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Vinay Kamath
Ratna Bhushan

IF AN Indian version of Rip Van Winkle were to have slumbered through the 1980s and the 1990s and awakened at the cusp of this century, the world around him would be unrecognisable for him. Not just the fact that he would have seen an explosion of goods ranging from cell phones and fancy cars to malls, multiplexes and lifestyle and grocery retail chains hawking a huge array of goods, but also in consumer attitudes and expectations. As Ms Radhika Chadda, of the Chennai-based consultancy, Paradigm Management Knowhow, says: "A more savvy consumer has emerged, who is aware of her buying power and wants to be wooed to grant her custom."

In more ways than one, the past decade has been that of the consumer in terms of depth and width of choice in consumer goods and services. If competition meant more and cheaper products, better accessibility and options, then surely one cannot complain that the balance of power has shifted in the consumer's favour in one short decade. If the earlier generation was one of limitations, for the next it has been one of options, and ample ones at that.

Walk into one of the new-fangled grocery retail stores, the choices for consumers get amplified. Imported brands ranging from Kraft cheese to Lindt chocolate sit cheek-by-jowl on shelves with home-grown brands like MTR's ready-to-eat foods and Amul packaged dahi. "From being sold products across a counter, consumers today seek out the see, touch and feel experience while buying goods," says Mr Raghu Pillai, President, Retail Business, RPG Enterprises.

Mr Pillai should know because RPG kicked off the grocery retail revolution in 1996 with a chain of FoodWorld stores across Southern India. "Significantly, the past few years have also seen a downward pressure on items of daily consumption of a household; companies can't afford to hike prices because of inflationary pressures and the onus is on them to keep their costs and prices down," he adds.

Apart from the fact that real prices of a range of FMCGs may actually have gone down in the past ten years, a few marked trends characterise the growth of the industry:

Fall in duties: From a peak level of 150 per cent in the early 1990s to 20 per cent now, the fall in import duties has meant that it has become much cheaper for a host of foreign goods to adorn Indian shelves. However, there has not been a flood of imported brands to swamp Indian goods, as local manufacturers upped the quality of their goods as well as the packaging. Comments Mr A. Satishkumar, Managing Director, Henkel Spic: "The rationalisation of duties has helped the FMCG industry; the only thing that has not changed is the sales tax regime, in some cases it has even moved up." However, the fall in import duties has been accompanied by a reduction in excise duties to a level of 16 per cent and below for most goods, which means, cheaper goods.

Entry of price warriors

Who doesn't like cheaper goods? A host of regional and local players — Anchor and Ajanta Health are a couple of them — in different markets have emerged, unafraid to take on the might of an HLL, Colgate or P&G. Says Mr C.K. Ranganathan, Chairman, CavinKare Pvt Ltd: "The environment today has given fair opportunity for a lot of competent local players to come up. MNCs are now coping with the price-value equation; earlier they were catering only to perhaps 30 per cent of the population. Now they have also been forced to go mass market."

The fierce competition in the market has also seen consumers' brand loyalty on the wane and "value loyalty is what consumers are attached to," says Mr Ranganathan. Adds Mr Sunil Duggal, CEO, Dabur India Ltd, "Competition has intensified across all categories — whether it is oral care products, personal care products such as shampoos, bathing soaps and hair-oils; washing soaps and detergents; food products or confectionery. And, low-cost competition from smaller players has thrown up a stiff challenge for established players."

New media

The number of new players in the FMCG market which have emerged in the past few years have been helped a great deal by the cable and satellite TV revolution, especially the emergence of strong regional TV channels. As CavinKare's Ranganathan points out, there was no cost-effective mass media available in television earlier. But the emergence of regional channels, with cheaper ad rates than a national medium, helped regional players immensely. It gives more bang for the buck. "Cable TV also raised the aspiration levels of consumers," adds Henkel's Satishkumar.

Sachet-isation of products

If the sachet revolution began in the late 1980s, it gathered speed in the 1990s. Almost 70 per cent of the industry's revenues now come from shampoos, which even the big boys of the industry have taken to. Today, sachets have permeated almost all product categories. As Dabur's Duggal points out, earlier usage across several categories was often restricted to select income groups. But the concept of smaller, low-priced unit packs like sachets has ensured penetration of products to hitherto unexplored markets.

Saga of soft drinks and water

Among FMCGs, one sector that has witnessed maximum changes is that of soft drinks and packaged water.

The past one decade has seen the exit of Ramesh Chauhan from the soft drink business, the creation of Rs 1,200-crore packaged water industry almost from scratch, the development of packaged juices, cross-movement of celebrities and the coming of the cola wars.

Points out Mr Abhiram Seth, Executive Director, Exports & External Affairs, PepsiCo, "Among the most significant changes between 10 years ago and now, is that the character of the distribution channel has undergone a huge change." Earlier, soft drinks were characterised primarily by glass returnable bottles and chilling was mostly done through ice-boxes.

Now, there are visi-coolers and sophisticated refrigeration options. PET bottles and cans to some extent have become popular packaging options. Over the decade, there has been an explosion of dispensing and retailing options, propelled by the multiplexes and shopping malls. Vending machines in the urban landscape, and rural penetration too has been a significant phenomenon of this decade. "Pricing has come a full circle, and the industry is almost back where it began from," adds Mr Seth.

Static prices

If the 1990s saw fairly high inflation rates, the past few years' low inflation has ensured that prices of consumer goods stayed stable. Fierce competition has also meant that companies have had to pass on some of their margins with lower prices.

Doing a quick back-of-the-envelope calculation, K. Radhakrishnan, Vice-President, FoodWorld Supermarkets, says that a basket of goods comprising half a kg of Surf, half kg Vim and one bar of Pears soap would have cost a consumer Rs 44.60 in 1992.

Today, the same basket costs approximately Rs 92, almost double in 10 years. The point he makes is that earlier FMCG companies made regular price increases because of inflationary costs plus a higher profit margin.

However, with lower inflation rates, most companies absorb these cost hikes themselves to keep prices in check.

"The last 3-4 years have not seen much price increases; in fact the past two years has actually seen price reductions in some categories. Also, categories where branded players have more than a 50 per cent share of the category has seen prices go up by more than 80-100 per cent over the past ten years," he says. Not any more. Most players cannot raise prices because of competitive pressures.

Going by these trends, the 21st century, undoubtedly, will be that of the consumer.

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