Mamaearth's - Possible Course Correction
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The article by inc42.com is quite informative. Considering the detailed issues highlighted in the article, I believe Honasa can take few steps to halt eroding fame and fortunes of the company.
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1.????? Excessive Stock:? Major issue highlighted in the article is the excessive stocks with distributors. It is clear from the article that the primary sales are not actually due to the pull factor but due to the push strategy to inflate sales in the run up to the IPO. While this might have paved way for the higher returns to the Investors and Founders with the successful listing. Now company has limited options to address this issue.
a.????? ?Liquidate the Primary stock in markets outside India if the stock is still having shelf life.
b.???? The stock which has expired already and currently with distributors, company can conduct “Retest†and see if the shelf life can be extended further with in the available legal and regulatory framework.
c.????? Improve the Secondary sales and also end user consumption with aggressive pricing. While this could lead to higher claims to be passed on to the Super stockists and distributors instantly, this helps to ease the cash flow and also helps to address the excessive stock issue at the distributors.
d.???? Decide on the further primary sales till the stocks at the distributors and retail outlets are consumed or eased out. While the cut down on new primary sales will impact the results for the upcoming quarter, this is better than letting the ship sink fully than temporary pain of tiding the waves.
e. Considering the nature of the business, Mamaearth segment must consider periodic provisioning towards stock. Even in the current case, considering ?300 Crores as excessive stock as claimed in the report , this will completely add to bottom line loss if this need to be passed to write off considering most of this is already expired. Considering the latest quarter revenue at ?462 Crore, this ?300 Crores will indicate that the internal controls and Audit practices in the company needs unbiased attention.
2.????? Diversification of SKUs: While the strategy of having full product range or wider product range might have sounded great initially, its providing to be disastrous for the company. So, high time to trim the range and segments quickly and have a threshold for each product in terms of sales proposition from the existing range and decide what need to be discontinued, what needs to be disposed off to other buyers if any or temporarily halt the sale of those categories. These decisions need to be taken on war footing to ensure the focused play rather than aiming to be there everywhere irrespective of profitability.
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3.????? Marketing Spend : If company is incurring close to 40% of revenue on Marketing activities even after many years of operations, this clearly highlights that something really is not? working for the company on the? organic sales front and this means even the acceptability of the products without any offers or marketing push is limited.? Whatever the explanation one can have, this is just unsustainable. So, Leadership needs to cut down on this instantly and set the productivity targets for every marketing rupee spent in terms of revenue. These targets need to be ? clear to the marketing team and a clear time bound plan needs to be executed by breaking the actionable in to product level, market channel wise, market area wise. This will have again immediate pain but will result in continuity of the entity in the long run to aim for more aspirational targets to achieve.
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4.????? Complex structure: Normally people who have goofed up things, will start engaging in multiple and varied “words†and “vocabulary†to cover up the issues. But unfortunately, all these will end up badly in the long run and one cannot hide them for long. Any company which does these structural things just to evade certain information or coverup certain issues, will end up uncovered in the cash flows. Only the time matters to unearth these kinds of deviations. For some, it might be 2 Quarters and for others it might be 20 Quarters, but end is clear. So, there is no need to engage in Jargons to fool around the investors or media. Accept you did something with intention to grow and the same backfired and do the course correction and never attempt again to make these mistakes. This builds the long-term trust for the company with the stake holders. Otherwise, people are smart enough to understand the play and they will react appropriately which might be painful to bear.
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5.????? Reach of new Products and Brands: Due to Quick commerce and emergence of social media, it became quite easy for FMCG products / Personal care products to ensure easy reach to end consumers. ?While this is something good for the industry in terms of sales and awareness to consumers, what needs to be done by Mamaearth is to focus on the selective and focussed platforms to drive sales. No, point in only depending on the high CAC channels to drive sales, which never proved to be working for any brand in the long run. Recently one of the Jewellery brands has to bite the dust due to high CAC based channels it trusted for growing sales.
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6.????? Product Quality: Fortunately, or Unfortunately, we have many contract manufacturers in the country who come with their own positives as well as negatives. There are many organisations in the country who use these contact manufacturers to bring “Me Too†or “White Label†goods into the market. When you bring products without any USP over the existing products, then you depends heavily on the marketing spend to create initial buzz and the sales. This wrongs very well up to a certain scale level and time period but beyond that the customers start realising the lack of uniqueness or superior quality over the existing products in the category. This will not be counter productive for the product line but will work as major deterrent to the sales of other products of any company. So, its important to ensure Mamaearth really bring USP based R&D centric original products into the market rather than bring something which already exists in the marketing with mere thrust on marketing spend. ?While one can deny this in public, they know based on customer reaction if any customer assigning any uniqueness to their products. One can live in denial about procuring the products from Contract manufacturers for a fee, but they should introspect if that denial helps them. Formulations are long available with contract manufacturers in India for a price and going this path will merely kill product uniqueness although it can give access to the market instantly.
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7.????? Claims: Unsettled claims to distributors will have multiple and major ramifications to any FMCG / Personal care company. While I understand INR 50 Crore claim is not a small amount to settle immediately, explore various options like settling through the existing stock if any? in a phased manner or explore disposing the existing excess stock in a untapped market that don’t disturb your current primary sales and pass the realisations to the distributors with their involvement in logistics of such disposal thereby they also know that you ?are walking ?the talk and you are committed for the settlement. Going forward even it that means higher discounts /claims, go for distribution which gives you instant cash and play active role for product push in the market and also for the end consumption with their marketing and PR muscle. Most distributors are well connected to support if the dynamics with the company are mutually beneficial.
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While all the steps stipulated take 2-3 Quarters to show visible signs of revival and trust building, it’s important to initiate these steps quickly with a clear path to implementation in a time bound manner with clear responsibility for the deliverables defined with in the organisation. Otherwise, Mamaearth’s parent company Honasa will be heading for major nightmare in the quarters to come.
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Note: Merely for information purposes from the understanding derived from the public information on the subject. These are mere opinions of self.