Consumer goods firms arm themselves with small packs to meet the rain challenge

PURVITA CHATTERJEE MEENAKSHI VERMA AMBWANI Mumbai/New Delhi | Updated on July 22, 2014

Small is saviour: The smaller offerings are expected to increase penetration and encourage consumers to keep buying, especially in rural areas. - BIJOY GHOSH

Players expect a lag effect of weak rains, but are positive about long-term sales

Praveen Kulkarni, Marketing Manager of Parle Products, is worried that mass brands catering to the rural market such as Parle G, Marie and 20-20 may feel the impact of deficient rains this year. The biscuit category has been stagnant and even a 10-15 per cent deficit in rains could further weaken the business.

“There would be a 10-15 per cent rain deficit this year which may affect commodity prices and rural incomes as their yields would come down. We fear our mass brands catering to the rural market may feel the pinch. Rural sales contribute nearly 60 per cent of our sales,” says Kulkarni.

While it will not be a drought year, it will definitely be a rain deficit year, say agricultural economists.

There will be a shortfall in kharif crops such as rice and coarse grains, which will affect rural income and demand, they add.

Lower priced sachets

Fast-moving consumer goods (FMCG) companies such as Jyothy Laboratories, Godrej Consumer Products and Dabur India, which are focussed on the rural market, are equipping themselves to meet any challenges arising out of the lack of rains in the early monsoon months.

“The apprehension of El Nino and delay in rains was spreading but it will not impact the purchasing power of rural masses as they can always buy into our lower priced sachets. Besides, most of our products are summer and winter-skewed rather than led by the monsoon season,” says NH Bansali, CEO, Finance, Strategy & Business Development, Emami.

The Kolkata-based FMCG company has an equal share of its sales from the rural and urban markets. The company hopes its lower-priced brands such as Navratan hair oil (₹1), Zandu Balm (₹2) and Boroplus (₹5) will cater to the day-to-day requirement of rural masses.

Companies are in fact banking on smaller packs to beat any possibility of demand slide in rural India.

“Most FMCG companies are focused on rural markets. So, they offer smaller product packs to increase penetration and get consumers to continue to buy their products,” says Rachna Nath, Leader-Retail and Consumer, PwC India. “In addition, they have been focusing on product innovation, and looking to offer similar products (like they offer to urban consumers) to rural consumers at affordable prices.”

With monsoons hitting in July, sentiments have improved. However, there are still concerns about El Nino, which could be a dampener, she adds.

“It is too early to say whether there will be a negative effect on FMCG companies. Agriculture is now a small percentage of the GDP. The rabi crops are not affected and rural incomes will not drop to have any impact on the FMCG category as such,” says Nadir B Godrej, Managing Director, Godrej Industries.

Demand dynamics

According to Dabur India Chief Financial Officer Lalit Malik, demand dynamics would not see any major change.

“While it’s a fact that weak monsoon doesn’t impact sentiments, it doesn't alter the dynamics of consumer demand to a great degree. The fact remains that even after a poor monsoon, demand for daily use products is not hit that hard. We will have to wait and watch how the situation develops.”

Says S Raghunandan, CEO & Whole-time Director, Jyothy Labs: “While the monsoon looks better now, FMCG companies will benefit in the long run and not so much in the short run. It will have a lag effect.”

Pinakiranjan Mishra, Partner and national leader-retail and consumer products at EY, adds: “The recent monsoon reports have led to a more positive outlook than predicted before.”

This is part of a series on how India Inc is responding to the monsoon situation

Published on July 22, 2014

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