FMCG Sector: Surviving on rural demand

FMCG companies were largely dependent on rural demand to garner volumes in 2013 when sales of discretionary items were affected in a slowing market.

The industry, which grew in high double digits until 2012, was grappling with the slowdown in the past three quarters. High input costs left no choice for consumer goods companies but to increase prices and reduce unit pack sizes.

While announcing the quarter results, Saugata Gupta, CEO, Marico, said: “The sluggishness in the urban markets has been compensated by the rural markets that has seen growth due to the good monsoon and Government grants. Today, contribution from the rural markets has gone up from 32 per cent to 35 per cent of our sales.”

Dabur India, another consumer goods company, had also said the strong demand from the hinterland and its strategy to double rural distribution footprint helped the company sail through a challenging business environment. However, it is the non-food categories, especially at the premium end of the FMCG spectrum, which has faced relatively higher brunt of the slowdown.

As information and measurement company Nielsen India’s data states, non-food categories experienced a higher degree of slowdown and is driven by hair care and personal care. Essentials such as cooking oil and impulse foods saw better growth compared with indulgent categories such as skincare.

FMCG companies with categories such as household insecticides, hair colours and fabric whiteners have been spared from the slow growth that hit bigger categories such as soaps and detergents.

Gaurang Kakkad, Vice-President, Institutional research, Religare Capital Markets, said: “Slowdown in the FMCG category is mostly at the discretionary and premium segments and also saturated categories like soaps, detergents and oral care. There has been volume growth for most of them, but that is also due to the price cuts taken by some of the FMCG players.”

Godrej Consumer Products Ltd, which is also present in the soaps space with brands such as Cinthol and Godrej No. 1, saw 7 per cent volume growth in this category, while household insecticides products managed to grow at 24 per cent and so did hair colours at 32 per cent.

“We have managed to get growth since we are market leaders in under-penetrated categories like hair colours and household insecticides. Also, our portfolio is skewed towards the bottom of the pyramid and the slowdown is more in the premium end of the FMCG category,’’ said Adi Godrej, Chairman, Godrej Consumer Products.

Apart from the saturated products, staying away from the premium and discretionary categories has helped other smaller players such as Jyothy Laboratories Ltd.

“We have managed to see profit growth in times of a slowdown primarily because we have no discretionary products in our portfolio,” said Ulhas Kamath, Joint Managing Director, Jyothy Labs.

“Besides, rural sales have grown at double digits at 19 per cent compared to the urban markets at 9 per cent.”

Outlook Hindustan Unilever Ltd, India’s biggest FMCG company, has already predicted the way ahead for itself and this would serve as the index for the rest of the players.

“We are seeing a slowdown in market growth in both volume and value terms. Over the next two-three quarters, these challenges will continue,” said CFO R. Sridhar, after announcing the first quarter results when the company reported its slowest growth in three years at 7 per cent.

Meanwhile, the Nielsen India Insight report stated the worst may be over for the country’s FMCG industry, as the macroeconomic situation improved in the September quarter.

“The resilience of India’s economic fundamentals, coupled with increasing consumerism, indeed shows brighter times ahead for the FMCG sector,” the report said.

(With inputs from Meenakshi Verma Ambwani)

This is the ninth and the last part in a series of year-enders on different sectors of the economy

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