Marico’s Saffola Runs Into Competition, Health Conscious Indians

Marico Ltd.’s branding of Saffola as a safer alternative helped win consumers in a country where people suffer from diseases like diabetes and hypertension at least a decade earlier than peers in developed nations. But the company’s volumes have plateaued amid competition and as Indians look for healthier options.

The brand has a 72 percent share of India’s premium oil market and contributes nearly 18 percent to Marico’s domestic revenue, according to the company's website. Saffola’s volumes have either fallen or were flat in the last eight quarters barring a spike in three months ended in June 2018—they have since declined.

Saffola attracts a set of health-conscious users who have reduced consumption of oil, Saugata Gupta, chief executive officer and managing director of Marico, said during the latest quarterly earnings conference call. That resulted in a slower offtake for the company’s edible oils, he said.

That comes when India’s burden of non-communicable diseases is escalating, according to an October report in Lancet. Such ailments are typically present in individuals aged 55 years or older in many developed countries, but their onset occurs in India at around 45 years of age, it said.

But that’s not the only reason why Saffola’s volumes are not growing as earlier. Consumers are unable to differentiate Marico’s premium edible oils from products by rivals who have advertised more aggressively, Gupta said in the earnings call, adding that lack of new premium products, too, led to the slowdown in demand in the last six months.

In the earnings call, Gupta said Marico would need to go back to the drawing board to find ways to differentiate their products from those of their competitors in the premium segment—the biggest contributor to the segment revenue.

Marico also attributed sluggishness in demand to lower sales from Canteen Stores Department, according to the company’s annual report 2017-18. That came after the Ministry of Defence cut budget for India’s largest retailer—the single-largest client for many consumer goods makers.

The company has yet to respond to BloombergQuint’s emailed queries on strategy and volumes.

Pricing And Promotion

Marico changed its branding strategy to draw consumers even as it wants to maintain its premium pricing. But that didn’t help as it faces competition from rivals which have priced their products competitively to boost their share in India’s edible oil market pegged by Euromonitor at Rs 1.3 lakh crore.

The average price of four main variants of Saffola, including Active, Tasty, Gold and Total, is Rs 157 a litre, according to Edelweiss. That’s 13 percent higher than the average price of its closest competitors, including Emami’s Healthy & Tasty, Agrotech Foods’ Sundrop Lite, Gold Lite, Superlite Advanced and Adani Wilmar’s Fortune Sunlite, Rice Bran Health and Vivo brands.

The company’s focus on its premium offering and rebuilding brand equity as a provider of differentiated healthy blended oil has its own challenges, according to Abneesh Roy, analyst at Edelweiss Securities, wrote in a report. Saffola is the highest gross margin-making edible oil in the country, and the company doesn’t wish to dilute the brand equity to gain volumes, he said.

“The problem with this strategy is that it is very difficult for a price-sensitive product like edible oil when all competitors make similar health claims while offering the product at a significant discount to Saffola’s premium offering,” said Roy.

Marico is looking to improve physical store sales and improve distribution, besides working on its modern trade channels, including e-commerce.

According to Gupta, the edible oil segment for now is “work-in-progress and will witness slow growth in the near term”. The company expects to report 5-6 percent volume growth in Saffola in the second half of the ongoing financial year and 6-8 percent in the subsequent quarters. While the management aims to add another 3-4 percent growth in the future, Gupta said the double-digit growth in Saffola “has taken much longer than it should have”.