As India continues to see record-high inflation, regional and tier-2 FMCG brands are facing major headwinds. Experts believe that larger listed FMCG brands such as Hindustan Unilever, Marico, Patanjali, and Dabur have eaten into the market share of regional entities such as Panjon, Wagh Bakri, Bisk Farm, and Mapro. 

As retail inflation surged to an eight-year high of 7.79 per cent as of April, top FMCG players continued to report market share gains and well-maintained margins in their Q4 results.

For the March quarter, HUL reported healthy margins despite inflationary pressures, a 10 per cent growth in turnover and market share gains across its home care, beauty, and food and beverages categories. This comes despite the company seeing no growth in volumes during the quarter.

Marico also noted that the company remained well ahead of the overall Indian market growth and was able to sustain its momentum in market share gains and penetration. This came despite it seeing a mere 1 per cent growth in volume quarter-on-quarter.

Shrinkflation tactics

Almost every listed FMCG company reported similar results, largely due to the aggressive shrinkflation tactics deployed by the companies to preserve customers. Top players preserved pricing while reducing packet size, or the grammage sold at that price point. Companies like HUL also introduced “bridge packs”, such as introducing a new size between their ₹10 and ₹35 Lifebuoy soap, to retain customers.

While larger players have been able to tinker with packet titration, top analysts who track smaller FMCG players, note that smaller companies do not have such a luxury. Anuj Sethi, Senior Director at Crisil Ratings, told BusinessLine, “Smaller players don’t have too many options in managing costs and their performance is being impacted especially in rural and semi-rural areas. Besides, some amount of downtrading in favour of unorganised sector is also happening, in some product categories.”

Regional FMCG left behind

Top FMCG players enjoy economies of scale, larger portfolios, and a range of options to play around with in order to retain customers. Namit Puri, Managing Director and Partner at Boston Consulting Group, explained it as follows: “Smaller players are likely to face more pressures in the margins due to the high inflationary environment.”

Puri continued, “While larger companies with premium brands will have seen volume pressure, they have aggressively pursued pricing and pack size strategies across their portfolio. Thus, they have been able to capture the volume in their mid-tier and economy categories. Smaller brands would be unable to do the same.”

Sethi added further, “We believe larger FMCG companies have devised several strategies to drive sales growth in the recent past for different markets. In more price-sensitive markets, they have ensured pricing changes remain minimal by changing product volumes.

“Large players are also curbing costs by adopting more digital advertising over print and TV advertising to limit pressure on margins.”

Abneesh Roy, Executive Director with Edelweiss Capital, added, “There might have also been a category-wise degrowth, as non essential categories have not grown as much as essential ones like food and beverage, in this inflationary environment.”

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