The duty hike may push up our selling prices -- Mr Pranab Datta, CEO, Healthcare, Marico Industries

Latha Venkatraman

The sharp hike in edible oil import duties this week, is the third consecutive hike in the past nine months.

So what impact will this duty hike have on the dynamics of the domestic marketplace? Mr Pranab Datta, Chief Executive Officer, Healthcare, Marico Industries, feels that the latest duty hike coupled with the simultaneous hardening of sunoil prices in the global markets, may not augur well for his company, as Marico meets 80 per cent of its sunoil requirements from imports. In this interview with Business Line, Mr Datta shares his views on this issue and the prospects for players in the branded edible oil market.

Excerpts from the interview:

The overall agricultural growth has been quite poor over the past two years. Rural disposable incomes are therefore likely to be lower. Do you see this impacting demand for your products?

Our refined edible oils are largely sold in urban areas. The impact of reduced rural income is unlikely to impact us.

FMCG marketers have been talking of expanding growth potential through rural market forays. Does Marico see potential for branded edible oils in the rural market?

The rural market is addressed by the loose edible oil industry. Unless the Edible Oils Packaging Order gets implemented, I do not see players like us entering the rural market. A bulk of our products is sold in the larger towns.

Edible oil prices are volatile. Regional brands change their selling prices week to week, and thus, pass on benefits from a price fall to the consumers whereas national brands such as yours do not resort to frequent price revisions. Do you face a threat from such regional players?

True, regional players are able to react to prices almost immediately. The platform on which they sell is pricing. To that extent they are able to align with the market trends, far more than established players who have to service an all India market. I sell my brands throughout the country, therefore I have to maintain inventory. Since the bulk of edible oils is sourced from imports, I need to enter into contracts with my suppliers abroad.

So, larger players take some time to align with the market, particularly in a declining market. But in a rising market, a larger player can absorb costs for a longer time. In a declining market, it is advantageous to be a smaller player while in the former, the reverse is true. Small players do have a role to play as they have introduced a great amount of dynamism in the market. They address a specific segment of the market.

What is the response to the recently introduced corn and kardi blended version of Saffola. What are your other plans here?

Our kardi corn blend is a proposition that is different from the original Saffola. We are trying to address the needs of different segments seeking the same value but at a different price point. The response has been quite good and the brand has been steadily growing. As per ORG data, this brand accounts for two per cent of the entire market for refined oils in consumer packs. In terms of volume, it is bigger than some of the other national brands. We have also expanded Saffola equity to salt. In future, we can expand it to other products. But we have no specific plans at this juncture.

Unlike other FMCG products such as soaps or detergents, the scope for product differentiation in branded staple foods appears limited. As a player of long standing in the branded edible oils market, what strategies have you adopted to differentiate your products?

Our proposition for Saffola has been ``the heart of the healthy family''. Whether it is safflower oil or kardi corn blend, we sell our edible oils as ``healthy oils'', high on unsaturates, which provide you with essential fatty acids and help in curbing cholesterol. In the case of Sweekar, the differentiation possibilities are limited. But we sell this brand on a different platform. The Sweekar campaign is on empowering the home manager and, therefore, goes beyond the category itself. In the case of salt, we have a low sodium salt. As higher salt intake is associated with blood pressure, we have introduced a product that substitutes sodium with potassium. But we are catering to a small, specific market.

What is your expectation of domestic safflower and sunflowerseed availability in the current oil year (2000-01? Is it likely to be better than last year?

As far as domestic safflower is concerned, plantings are going on as it is a rabi crop; we will know by March of next year. I do not expect any major difference in safflower output because the crop is limited to Maharashtra, Karnataka and Andhra Pradesh. Output of domestic sunflower seed has gone down from 10 lakh tonnes to 7-8 lakh tonnes. This crop is losing its significance in the context of increasing imports. I do not expect any increase in either of these two crops.

Global agencies predict that global sunoil market will tighten significantly in the coming oil year. How much will the recent hike in Customs duty on import of edible oil impact your bottomline?

There is a dual effect on costs. Sunoil prices have moved up and customs duty on imports have gone up. The prediction is that production of sunoil in major countries is likely to be lower this year and therefore, the anticipation is that sunoil prices will harden. In the last 15 days, prices have risen by $40 a tonne. We also have a duty increase of about 7-8 per cent. Marico imports almost 80 per cent of our sunoil requirements. Absorbing the additional costs will be impossible.

So, we will have to pass on this to the consumers. I agree that demand for edible oil is price-elastic, but at the same time, it is an item of daily consumption. Some switches in consumption may take place.

The sharp decline in international edible oil prices over the past year have made imports quite competitive. Do your brands face a threat from cheaper imported oils?

The edible oil industry is largely dominated by the bulk segment. Unbranded segment accounts for anywhere between 80-90 per cent of the total consumption. Then you have a flood of imports which are inevitable as domestic production of oilseeds cannot take care of domestic requirements. Imports of edible oil are taking place in two forms -- refined and crude oil. A large part of the crude oil gets sold as unbranded oil.

Our brands constitute a very small chunk of the edible oil industry. The refined oil in consumer pack as per ORG data is just about 21,000 tonnes per month or 2.5 lakh tonnes a year, whereas the total amount of oil consumed is around 10 million tonnes per year. There is a huge gap between the unbranded and branded market. As far as threat to our brands is concerned, if refined oils are available at very low prices, they impact you to the extent they impact the price table, but otherwise there is no direct impact because we operate in totally different segments of the market. We compete in the branded category, so it is just one brand competing against the other.

What have been Marico's efforts in increasing brand penetration and loyalty?

Branded edible oil is more of an urban phenomenon. We neither trade nor sell loose, but sell in consumer packs on the basis of a brand value. Penetrating this market is difficult, because the consumer buying loose oil, gets a different price and quality. Value practices in this segment are different. Therefore, it is not an equal competition at all. Our focus is on the branded market where we are steadily growing.

What growth rates do your expect in your edible oil brands in 2000-01 and what is your outlook over the next two years?

We should maintain our growth. We should have a double digit growth in the branded market. We are investing heavily in brand building to establish a greater rapport with the consumer, and are offering a whole range of packages to help the consumer align with our products to create a competitive edge in the market. The consumer will be at the centre of our attention.

Picture by Shashi Ashiwal