The Union Budget has put more cash in the hands of taxpayers with income up to ₹12 lakhs attracting nil tax and the disposable income is expected to find its way into discretionary spending first, according to Sunil D’Souza, Managing Director and CEO of Tata Consumer Products.
“My theory is that the uptick will be first in discretionary spending…,” D’Souza told businessline in an interaction.
D’Souza also expressed optimism that the slowdown in urban demand will soon ease and growth return.
Fast-moving consumer Goods (FMCG) players have raised concerns about the slowdown in urban consumption. Do you foresee the slowdown to continue?
In urban, inflation was higher than real wage growth. The food inflation was significant, the headline number on food inflation was close to double digits in October. It came down to 9 per cent in November and then 8 per cent in December. The real variable has been food inflation and with that coming down, we are seeing an easing of pressure on the urban side.
If I look at my sales, and general trade, rural has been strong with a double-digit growth while the urban was low single digit. However, the two channels primarily operate in urban areas – modern trade and e-commerce. If I add modern trade and e-commerce, then the growth is also close to double digits.
The slowdown in urban areas when calculated has a lot to do with Kirana stores, however, quick commerce has come about on the horizon in the last 18 to 24 months, if one adds that back then the picture is different.
The slowdown will ease out and we will see strong growth return in urban areas.
Will the relaxation in income tax spur swift consumer spending in FMCG?
The budget addresses the rural and urban segments. Schemes that will create infrastructure in rural and on the extra disposable income, will spur demand. My theory is that the uptick will be first in discretionary spending — new televisions, scooters, and vehicles before the consumers purchase more premium products.
The Indian consumer continues to value convenience, health and wellness. The consumer is shifting to the digital world, whether in media consumption or shopping experiences. We will start seeing urban demand come back and with the boost provided by the extra disposable income in the hands of the consumers, the overall demand will make a comeback in the economy.
Capital Foods and Organic India registered robust sales with ₹850 crore in 9MFY25. What is your guidance on the growth of the brands and do you plan to enter newer geographies?
We have stated that Capital Foods and Organic India are part of our growth portfolio, and the growth portfolio will account for 30 per cent of our business. In Capital Foods, the consumer’s understanding of the category was something we learned while setting up the distribution network while in Organic India, the supplements are a completely different ball game, we figured that we required more depth into the larger outlets than just the width of distribution for the brand.
Going ahead, there will be a significant acceleration in growth overall for both brands.
We leveraged the Capital Foods distribution network to grow our business in the international market, our business of selling Tata Tea, Tata Salt, Tata Sampann and others has jump-shifted.
When we enter other international markets, it will not be through the traditional entry of having a full-fledged salesforce we will be eyeing distribution partnerships.
The company earlier stated that corrective actions would be taken in NourishCo. What actions were implemented?
We exited December at a 39 per cent volume growth. We have put in corrective actions primarily on pricing, we corrected our retailer margins to make sure that we are competitive in the marketplace on Tata Gluco Plus and therefore landed in a good place.
We have touched 1,00,000 outlets and have put in several data and analytic systems to spot issues. We are substantially upgrading the capability of the frontline and will be hitting the summer season with an extremely competitive distribution system and product portfolio.
Quick-commerce sales for FMCG players have grown substantially. How is it for TCPL? What will be the impact of the change in consumer spending?
E-commerce now accounts for 15 per cent of the company’s sales which is greater than my modern trade sales and a large factor of that is driven by the fact that quick commerce now accounts for 50 per cent of e-commerce.
Modern trade has also grown for the company by about 14 per cent. The consumer is shifting from traditional trade to modern trade and e-commerce.
Not all consumer behaviour is driven by pricing and discounts, a lot is driven by the sheer convenience offered by quick commerce players.
TATA Starbucks is set to open 1,000 stores by FY28 in India. Despite drinks offered at lucrative prices, the overall footfall in stores has decreased. How do you plan to address this?
With Starbucks, we are focused on the long-term opportunity. In the short term, we have seen traffic pressures and hence the pressure on the same-store sales growth, the pressure is across the Quick Service Restaurant (QSR) segment.
The hypothesis is the same theory of inflation and therefore pockets getting squeezed and consumers spending less. As confidence returns to the urban markets with inflation dropping and the boost of consumption in the budget, we expect discretionary spending to see faster comebacks. We have a deeper presence in India and have opened stores in Bhopal, Indore, Cochin, Bhubaneswar, and Guwahati. We are present in tier 2 and tier 3 cities and are finding a good, if not better response to the brand and sales in the cities than the metros.
Tea prices have seen an uptick during the quarter, when do you see the prices coming down? Also, will you implement price hikes in Q4?
The tea prices in Q4 will not move because in North India the plucking stops in December and the next plucking is around March and April. During the quarter, there is no output and therefore the prices will remain at what they are because I’m already carrying the inventory for the quarter. When the new crop comes in, assuming the crop is normal, the prices will taper down and the margins will return to normal.
We have covered 40 per cent of the price hikes but not all of them flowed into the P&L because it was taken at different points during the quarter. We will take calibrated price increases to mitigate margins, and this will be done in a manner where the products remain strongly competitive, and we do not lose market share because of the pricing.
The margins will normalise between Q1 and Q2 of FY26.
Published on February 10, 2025
