Tata Consumer Eyes Direct Supply In 20 Lakh Outlets, Strengthens Rural Game
The expansion in distribution comes at a time when smaller rivals are eating into its market share.
Tata Consumer Products Ltd. is expanding its distribution network in a bid to regain market share as competition from smaller rivals intensifies.
The fast-moving consumer goods division of the Tata Group aims to grow its direct reach to 1.7 million outlets by the end of this fiscal and further grow this number to reach more than two million next year. In terms of its overall reach, the company is looking at four million outlets in fiscal 2024.
"Post the formation of Tata Consumer nearly four years ago, what we found (is) that our distribution is concentrated in the key metro cities while in the lower urban centers, which is essentially the tier-II and tier-III cities, we had a very sketchy footprint," according to Navaneel Kar, president and head (India sales) at Tata Consumer Products.
"So, we had a big task cut out for ourselves in what we call the rest of urban. Fast forward to 2023, our direct distribution footprint has gone up by almost three times."
Currently, it has a direct reach of 1.5 million outlets and total reach of 3.8 million outlets. While Tata Consumer has largely covered the rest of urban markets, the next stage of growth is going to be rural, Kar told BQ Prime.
"We are not implementing a spray-and-pray approach in the rural markets. Instead, we have identified states where consumption for categories that we operate in are very high and started building distribution in these markets," said Kar. "We're very careful of selecting these markets as the cost of building rural infrastructure is relatively costlier than urban."
The Tata Group firm is working with external consultants to identify priority markets. "We are also ensuring our entire assortment is made available to the distributors to be able to sell and not just Tata Salt," said Kar.
Fight For Market Share
Tata's distribution strategy, especially in rural areas, highlights the fight for market share as local players make a comeback and flood the market with low-priced products as inflation cools. These brands, with localised marketing strategies, have gained market share in their areas of operation.
Tata Consumer said its market share of the salt and tea markets suffered a knock in June amid inflationary woes. While its share in the tea business fell 50 basis points volumewise and 110 basis points in terms of value over the previous year, there was a market share loss of 30 basis points in salt mainly led by the low-priced brands, according to Nielsen data.
"Clearly, there is a disruption which has been created in a lot of categories with local brands coming in," Kar said.
As and when prices fluctuate, the local brands generally tend to gain. Now, they are also getting better in terms of how they design their packaging, and communications, he said. But, he expects this trend to be short-lived.
"There is also a steady state demand for national brands when there is a consistency in availability. That is where I feel that our distribution is a key strength because the consumer is then not second guessing," he said.
In terms of rural sales, there hasn't been any major uplift. "The way rural markets have continued for the last few quarters, it's continuing that way," said Kar. Yet, for Tata Consumer, the rural growth story is "more or less similar" to urban because it comes on a low base as the company deepens rural coverage.
About 70-75% of general trade business still comes from the urban markets, Kar said.
"With all the infrastructure coming in, we would like rural to grow at a percentage or two higher than urban in the near future," he said.
In a post-earnings call, the management of Tata Consumer said that it intends to split routes in all one million-plus towns. It aims to appoint direct distributors in all 50,000-plus population towns.
Sharing brand-specific details, the management said that the distribution and execution of Himalayan brand are off to a good start. "We closed last year at Rs 600 crore; the target for this year is to hit a four-digit number."
There's also a long way to go in terms of building NourishCo's footprint.
"Last year, we started moving to the north and this year now, we are slowly coming to the west and the rest of the south," according to the tea-to-salt maker. "We are still yet to build up NourishCo's distribution completely in Bombay (Mumbai), in Bangalore (Bengaluru) or Delhi."
The brand is widely present in Andhra Pradesh, Telangana, Odisha and some parts of Tamil Nadu.
"We are yet to completely reach where we want to be in our distribution journey, but we are making good strides essentially with these two pillars: direct distribution and digitised network," said Kar.
Uttar Pradesh, Maharashtra, Bihar, Jharkhand, and Tamil Nadu are some of the markets where the company will be focusing on.
E-Commerce Play
Tata Consumer is also stepping up its e-commerce business. But, the approach of dealing with online is very different from that of general trade, said Kar.
"Unlike traditional channels where you make a one-year plan and you review it maybe once in a quarter or six months, e-commerce tends to be much more agile," he said.
"There's a lot of change happening, so possibly we have a quarterly plan, but we are also very flexible that things may change within a month and we should be able to have the ability to make those changes in our strategy."
From about 3-4% pre-pandemic, the contribution of e-commerce to sales has grown to 10%, said Kar. As consumers look for convenience, they will depend on online purchases, and he expects the e-commerce share to grow further.