We're looking at acquisitions but won't buy at all costs: Tata Consumer MD

In a Q&A, Sunil D'Souza talks about the company's strategy to launch more D2C brands and his outlook on demand for the company

Tata Consumer Products is in talks to acquire 3-4 players, but isn't in the bidding game and will not buy at all costs, says the firm's MD and CEO Sunil D'Souza. In an interview with Sharleen D’Souza, he talks about the company’s strategy to launch more D2C brands and his outlook on demand for the company. Edited excerpts:

Why was beverage consumption in India impacted during the quarter?

Overall, our tea business in India was softer this quarter primarily due to two factors. One is rural weakness. So, that part has been impacting us and continued a bit in Q3. That apart, we are skewed slightly higher in the north where there is greater seasonality and where the winter was delayed this year. We saw winter actually hitting in the middle of December. (But) from then on we've started seeing some decent numbers. I would say continued stress in semi-urban and rural and delayed winter were the primary factors that drove softness in the beverage space.

When do you expect a recovery in consumption of beverages?

We saw a decent December, and January was better. Now I'm keeping my fingers crossed that this is a sign that we have probably bottomed out and from here on we should start seeing recovery. I'd say we have started seeing volumes, value growth will be there, but volumes is my more important determining factor for categories like beverages. We have started seeing some signs of recovery but I'd wait for one more quarter before saying volume growth is back. I don't want to get ahead of myself on this.

When do you expect the stress in consumption to ease?

I am seeing some recovery, and it isn't only in beverages. We've started to see decent volume growth even in salt. I would say two factors are at play here. One is the future forecast for inflation, which is going to be sort of stable and is not spiking. The other is all the budget-driven initiatives by the government. I'm cautiously optimistic that this quarter onwards you should start seeing the trajectory come back.

When will the e-commerce business start contributing in double digits?

The target is to start hitting double digits quickly and if I actually put together the two businesses (e-commerce and modern trade), which I call channels for the future, they are already close to about 25-26 per cent of our total sales. The big contributions (online) are still from the full grocery players like Amazon and Flipkart. Those are No. 1 and 2, and we are seeing traction in quick commerce. We've got our D2C business too and are now aiming to accelerate it. We expect both e-commerce and modern trade to continue ramping up as disposable incomes grow and as consumers look for convenience.

What is your distribution reach target for the next financial year?

Our direct distribution currently stands at 1.4 million outlets and by this September, our total numeric reach should be at four million. We are close to 3.6 million as on date and on track to hit those targets. In the next 30-60 days, we will put out the next target we want to achieve.

When do you expect recovery in the international business?

We underestimated the amount of inflation in the market. No one expected the UK to hit double-digit inflation. No one expected coffee to stay elevated in the US and inflation to rise so fast. In the US, we started de-gramming (reducing grammage) and put that into the market in the middle of last quarter. There has been a bit of a hiccup on on-shelf availability in the US, but we should soon overcome that.

In the UK, it's not that we delayed our pricing action. We needed to give (that market) notice because it is all organised trade. We have to give them three months notice for pricing, which we did, and effective February, we've taken the pricing and have seen it depicted on the shop shelves. Now international margins have already moved by about 240 bps from the last quarter to this quarter. We do expect another significant momentum to happen this quarter.

Are you in talks currently to acquire any more companies to strengthen your F&B business?

We have been juggling around 3-4 simultaneous discussions at any point in time. We're clearly focused and have drawn up a roadmap of the entire food and beverage space, identified very clear platforms which we want to play and categories which we want to play. We were clear about where we can build organically, and where we will have to go inorganic. We are not in the bidding game and will not 'buy at all costs'. We need a clear strategic rationale. It (an acquisition) needs to fit into our strategic framework, and must pass financial guardrails. It's only then that we take the next step. Yes, we are in talks with multiple players. Because we've gone through the details, we would be able to convince people that they are value accretive. We are extra mindful when we go into inorganic, as our aim is to create value with those acquisitions.

When will Tata Consumer enter the non-food space?

We've started working on the roadmap of how we want to get into FMCG, but unless we build a strong F&B company, we won't jump in. We'll start moving into the FMCG space only when we are very confident that the runway or the big pieces of the F&B space have been tackled. I don't think we have tackled them yet. We still have opportunities that we need to pull down and make sure we've ticked them off. We have started mapping out, it's only a matter of time (before we get in).