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Latha Venkatraman
Purvita Chatterjee

Mumbai , Dec. 26

THE fast moving consumer goods (FMCG) sector could blame it on the absence of monsoon rains last year.

But this year, despite abundant and widespread rains, the sector does not seem to have a respite from continuing sluggish demand. Rural spending, a crucial factor for this sector, remained largely stagnant, according to most players.

The most important factor that has had a telling effect on the FMCG demand is the fact that much of the buying has shifted to consumer durables. "It is clear that spending on FMCG has moved to consumer durables,'' says Mr Hoshedar K. Press, Executive Director and President, Godrej Consumer Products Ltd.

Downtrading and rising input costs were the other factors that hindered growth. However, in a continuing slack environment, FMCG's leading player Hindustan Lever Ltd (HLL) was able to report its best topline growth in the seven quarters at the end of September 2003 quarter.

This was possible because of its power brands strategy, the company had said. Sales grew by 6.8 per cent to Rs 2,467.49 crore (Rs 2,367.46 crore), helped by a growth of 10 per cent mainly in home and personal careand the foods segment.

Additionally, the sector did confront an increase in input costs leading to a pressure on profit margins. In fact, for the year gone by, Nestle and Britannia were the only companies to report positive retail sales growth. Nestle reported a 2.3 per cent growth, while Britannia reported a 4.9 per cent growth rate in October. Colgate reported the steepest decline in retail sales, recording a 13.4 per cent decline in October , while Dabur's retail sales fell by 3.5 per cent and Tata Tea also reported a lower decline at 6.8 per cent in October.

If HLL managed to record growth for categories such as haircare, skincare and oral care it is mainly because these categories were not fully penetrated, according to an equity analyst tracking the sector.

In such a scenario where demand growth is somewhat stagnant and there is no respite from downtrading, the industry is faced with challenges such as how to maintain growth in some of the existing segments, improving distribution efficiencies and increasing the reach of certain products where growth possibility is immense.

"There has been no turnaround for the FMCG industry this year. It is only the urban focussed companies such as Nestle and ITC, which have done well while companies whose sales depend on the rural consumer have fared badly. However by the second quarter of next year when rural incomes go up, FMCG companies can expect a turnaround,'' Mr Harrish Zaveri, Assistant Vice-President, Edelweiss Capital, said.

HLL was able to drive topline growth because of its strategy of innovation, market place activity, superior advertising and `judicious' pricing. The company said it re-profiled the type of spending in advertising, looking at new price points and marketing mix.

Most leading companies resorted to price and pack size changes to get back its consumers. Oral care and soaps exhibited this trend. For HLL, `aggressive' price points have driven the growth in toothpaste brands. According to the FMCG major, its decision to change its advertising agency for Close-Up also drove growth for the brand.

Companies also looked at new categories primarily to sustain growth in a slack market. These categories did not limit to products but extended to services. Marico moved into a completely new area of business - branded skin care service, Kaya Skin Care.

Besides, companies saw benefit in leveraging some heavyweight brands and extending them to new segments. For instance, Colgate Palmolive entered the aromatherapy segment with products such as talcum powders, bathing gels and hand washes.

Marico Industries also decided to stretch the franchise of its largest selling brand of hair oil brand, Parachute, into shampoo.

Going forward, there is some possibility of an upturn in mid 2004 on account of the lag effect of the monsoon season, analysts said.

"If there is going to be any impact of good monsoon it should start to manifest in January 2003,'' Mr Press said adding that the companies were cautiously optimistic. He airs the industry view when he says the FMCG sector will grow at around 10 per cent next year.

However, in the distant future, India's FMCG industry has a bright future, if HLL Chairman, Mr M.S. Banga's analysis is any indication. At the CII organised National FMCG conclave held recently, Mr Banga said this sector is poised for growth. This growth will come through primarily because of the changing consumer seeking to improve the quality of his life. "The youthfulness of the economy with 500 million people below the age of 25 will fuel opportunities,'' Mr Banga had said.

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