WHAT CRICKET TAUGHT ME ABOUT SHOPPING?

It’s been over 100 days of us living through various stages of Lockdown and Unlock. More importantly, it’s been a century of days without live Cricket. In the absence of live sporting action of any consequence, thrills are cheap and mostly attained by keeping score of kitchen essentials and live-tracking delivery of groceries. Somewhere along the way, the twain merged and I found strange but stark parallels between the state of Cricket and various Retail channels. Here goes:

1.    E-COMMERCE = T20

What’s common between ordering a cheese filled Pizza online and watching a close T20 Cricket match in the middle of a working day? The Rush! It’s fast-paced, It’s exciting, it’s instant gratification, it’s inexpensive, it’s (more often than not) non-essential, but it’s a lot of fun.

In last 10 years, the growth in the share of attention, investment and popularity for both T20 and eCommerce has been unparalleled. One the one hand, Amazon’s market cap jumped from $50 Bn in 2009 to $1.4 Trillion while on the other, the brand value of IPL more than tripled from $2 Bn to around $7 Bn. While the numerical jump is just indicative of a trend, it doesn’t encapsulate the cultural shift both T20  and eCommerce brought to the arena.

Both T20 and eCommerce are considered as the future of their respective fields. Both offer ample opportunities to new players and both have relatively lower barriers to entry. An artisanal Greek yogurt maker has the same opportunity of success on eComm as Amul. This is not too different from the platform that T20 leagues provide to relatively unknown players by pitting them against the best in the world.

However, despite the stellar growth rate and valuation surge – both T20 and eCommerce account for lower contribution to their core universe than the excitement they generate. The contribution of e-Commerce to overall FMCG sales as of March 2020 is still 2.8% (1.9% in March 2019) as per Nielsen. In his career so far, Virat Kohli has played 281 T20 matches and faced 6614 balls. This pales in comparison to the 12552 balls he’s faced in just 86 Test Matches that he’s played so far. Even among bowlers, Jasprit Bumrah has bowled almost as many number of balls in just the 14 Test matches he’s played as he has in the 157 T20s he’s appeared in for his national & local team.

There, I said it! Online shopping is T20 - maximum noise, a lot of analyst interest but - least playing time.



KIRANA = TEST MATCHES

For a lot of people, watching a 5 Day Test Match or visiting the corner store for provisions handed over in unattractive packaging is a tedious chore bereft of excitement. For years now, there have been multiple obituaries written for the same, all premature. Announcements of any new format or the entry of a new player - 100 Ball Match, Omni-Channel eco-systems, Big companies entering - usually expedite the pace at which these doomsday predictions are made.

While there is some merit to the decaying growth and audience interest in these formats, the robustness of their model stands unquestioned. In the initial weeks of the lockdown, in March and April, the humble Kirana store kept it fed as eCommerce players struggled to find their f(l)eet. Even as the overall contribution is trending towards a decline, Traditional trade channels account for 86% of all FMCG goods sold in India. In fact, as per an EY survey, nearly 50% of the consumers have a more positive outlook towards their local kiranas and they are quickly becoming a trusted point in the local ecosystem.  

Similarly, Test Cricket in India and around the World, despite the lack of audience interest, still accounts for majority of the cricket played at grassroots level. The Indian Ranji Season, English County Season and the Australian Domestic Tests are more important to the supply pipeline for future international cricketers than T20 Leagues.

Beyond all the attention, it is the respect accorded to Test Cricket and Traditional trade channels by Industry Leaders and Top Cricketers that is likely to ensure its longevity. True greatness of both, a Cricketer and a Consumer Product is measured by its performance in these channels. No matter how popular the said artisanal Greek yogurt brand would be online, it is not successful until it’s available and sold at the corner store alongside Amul Dahi!  

Along the course, there will be the big changes like Day-Night Tests and Kirana tie-ups with Tech & Telco players for hyper local delivery. These will further cement their places in the overall scheme of things. Just the way T20 money is being used to keep Tests alive, chances are EComm giants will continue to invest behind Offline Retail and Traditional Channels for supply efficiency. 

So, Cricket has taught me Kirana is the Test Match! Still the toughest, still the least "popular" in terms of perception - most revered by players & real fans (FMCG companies, distributors and home-makers)

3.    SUPER MARKETS = ODIs

This brings me to the final observation – Supermarkets! They’re the ODIs of the Retail Channel. Both see an occasional interest from the audience. A visit to the Supermarket isn’t entirely out of necessity, but neither is it as non-essential as ordering a cheese filled Pizza. Watching a One Day International match and visiting a Supermarket provide maximum satisfaction when limited to occasions. Sitting through a bilateral ODI series is as cumbersome as going to the supermarket for just a bar of soap. The time and effort spent just don’t do any justice to the utility derived.  

