Tata Consumer’s MD & CEO Sunil D’Souza believes that food inflation is putting pressure on urban spending, which is taking a toll on out-of-home consumption. In a conversation with FE, D’Souza throws light on the company’s strategy in the wake of inflationary concerns and whether volume growth will continue be weak. He also indicates how his firm is fighting Reliance’s Campa Cola in beverages, where competition has significantly grown. Edited Excerpts:
How severe is the urban demand stress?
Urban demand has softened. There is stress on urban demand, though rural demand is recovering. This has to do with food inflation, which, in turn, is putting pressure on out-of-home consumption in urban areas. For instance, the quick-service restaurant (QSR) segment is under pressure. Same-store sales have declined by mid- to high single-digits within QSRs. Starbucks is also feeling the pinch. The number of consumers walking into (Starbucks) stores, namely, footfalls or traffic has dropped. Therefore, same-stores sales are lower. We are countering this with an attractively priced menu, which includes coffee plus food options. The idea is to try and get consumers back into stores.
Given the price pressures, is there a plan to hike the prices of your products?
In salt, we have taken a price hike of around 7% in the one-kg pack. The retail price has inched up to Rs 30 from Rs 28 earlier (for one-kg packs). In tea, we have been more cautious with our price hikes despite a sharp increase in tea costs. So far, we have passed on just around 3-4% in terms of price hikes to consumers in tea versus a nearly 30% rise in tea costs. We want to stay competitive in tea and do not want to take a big jump in prices which could hurt consumption. Coffee prices, on the other hand, have been volatile. For now, if prices remain where they are in coffee, I don’t see any major pricing action.
Are you seeing volume growth taking a hit again in the December quarter due to price hikes?
There would be an impact on volume growth due to food inflation. But we are playing across a portfolio of products and not in one segment alone. So, much will depend on how we play the price, pack and brand strategy across geographies. Our strategy would be to be careful with pricing action so that we can minimise the impact on downtrading, and therefore, volume growth.
What is your strategy to counter the growing competitive heat with Reliance’s Campa Cola in beverages?
The big focus for Campa Cola and direct competitors such as Pepsi and Coca-Cola has been on the Rs 10 pack. While the consumer price has been intact, Reliance raised retailer margins sharply on its Rs 10 pack. This forced a reset in pricing. While the multinationals were quick to adjust their price to retailers, we were slower to react. We have now adjusted our trade margins so that we can compete in the marketplace. We compete in the space with ready-to-drink brands such as Tata Gluco Plus, which has multiple flavours in the Rs 10 pack size. While we are not national players yet, we have our strongholds, including Andhra Pradesh, Telangana, Odisha and West Bengal. We do not intend to forego market share in our strongholds.
Are you looking at more acquisitions after integrating Capital Foods and Organic India into Tata Consumer?
We are open to acquisitions. Right now, we’re focused on building a solid food and beverage company. We’ve drawn detailed road maps in this area.
And while we are present in spaces such as breakfast, mini meals and snacking within foods apart from other food and beverage categories, there are areas where acquisitions could help. We are keeping our eyes open and if something interesting comes along, we may consider it.
What happened to the acquisition plans in the spices category in the south?
Spices remain a very attractive category from an acquisition perspective. Overall spices in India is about Rs 60,000 crore in terms of size. The branded market is only about Rs 24,000 crore. Barring a few national players, the category is largely dotted by regional companies. We are on the lookout for good acquisition opportunities in the space.
From: financialexpress
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