FMCGs expect reduced discretionary spends

Abhishek Law Kolkata | Updated on May 08, 2020

People browsing different FMCG items at a shopping plaza in Kolkata   -  A Roy Chowdhury

Plan to launch more health, hygiene and nutrition products

Summer sales across FMCG companies are likely to be muted, particularly with reduced discretionary spending because of the Covid-induced economic slowdown.

New launches will focus on health and hygiene, nutrition and foods. Some pick-up in sales of personal beauty and grooming products are expected. Downgrading — where a customer swaps a premium brand with a value offering — will be a short- term trend.

Spending across categories such as ice creams, cold drinks, juices continue to be lower. Hair oil and gels — used primarily for grooming rather than daily nourishment — are witnessing lesser off-take. In some cases, lower priced smaller packs are being looked at rather than larger packs.

According to market sources, down-trading in value-added hair oil segment could happen, but companies like Marico that have strong franchisee in “value portfolio” will benefit.

Abneesh Roy, Senior VP – Institutional Equities Research, Edelweiss Securities, says that categories which generally see “higher out-of-home consumption” are witnessing “less off-take”. Demand for personal-care items will see some revival too in the coming days.

Launches in premium categories may make a comeback only in the second-half of this fiscal, and that too depending on what extent “normalcy returns”.

“Unfortunately, the coronavirus outbreak coincided with the time when companies plan production of their summer portfolios and ensure its movement to stores. Pegging an exact number to the impact is difficult at the moment,” he told BusinessLine.

Outlook volatile

The country’s largest FMCG company, Hindustan Unilever (HUL), in its earnings call pointed to a domestic consumer de-growth in Q4 FY20. A part of this was due to reduced stock at distributor location also because of trade inventories coming down.

Although, HUL’s food category witnessed some boost, the discretionary category remains impacted. The management expects a shift in consumer demand to the health, hygiene and nutrition segments.

Similarly, Marico said in its earnings call that it is back to 70-80 per cent of monthly run-rate of FY20, but “the near term market outlook remains volatile.”

Health, hygiene and food launches

Market sources indicate that all launches so far have been in the health and hygiene segments. These include sanitisers, disinfectant sprays, surface cleaners, etc. Communications (advertisements) by brands have focussed on “stay-at-home” or on “surface cleaning”. This trend will continue.

HUL, for instance, said, it is bringing in Lifebuoy germs kill spray and Domex disinfectant spray. Germ removal wipes, cloth sanitisers, and germ wash boosters are expected to come in over the next 4-6 weeks. The company is also “deferring some of the expansion plans.”

The Surf Excel campaign has been reworked, from “Daag acche hai” to “Daag ghar pe rahenge”.

Similarly, Marico which launched hand sanitisers a few days back will expand the portfolio. The company’s management pointed out that, Saffola, the food and edible oils brand, is expected to witness a “double-digit growth” on the back of health awareness and doubling of cooking occasion. The food business is expected to reach ₹200 crore on a yearly basis.

“We see opportunities for FITTIFY Gourmet and Coco Soul in their respective niches and we continue to move it in packaged foods to serve healthy in-home consumption needs of our consumers in the post-Covid world,” the management said during the earnings call.

Wholesale retailer Walmart India said it has planned production of fruit drinks under the Great Value private label and the manufacturers were aligned much ahead of the virus outbreak. There is sufficient inventory build-up and there are plans to introduce new products this season to widen the portfolio.

“This month, we introduced a fizzy apple drink (and) plan more size variants. There are other products in our pipeline that will be launched,” a Walmart India spokesperson said.

Discretionary spends

Discretionary spends have been hit too. Marico has indicated that it will reduce investments in the “discretionary personal care business” and focus on core categories “to boost market share”.

“Our discretionary personal-care portfolios of serums, male grooming and skin care have understandably not been favoured as consumers prioritised essential items of daily use in the days leading to the lockdown,” it said during the earnings call.

HUL on its part has maintained that “customers will look for value” even when times are tough. The company already has a huge portfolio cutting across brands and SKUs. It will also explore low unit price packs and make them accessible as value offerings.

Published on May 08, 2020

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