Just like ODIs offer the player an opportunity to showcase both their hitting prowess and their technical finesse, Supermarkets are the perfect place for brands to sell their bestselling SKUs and test new variants. Supermarkets just like ODIs, do suffer from the “Middle Overs” lull during weekdays and have all the action packed into Saturday and Sunday like Power-play and the death overs.

Which is why for both ODIs and Supermarkets an occasion is most important for relevance. ODI needs events like the World Cup and Champions Trophy to stay exciting just the way supermarkets create retail festivals during Independence Day and Price-Offs to generate consumer buzz.

The Supermarket is an ODI - somewhere in the middle of daily needs and irregular indulgences, best enjoyed through occasional visits.

What Ganesh Chaturthi taught me about Marketing

Here’s the thing, being a Bombay (what it was called then) boy, growing up a kilometer away from the city’s first public Ganesh pandal, one could never ignore the impact of the magical festival of Ganesh Chaturthi. 

Over decades of visiting major Ganesh Pandals in the island city and watching them evolve over the years, I learnt some extremely insightful lessons about marketing. 

At the most basic level, the job profiles of a Ganesh Mandal President and the CEO of a consumer company aren’t too different. The goal is to attract maximum people to your offering vs competitors and ensure they return every year. 

Here’s how Ganesh Pandal owners aced every theory in marketing using native intelligence -

1. Traditional Marketing - My product/brand is better than my competitors: 

This was around the time when I first started visiting pandals as a child between from early 90s to 2000. What excited me most was the size of the idol. Tall idols of 30, 35 and even 40 feet in Ganesh Galli, Lalbaug and Khetwadi 11th Lane, would attract the maximum number of people. This slowly evolved into best decorated pandals attracting most crowds. I distinctly remember standing in queues outside Tilak Nagar’s Ganesh Pandal to get a glimpse of life size recreations of famous Indian monuments. 

This I later understood, wasn’t very different from the “meri safedi uski safedi se safed” - school of marketing. The best idol, the best decoration attracted the most footfalls.

2. Modern Marketing - My product/brand is better because it makes you feel better. 

The key drawback of the traditional technique of positioning above competitors was, the risk of losing loyalty. Easy for competitors to make taller idols, more elaborate decorations to veer crowds away from the incumbents. A relatively more stable model would be to shift focus away from the competitors to the consumers (in this case, devotees). Lalbaugcha Raja, to my mind, aced this strategy. The focus was always on how devotees felt with the Lord watching over them. Consistency in the design of the idol, decorations and the rituals (including a 20 hour long immersion procession) bred familiarity among devotees. While visitors attended other Pandals for to see large idols and decorations, a visit to Lalbaugcha Raja always meant much more than that. This feeling, in the material world is eerily similar to how one feels about the purchase of an Apple product. The brand is good, because  it cares the most about customers, it makes them feel the best. Over time, following Apple’s lead, we’ve seen traditional marketers move more towards consumer obsession and cult - creation in their communication too.

 

3. “Go Green” Marketing - My product/brand is the best because it makes the world a better place.

Customer obsession eventually evolved from an individual focus to the focus on community. Over the last 5 years, I’ve noticed an increasing presence of Eco-friendly Ganesh Pandals. A few around my house in Marine Lines, speak about Zero Pollution, 100% Recyclable and Bio-degradable idols and decorations. There’s a growing cult around idols made out of Chocolate, Papier Mache and Traditional clay with water colours. This coincides with what I see around the material world too. Brands like Allbirds, Patagonia and Beyond Meat are almost exclusively based on the premise of making the world a better place for our future generations. I believe, this is also where all other brands will eventually move too. Increasingly, we hear Apple speak about re-cycling all the metals for new phones and Amazon wanting to reduce the usage of plastic in their packaging. Even hotel chains are promoting responsible, eco-friendly luxury to engage with guests and cultivate loyalty. Great move, for the earth and the customers. 

4. Socially Conscious Marketing - My product/brand is best because it takes the Right Steps for Society. 

Finally, this morning I read that Lalbaugcha Raja has decided against holding elaborate celebrations this year due to the Covid-19 pandemic. Instead, the authorities will devote those 10 days towards organizing blood donation and plasma therapy camps. This move, based on the reactions online, has been welcome and widely appreciated by the public. This closely follows developments around the world. Nike, J&J and Unilever have made some serious changes to their communication and product offerings in the wake of #BlackLivesMatter. In fact, Suresh Narayanan of Nestle also told CNBC-TV18, that brands are now realizing that beyond profits, they also have a big responsibility toward societal values. 

