At a time when most of the fast-moving consumer goods (FMCG) companies are lowering their growth projections amid weak consumer demand, the Indian arm of the $8-billion strong Germany-based Dr Oetker registered its best year of operations growing at a rate of 22-24 per cent.
The company’s growth numbers are based on its pure-play into the comfort food category and focus on the taste-seeker category on consumers which account for 56 per cent of the total consumer 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 (2019 calendar year), our growth is in the range of 22-24 per cent”, Oliver Mirza, managing director and 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, has 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 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 told this newspaper.
Peanut butter accounts for 20-25 per cent of the company’s sales, while mayonnaise category accounts for 50 per cent of the revenue.
Both these categories, according to the company, had grown despite muted consumer sentiments.
Ten years back, mayonnaise was only Rs 8 crore category which has now grown to a Rs 300 crore category.
Recently, Marico stated that overall consumption trends during the third quarter of the ongoing fiscal year belied expectations of the beginning of a revival in sentiment which were built on the back of good monsoons and announcement of various government measures. 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 with a five per cent growth in the sector in 2018-19, the overall growth may taper to only two per cent in the current fiscal year and a revival, much to the disappointment of the FMCG industry, is expected as late as September 2020.
The rating firm is of the view that the expectation of a personal income tax reduction in the union budget 2020 may lead to improved consumer sentiments and higher disposable income in the hands of consumers. Besides, the increase in reach and distribution network, targeting untapped rural markets may be another growth driver 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 reasoned that the introduction of lower SKUs is not based on shielding the company away from any effects of lower consumer demand but 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 just try out whether it is selling; you need to do research, you need to understand consumer sentiment and build the product on the basis on consumer proposition, else it is going to be a flop”, Mirza told this business daily.
After 12 years of operations in India, Dr Oetker is expected to break-even at the EBITDA level in the 2020 calendar year.