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Mondelez bets on rural market to boost sales

LiveMint logoLiveMint 20-08-2017 Soumya Gupta

Mumbai: Mondelez India Foods Pvt. Ltd, the makers of Cadbury chocolates, is investing in its rural distribution network and lower-priced products to boost growth even as consecutive poor monsoons, demonetisation and now the goods and services tax (GST) have taken a toll on sales, according to a top executive. 

“At least for the last four months, now with the impact of demonetization all done and dusted, both wholesale and rural is growing fast,” said managing director Deepak Iyer. “Rural is growing faster than urban.” 

The company has doubled its reach to 40,000 villages now from a year ago, Iyer said. Rural sales contribute about one-fifth of Mondelez’s sales now, compared to 10-11% a year ago, he added. The firm has 350,000 outlets in these 40,000 villages. 

A second aspect of this strategy is to invest “a significant amount of renovation efforts in our low unit price” products, said Iyer who took charge in August 2016.

These efforts included more ‘bonus packs’ for the company’s brand Gems, more pieces in the iconic Cadbury Dairy Milk, and more premium ingredients like caramel in the firm’s other brands at lower price points like Rs5 and Rs10. 

Mondelez now has over 1,000 distributors and 7,000 sub-stockists who distribute the company’s products to small general stores and other retailers, Iyer said.  The firm has also been investing aggressively in its 12 manufacturing facilities to back this distribution network. The latest is a $230 million investment in a Sri City plant in Andhra Pradesh, expected to produce nearly 250,000 tonnes of chocolates and biscuits by 2020. 

Still, there are major hurdles it has to clear to accelerate growth. 

“A significant part” of the product portfolio has gotten into the higher tax bracket, Iyer said. “But that’s the roll of the dice. We are evaluating all options, not limited to just a price hike. But we have not made a decision yet.” 

However, this will hit the margins in the short term. Iyer also said rising raw material prices, particularly of sugar and milk, are putting pressure on the company’s margins. Bloomberg data shows that prices of the MCX benchmark sugar index have risen 63.8% in the year to July 2017. 

While the firm’s financial numbers for fiscal 2016-17 are not available with the Registrar of Companies, the numbers from the year earlier show sales fell 17% year on year to Rs5,400 crore while net profit declined 63.4% to Rs34.83 crore. 

To be sure, a part of this drop is also because the company shifted from reporting earnings for the calendar year to the April-March fiscal year. Numbers for FY14-15 included sales and profits for an additional 3- month period between January and March 2014. 

“Last year, overall the FMCG sector was reeling under the pressure of rural softening up because of two years of drought,” Iyer said. 

Mondelez declined to share financials for the fiscal year 2016-17.

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