Further, there will not be online-only companies because there is something called the California ceiling, only 50 million people who can afford this. After that, companies have to go offline to grow. But you will see a huge number of very personalised businesses with D2C, artificial intelligence etc.
How does growing GDP income impact the consuming habits of people?Sunil D’Souza: As per capita GDP grows, disposable income starts growing. Now, the thumb rule is roughly half of disposable goes into consuming more, half of it goes into buying new products and services. Now, when buying new products and services start, people do not immediately start consuming better things. They start buying newer things. First discretionary items will start to move up – two-wheelers, financial services, electronics, all this kind of stuff.
The second thing which happens is services start to move up, whether it is health, education, personal fitness, all these kinds of stuff. Consumers will start to upgrade what they are doing and move. I see a secular trend of health and wellness and convenience. Consumers are spending around not only health products, supplements, being conscious of nutrition, but also this whole convenience piece, online, outside ordering and I will come to e-commerce and the retail scope. You will find brands taking off. People moving from commodities to brands. India still has a long way to go.
Across categories, Indian penetration is low. If you take durables, for example, television is in about 80, 80 out of 100 households. But the refrigerator is only in one-third of households. So, two-thirds of the Indian population does not have refrigerators. If you take washing machines, the penetration is between 13% and 15%. So, 85% of the market is out there. In the case of air conditioners, it is 5-7%. So, there is huge scope in durables.
If you take four-wheelers. In India, the four-wheeler penetration is 24 per 1,000 households, globally it is 300, so that is a huge. Even in categories that we play in, in tea, one-third of tea is still unbranded. There is a huge runway out there. So, brands will take off. People will spend on technology. People will use credit. Coming back to the e-commerce piece, which I talked about. The retail landscape will change dramatically. Modern trade will take off because India is still under-penetrated. It is primarily driven by kiranas. Modern trade will take off. But e-commerce will also take off. Now, a lot of people will say e-commerce, will it go beyond this? To give you a perspective, in India, just 5% of retail spend happens online. In Brazil, it is 15%, the US is 25% and in China, it is 35%. So, we have a long way to go.About 60% of Indians who are online have never transacted on e-commerce online, whereas in China, the US, that number is only 20%. There is a long runway out there, excepting there is a difference between what you saw in the past and what will happen in the future. We will not see the cash burn. I think that has become sensible. We will not see online-only companies because there is something called the California ceiling, only 50 million people who can afford this. After that, companies have to go offline to grow. But you will see a huge number of very personalised businesses with D2C, artificial intelligence etc.
In the D2C market also, when you look at it, a lot of listed players, a lot of companies now are focusing on that. Do you think that is a major trend that one should be watching out for in any segment that is specifically on the consumption side? Is that something that could play off whether you look at it in any sort of a market?
Sunil D’Souza: I go back to what I said earlier. Like D2C, there will be certain segments for which D2C is important. Financial services and other services, etc, but from a consumer goods perspective, I talked about the California ceiling of 50 million people affording that. It is not a billion people that you are going to target. So, products which appeal to the 50 million people will take off. But if companies really want to scale, D2C alone is not sufficient. You will have to be omni-channel. You will have to come down. You will have to be in the modern trade. You will have to be in the kirana stores to really build scale.
If you just talk about the growth story for the company, for Tata Consumers also, it has been fabulous since the time you have joined. We have spoken about this focus on becoming a wholly owned FMCG play that you want to focus on. As a trend, how have you seen the change shifting more towards premiumisation? Is that a major trend that we should keep an eye out on? And how do you see this shaping up for the company?
Sunil D’Souza: So, I see two trends out here. A is the higher end of the consumer. There will be premiumisation happening. The other thing is a sort of premiumisation. The Indian consumer was largely a price-driven consumer, that is my generation and before. When India was always in a perpetual recession and you never wanted to spend because you did not know what tomorrow will bring. But today’s consumer who is coming of age is the consumer who is born in liberalisation. They have seen an India which is confident in India, which is growing, a GDP which is accelerating. So, these consumers are very confident of going out and spending. So, it is not only premiumisation, the consumer will move to value.
There is a price-value equation. Coming to May automobile sales, Maruti sold more Swifts than Wagon Rs. They sold more Balenos than Brezzas. So, it is not the price. People are looking at price to value and moving up. But again, when you say premiumisation, it depends on the brand and the story creation. It depends on the price-value equation that you provide. It depends on the differentiation that the product provides.
What about the capex story for the company? When you have planned in terms of focusing more on capex, you have given a number for FY25, how do you see that changing and what is your main focus going to be going forward for the next five years?
Sunil D’Souza: We are a FMCG company. Most of our biggest spends are going to be growing businesses. Now, FMCG is not a large capex-heavy business. For FY25, yes, we have extraordinary capex of about Rs 400 crore, which we are investing in expanding our capacity in the coffee plant in Vietnam. But other than that, it is broadly, as a percentage of our total revenue, largely constant. So, it is not going to be extraordinary. Yes, if we find a big opportunity, there is no reason we would not go there. But largely, FMCG companies are broadly very straight-line capex.
There are a lot of companies. I see small companies coming. And now the trend is everyone is reading the brand properly. Everyone is reading the ingredients. Is that something of a concern? How do you see smaller home brands coming in impact the FMCG business?
Sunil D’Souza: If you are talking about consumers being more aware of what they are buying and reading the labels on the products, consumers being more aware of what I call HFSS, high fat, salt and sugar – health and wellness is going to be an increasing trend. Consumers are going to get more aware. As the economy develops, regulations are going to get more stringent. That is actually good for companies like us because we always make sure that we are in the right place. We are probably one step still further than what the loss is. It is because we want to do the right thing.
So, no worries, like, doctors keep saying, reduce sugar, reduce salt in food, that is not a worry for you because you are fine on that line.
Sunil D’Souza: Ultimately, consumers have to make a choice and everything in the right proportion. People do enjoy desserts. People do enjoy sweets, but in the right proportion. Be healthy, focus on exercise, eat right, and make the right choices.
