunities in the digital space—in fact, it’s a better opportunity than last year.

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Events biz still facing challenges as wedding season looms

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It’s not all love and roses in the wedding industry these days.

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Those roses don’t cost what they did in 2020, almost nothing does.

Liz Clark, owner of Chair Decor in Vaughan — which supplies event rentals such as chairs and linens — said the lifting of most pandemic lockdowns and restrictions has led to increased bookings for June onward as couples finally get to tie the knot.

What couples are finding, though, is that the big day comes with a bigger price tag.

“The cost of a wedding right now is considerably higher than what we were looking at two years ago,” she said.

Floral packages alone have gone up 30%, according to Clark.

“Inflation, cost of labour, cost of food — all that stuff has gone up somewhere upwards of 20%-30%,” she said. “That is a big problem that a lot of clients are having in terms of what they originally budgeted and what they’re now required to pay. Those are difficult conversations from a business perspective … That’s another sad reality of the business right now.”

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Many couples are happy and excited to get married, and that’s a great feeling for those in an industry that has spent the past two years managing postponed and cancelled bookings.

The industry now sees a refreshing new client base putting down deposits and booking new dates.

“As much as we’re optimistic for this year, it’s hard as a business,” Clark said. “We are dealing with two years of zero revenue. As much as we’re going to be busy this year, it’s going to take us years to recover from those two years.”

Julie Kwiecinski, of the Canadian Federation of Independent Business (CFIB), said many small businesses, particularly in hospitality, and event organizers shoulder the same burdens.

The average COVID-related debt for Ontario small businesses is over $166,000, and 56% of those who took on this debt have yet to pay back any of it, she said.

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In a new survey of CFIB members in Ontario, 81% indicated they were having difficulty keeping up with government costs like taxes, premiums and fees and 89% with other expenses such as gas and insurance.

The survey also shed light on the severity of the supply chain issue, with 84% finding it hard to get the products they need for production and sales, she said.

Only 27% of Ontario small businesses which responded to the survey indicated they had fully recovered and 12.5% still have a long way to go, she said.

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The CFIB is asking the federal government to increase the forgivable portion of their Canada Emergency Business Account (CEBA) loan to at least 50% and to extend the repayment deadline beyond December 2023.

“The federal programs will end on May 7 so after that time, you’ll probably see really the lay of the land as to who’s going to survive and who isn’t because that’s when the chickens come home to roost,” Kwiecinski said. “There’s no lifeline for business to hold onto… the business has to make a decision.”

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