We will optimize costs to deliver decent bottom line: Tata Consumer MD & CEO
Premium- Sunil D’Souza said the company is now rolling out new products and expanding its coffee chain Starbucks
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In its September quarter earnings last week Tata Consumer Products Ltd reported a business growth of 14% in the beverages business in India while foods business volumes were up 16% year-on-year. The maker of Tata Sampann pulses and Tata Tea said that it will tweak pack sizes, prices, channels and marketing spends to keep costs under control. In an interview, Sunil D’Souza, Managing Director & CEO of Tata Consumer Products, said the company is now rolling out new products and expanding its coffee chain Starbucks. Edited excerpts:
Are tea prices more stable?
India tea costs hit an all-time high September 2020—they were about 70% higher than they were in September 2019. That was primarily to do with the demand-supply gap where the supply fell short because of the lockdown and plucking was not allowed. They've been coming down a bit. I would say in about May and June of this year, there was again a small bit of an uptick.
Right now, it is sort of range bound. It's about 30% down from where the peak was, but it's still around 20% up from where it started in 2019.
The good news is, over the last 12 months or so—we've been taking gradual price increases. Right now, unless anything happens, we see a stable environment, so to speak. And therefore, the margins in the tea business we would see improving quarter-on -quarter. This quarter itself it has improved significantly versus last quarter. But we will see improvement further, and going back to the normalcy in Q3 and Q4, I would say.
What about food inflation?
Foods (inflation) is playing diametrically opposite to the beverage business because in foods the biggest piece for us is salt. And salt is getting impacted by two big inflationary trends. Number one, is overall oil and the downstream impact of oil which includes freight, plastics and therefore packaging, etc. The second piece which we're seeing, which is a recent upsurge, but has come up very strongly—is the cost of coal. Because remember, we've got to evaporate brine and then extract the salt—there is significant usage of coal.
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But that said, going ahead we will look at multiple items—we will tweak pack sizes, prices, channels, A&P (advertising and promotions) spends, discretionary spends and other costs. We will try and optimize every single cost to make sure we deliver decent bottom lines as well.
How is inflation affecting monthly household consumption?
I don't think it has hit the households as yet —I don't think the inflation has fully got translated into pricing. Yes, we would have heard various companies make different comments about price hikes, but I don't think we've seen the whole movie play out as yet. For TCPL, we are in the staples business. Every house uses salt and tea.
The impact for us might not be as much as for other companies in the discretionary FMCG space.
Are you flagging slowdown in rural yet?
Overall, for TCPL, our urban footprint is much more significant than our rural footprint. In fact, our urban market shares are significantly higher than our rural market shares. And, therefore, the opportunity for us is to expand rural. This year, so far, we've added about 4,000 rural distributors, who did not exist a year ago—the target by March is to get to over 5,000.
But if you go by the Nielsen numbers, you do see softness in rural compared to urban; I think rural lags urban.
Unlike the first wave, in the second wave covid-19 hit right in the hinterland. People probably stopped in their tracks and held back for a bit. But going forward, having seen a good monsoon, having seen the MSPs come up, and the interventions the government is doing the rural economy, there is no reason why rural should be lagging urban significantly.
How has Starbucks recovered?
In Starbucks we've got a very strong brand. Unfortunately, we could not open too many stores in the first quarter because of the lockdown. In the last quarter, we opened 14 stores; now you will see the momentum on store opening build up.
As soon as the second wave receded and the economy started opening, we've seen consumers coming back. During the lockdowns, the Starbucks team figured out how to dial up delivery; delivery continues to stabilize at high double digit. It was about 17-18% of the mix in the last quarter. Also, during the lockdown, the teams figured out how to tighten their belts—be it rental costs, or other expenses, spillages and wastage etc. Now, I think the ball is in our court as to how quickly it can go from here. I wouldn't go into how many stores India can take, but if I look at comparable countries around the world, they're all in excess of four digits. So, we've got a long way to go in terms of store openings. We have still not finalized with the board—but let me just say we're putting some aggressive numbers in place.
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