Thus, here’s marketing 101, learnt from my favorite festival. Years ago, I started by visiting these Pandals as an excited child and now I continue to visit them, as an observer of marketing trends, still excited and hoping that Mighty Ganesha continues to pave the way and remove obstacles towards learning new things. 

GSK Launches book to sell HUL Stake, What Does it mean for HUL shareholders?

GSK PLC launched book to sell 5.7% stake in Hindustan Unilever today. The large trade is likely to take place on the exchanges in the price range of 1850-1950 per share (discount of 3-8% from CMP).

HUL had issued shares in the ratio 4.39:1 to all GSK Consumer shareholders as part of deal to acquire Horlicks & Boost from the latter in December 2018.

The important part about this trade is that GSK is looking to sell the entire stake worth $3.5 Billion (27000 Crore) in one large trade instead of part sale. That removes future supply overhang on the stock. 

I’ve learnt from sources that the buyers are likely to be institutions, both, foreign and domestic. This eliminates the possibility of HUL’s parent Unilever PLC buying the stake from GSK. Remember, as part of dilution due to the merger, Unilever’s stake in HUL reduced to 61.9% from 67.2%. 

As a result of Unilever’s stake dilution, the free float (public shareholding) of Hindustan Unilever increased from 32.8% to 38.1%, thereby resulting in an increased weightage on the Nifty and other passive indices like MSCI etc. With the elimination of Unilever buying this stake, the fear of reduction of this increased free float goes away.

GSK’s impending sale was among the many reasons that kept a lid on HUL’s stock price over the last one month where it corrected 23% from record high of 2614 on April 8^th to 2010 today. The other reasons of underperformance were; weakness in business due to Covid-19, expensive valuations of 64X FY21e and some profit booking after a stellar 54% run in last 12 months and 180% in last 3 years.

With GSK’s supply overhang out of the way, street is likely to focus on the key upside triggers for the stock going forward. The management sounded cautiously optimistic on the way forward, in its post Q4 earnings call and recovery post COVID would be a key trigger post COVID-19. History has taught that HUL has been the company that bounces back the fastest after any disruption. We saw that with great launches in the Naturals space after Patanjali’s disruption and strong supply systems after demonetization and GST. 

The other important trigger that the street will keep a keen eye on, will be the growth opportunities that Horlicks & Boost bring to HUL. In an interview with me in Jan 2020, Sudhir Sitapati (ED, Foods & Refreshment at HUL) did say, Horlicks is a dream acquisition due to its low category penetration and high gross margins. The company expects 1000 bps synergy benefits from this deal. Brokerages ascribe an EPS accretion of anywhere between 5-10% on account of this.

HUL has shown remarkable growth via acquisitions in the past like Pears, Kwality, Kissan, Knorr, Lipton and recent ones like Indulekha & Adityaa Milk. HUL acquired Indulekha in 2015 for 330 Cr and the brand is worth over 2000 Cr as of 2019. The final trigger would be how Hindustan Unilever carries itself into newer categories by Bolt-On acquisitions into newer categories like V-Wash and some more opportunities that may arise due to COVID related disruptions.

For all these triggers, the stock isn’t particularly cheap at 57-58X FY21e; but some would say it’s better than at 64-65X it was trading at just one month ago. Personally, however, I would love to hear HUL's mascot Lalitaji's opinion on this. Wonder if she'd say "HUL ki khareedari mein hi samajhdari hai" or not?

WHAT MARICO’S COMMENTARY TELLS YOU ABOUT THE FMCG SECTOR

WHAT MARICO’S COMMENTARY TELLS YOU ABOUT THE SECTOR

Hair Oil to Cooking Oil to Masala Oats-maker Marico reported Q4 Results that were largely in-line with street expectations and the quarterly update provided by the company. While customers stocked up Saffolla cooking oil ahead of the lockdown, they stocked down on Parachute & Value added hair oils during the period at a time when non-essential purchases are being put to the back burner. The company, on its part, also reduced non-essential expenditure on advertising to protect margins.

 

MARICO Q4FY20: Largely In-Line

Domestic Volumes Decline 3% vs Poll of 2-3% Decline

Mild Miss on Revenue, EBITDA & PAT Meet Est

Lower Ad Spends & Resilient Gross Margins aid EBITDA

Saffolla shines as people stock-up, discretionary biz sees sharp fall

 

MARICO Q4FY20 vs Poll

Revenue at 1496 Cr vs Poll at 1533 Cr

EBITDA at 282 Cr vs Poll at 278 Cr

Margins at 18.9% vs Poll at 18.2%

PAT at 199 Cr vs Poll at 192 Cr

 

However, more than the reported results, Marico’s management commentary threw some extremely valuable insights on what FMCG companies are expecting and the likely steps they will take, to navigate through the current crisis. Marico, like Hindustan Unilever, believes that near term demand is uncertain and consumer behaviour is likely to change.

