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Strategic shift to own manufacturing to enhance cost competitiveness and margins

The strategic shift to manufacturing in-house is reshaping VIP Industries Ltd’s (VIPIL) supply chain, allowing them to fulfil the rising demand while lowering supply chain risks and gaining a pivotal long-term cost advantage. In FY23, the company invested Rs.100 Cr in expanding manufacturing capabilities, leading to a considerable rise in the contribution of in-house and controlled manufacturing to the product mix. At the end of the year, own manufacturing accounted for 90% of the product mix, up from 85% of the previous year and significantly higher than 54% in FY20. VIPIL’s cost competitiveness puts them in a good position, specially with the “China Plus One” strategy gaining more traction around the world.

Go-to-market transformation

VIPIL has been focusing on improving its go-to-market operations in order to increase customer access to its brands. Over 200 villages in Tier 2 and 3 cities were added to their distribution network in FY23. This expansion catapulted in a phenomenal 90% penetration in certain target towns. Additionally, a major focus for them is to actively transform their online distribution in order to offer customers a seamless experience and drive growth in the e-commerce space. Their ecommerce strategy aims for scalability and premiumization through marketplace operations.

Robust demand for bags led by demographic tailwinds

The industry is witnessing a significant rise in travel due to the aspirations of customers in Tier 2 and Tier 3 cities, especially the younger strata of population, who are eager to utilise their disposable income towards exploring the world. India's Gen Z and Millennial population is projected to reach 50% by 2030, surpassing the global expected average of 46%. Favourable demographics, urbanisation, and rising disposable income are leading to increased discretionary spending. Rising disposable incomes and urbanisation have shifted consumer tastes towards high-quality branded products. As a result, the organised category is growing at a pace of 15%, higher than the industry average of 8-10%. This highlights the lucrative prospects in the organised area, as well as the eventual gradual shift from unroganised businesses to organised ones, thereby, placing VIPIL in a strong position.

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