Key takeaways for Consumer sector from IIFL’s 14th Enterprising India Conference, February 2023

20 Feb 2023 , 10:48 AM

While it is early to call out a rural recovery yet, there are factors making it a probable event in near future. In QSR, Devyani and Sapphire laid out divergent strategies towards new store opening in the wake of a greater slowdown in the Pizza cuisine. In Apparel, Trent continues to outperform peers with a consistent approach to retailing, whereas ABFRL is upping its game in the ethnic wear space. 

FMCG

FMCG companies stated that demand conditions have continued to be more of the same; it is difficult to conclusively call out a recovery in rural demand at this point. Companies highlighted their own efforts and strategies – Marico in foods, GCPL on their recent disruptive innovations, Emami on increasing share in modern channels and Bikaji on distribution expansion. 

QSR

Management of both Devyani International and Sapphire Foods acknowledged the higher competitive intensity in the Pizza cuisine as one of the primary reasons of a greater slowdown versus other QSR formats. While this may lead to lower store additions in Pizza Hut versus earlier guidance, Devyani indicated towards higher store additions in KFC to offset the impact on growth. Sapphire, on the other hand, stated that a slowdown in Pizza Hut doesn’t increase opportunity for KFC.

Apparel and Footwear

While a broad consumer slowdown has been the theme of Q3FY23, companies such as Metro Brands and Trent (Westside) have reported a strong performance, bucking the slowdown trend. Both companies cater to consumers from slightly higher income segments, less impacted by inflation. Also, Trent has been a consistent performer in its Westside format over the years, owing to a disciplined and committed approach – zero third party brands, limited pricing actions, not carrying slow-moving inventory, offering the right value proposition, a deeply integrated supply chain, no sales via third party retailers, etc. In the ethnic wear space, the competition is about to heat up as ABFRL plans aggressive expansion in its ethnic wear brand – Tasva – with ~50 store additions every year (currently the store footprint is 32 in December 2022).

Paints

Asian Paints indicated towards a normal demand environment currently, even as it witnesses a very strong demand environment post COVID, due to pent-up demand and last six months were impacted by monsoon. Industrial demand has been good in past 18 months; Auto segment has also picked up in past two quarters. The company guided towards Ebitda margin of ~18-20% in the medium term, which factors in new competition.

Main track presentations

Apart from companies, IIFL Capital Services hosted three main track presentations – 1) Mr. Nikhil Ojha (Senior Partner, Bain & Company) and Dr. Rajesh Shukla (MD & CEO, PRICE) on India Consumer Insights; 2) Mr. Harish Damodaran (National Editor, Rural Affairs & Agriculture, The Indian Express) on the state of rural economy; and 3) Mr. Kaushik Mukherjee (Co-founder & COO, SUGAR Cosmetics) on Evolution of D2C & consumertech market. The consumption runway has a long runway for growth in India with the share of Middle-class and Rich households expected to increase from 30%/3% to 50%/10% respectively by 2030. In terms of rural growth, real wage growth was positive in November 2022 and with a good Kharif crop, expectations of a strong Rabi harvest and food prices continuing to hold up globally, rural incomes are well-poised to improve in the near term. Regarding e-commerce, D2C brands provide a great starting point, but growth slows as they reach Rs1 billion scale and customer acquisition costs increase.