 

PRODUCTS

HUL Management had indicated in its results commentary that the sector is likely to see an upswing in categories like health, hygiene and nutrition. While, in the near term, they are likely to see some adverse impact on discretionary categories and the out of home channel           

This reflects in Marico’s recent brand extensions and product launches. With the rising consciousness among consumers about personal health and hygiene, the Company introduced Mediker Hand Sanitizer in April’20. Distribution of the range is being ramped up across all channels. In April’20, the Company also launched Veggie Clean, a first-of-its-kind fruit and vegetable cleaner, made with ingredients that remove all the germs, bacteria, chemicals, waxes and soil present on the surface of fruits and vegetables without leaving any residue, aftertaste or smell. Veggie Clean will be available across Modern Trade and Ecommerce channels. In the last two months, we’ve seen Emami, Dabur, Godrej Consumer and even Asian Paints enter the sanitizer space. One can expect more such innovations from FMCG companies going forward.

PRODUCT DEVELOPMENT

Rising consciousness among consumers about personal health and hygiene

In last two months: Emami, Dabur, Godrej Consumer, Asian Paints enter the sanitizer space

Marico launched Veggie Clean, a first-of-its-kind fruit and vegetable cleaner​

 

DISTRIBUTION

FMCG Distribution has seen more challenges in the last 5 years than any other aspect of the business. With Demonetization, GST, Army CSD restructuring and the advent of modern trade & e-commerce, companies have been kept on their toes to strengthen their presence in each channel. The current Covid-19 crisis too, has thrown an interesting set of challenges.  While, the irreplaceability of your neighbourhood kiranawala has been reinforced on one hand, we are also thanking our stars for the BigBaskets & Grofers of the world. Marico in its release says, in order to cope up with the twin challenges of manpower and logistics availability posed by the unprecedented crisis of COVID-19, the Company has identified and nimbly executed a number of innovative GTM approaches. The Company joined forces with Zomato and Swiggy to use their platforms for direct delivery to customers. Post enforcement of complete lockdown, a tele-caller facility was set up to directly reach ~80K top retail outlets in the country and take orders from them. In order to ensure uninterrupted supplies to retailers, the Company tied up with start-ups like Porter, Delhivery etc. The Company also introduced a direct to home delivery portal for consumers in select metro cities. This has been critical in ensuring business continuity during the crisis. With further acceleration in online shopping and online media consumption, the Company will continue to aggressively push for growth of the E-Commerce business. While there may be no change in the manufacturing strategy, FMCG companies may have to take a relook at their stocking points to improve agility and execution in this environment

 

DISTRIBUTION INNOVATION

Marico Ties up Zomato & Swiggy

ITC Ties up with Jubilant Foodworks

Cos improve agility and execution in this environment

 

PREMIUMIZATION

In the last few years, premiumization and rising disposable income has been considered as the bedrock on which the Great Indian Consumer story laid.  However, with an impending recession and expected decline in disposable incomes, there is a strong chance that customers will start cutting corners and buy lower priced variants off the shelves. Analysts fear this would be the key near term risk for consumer companies. Marico’s commentary does indicate that the fear isn’t unreasonable. They say, consumers are likely to be more value-seeking during this economic downturn, consumer advantaged pricing and small packs will be a key focus. They also state clearly, that the Company will take a step back from premiumisation initiatives in the short term, while preparatory work in terms of R&D and proposition building will continue behind the scenes.

 

PREMIUMIZATION PULLBACK?

Consumers likely to be more value-seeking

Advantaged pricing and small packs will be a key focus

Company will take a step back from premiumisation initiatives

 

INPUT COSTS

In the current scenario, with a decline in international crude prices and a prolonged slowdown in demand looking, raw material costs are expected to be benign. However, to boost volumes and revenue, most companies are likely to pass on the benefits to consumers. This is clearly spelt out by Marico - The Company will choose to pass on the benefit to consumers and protect & grow volume growth across franchises. So maybe, those pencilling in margin expansion due to low RM Costs may have to wait longer. The company, in FY21 will strive to maintain the operating margin at FY20 levels.

 

Crises accelerate innovation, necessitate creativity and inculcate a sense of discipline, agility and focussed approach for success in the market place.  For FMCG companies, the parameters have been laid out clearly. Let’s hope that all the companies come out of this wiser, stronger and bigger.