Adani Wilmar’s Angshu Mallick on edible oil prices, rural consumption patterns and outlook for Q2FY23

• Adani Wilmar witnessed subdued demand from rural India in its first quarter, despite cutting prices in late June.
• Angshu Mallick, MD & CEO, Adani Wilmar speaks to Business Insider India about rural consumption patterns, why consumers are switching to smaller packs and the outlook for Q2FY23.

FMCG major Adani Wilmar announced its quarterly results recently. Its earnings reflect how rural consumption of edible oils has been affected due to increasing prices. Hefty sticker prices of this essential commodity have pushed consumers to buy smaller packs more frequently to meet their actual needs.

Angshu Mallick, MD & CEO, Adani Wilmar speaks to Business Insider India about the quarter that went by, demand prospects, why rural consumers are downtrading to smaller packs and the outlook for Q2FY23.

Q. Adani Wilmar has slashed the sticker price of edible oil twice in the last two months, has that led to improved demand?
The prices have corrected from the top because of several reasons such as better production abroad and cooling off of the geopolitical issues and at least to some extent, Indonesia opening up. Gradually, we have also passed on the benefits to the consumers. The present prices are good enough for the consumers to feel at least a little bit relief (from) the high prices earlier.

Demand in the first quarter has not grown, it has actually shrunk because of the very high prices in April and May, partially coming down in June and then July. We have been able to increase our volumes and market share primarily because we are the number one player in mustard oil. Mustard production has been very good this year. So, April, May, June are the months when mustard arrivals are very high, so our mustard oil sales went up significantly. Overall, we could get the advantage because of our portfolio and reach. We reach more than 1.67 million retail outlets, which gives us significant strength in terms of visibility, availability.

Q. Are edible oil prices expected to improve further?
It has corrected from the top by almost 50-60%. July, August and September are normally considered as technical months. They are not fundamentally driven, but they are driven technically because these are monsoon months in India, China and the US. If the monsoon is good, the sentiments are better. So, how markets pan out will also depend on monsoon. The exchange rate is also an important factor to observe because, last year, it was scary but this year, we'll have to see how the rupee weakens. Third factor will be the geopolitical issues, which can change at any moment – very difficult to predict on a fundamental basis. Demand is going up no doubt. In Q1FY23, demand was less and in Q2 we expect the demand to be high because of the monsoon. Second, the prices have come down and third, the onset of festival season.

Q. Where is the demand coming from?
The demand in rural (areas) has been slow in the first quarter and will continue to be slow in this quarter also because they would look forward to a better crop, which they will harvest only from October onwards. So from a money point of view, farmers will not have any great money. So, I don't think rural demand will be any robust. The demand that we see will come from smaller towns, where the schools have opened up, offices are opened up and people are back in action and back to normal. Out-of-home consumption is going to be important because of the festive season. It is important for us because we are very big suppliers to hotels, restaurants, caterers and even to the frying industry.

Q. Why is rural demand down and if it is not expected to pick up in Q2, how would that impact the brand and industry?
The overall rural share in our edible oil business has come down from 35% to 31%. That is an indication that (there’s) almost a 10% drop in rural consumption. We can see that happening because they have reduced the pack size. Larger pack demands are lower but for smaller packs, the demand has gone up. For example, half litre oil or one litre oil demand has gone up instead of five or 15 litre.

Consumption in rural (areas) was also impacted because of heat, which affects the consumption of fried items. With the setting (in) of monsoon, temperatures cool off and frying items pick up. We are seeing that our besan business has picked up because in Maharashtra, Gujarat and Rajasthan, a lot of frying is happening now. Overall, I am confident that edible oil consumption will increase in quarter two as compared to quarter one.

Q. Consumers have switched to smaller packs, have they also switched to cheaper substitutions, considering that Adani Wilmar’s refined oil consumption is down by 5.65%?
In every FMCG category, we have seen that consumers have shifted to masstige brands or popular brands rather than premium. They have downgraded. But when it comes to mustard oil, we have seen Fortune mustard oil has a much stronger equity than even the masstige brands because consumers are afraid of any adulteration. But King’s and Aadhar, brands which we have in the lower end, have done much better in some of the rural pockets.

Q. So, has bulk buying gone down massively in rural India?
Yes, the consumption of half litre and one litre packs has increased quite significantly, which has impacted the sale of larger packs. If the oil is ₹150 rupees a litre and almost ₹2500 for a 15 litre pack, paying ₹2500 together for a rural or a small town consumer is definitely tight and tough. Against that, they can always pay ₹100 rupees and buy a half-litre bottle.

So, the frequency of buying has gone up. Instead of buying once in a month, people are buying four-five times in a month. We are seeing that because they expect prices to come down. Instead of buying together on the first day of the month, they feel that the prices may come down or the retailer is telling them that prices are going to come down. So, they are buying one litre, then (they’re) again going (back) next week and buying one litre. With this, they are reducing their quantity but increasing the frequency.

Q. What are your expectations for Q2FY23?
Q2 should be better than Q1 in terms of consumption. As a nation, the consumers will consume more. Secondly, prices have reduced substantially in edible oil so it's favourable, third, temperatures have cooled down, festivals are starting. Overall, it is a positive sentiment. The new GST law will help us in pushing our brand Fortune in rice and wheat flour and sugar. There is fair play and now we don't compete with people who don't pay GST. Now, everybody will have to pay GST on pre-packed foods of up to 25 kilos. So there is a lot of fair play and I think brands like Fortune will gain.