Small is beautiful for FMCG players as buyers turn thrifty

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SummaryFirms turn attention to smaller packets, economy brands

With the economy in the grip of a slowdown, consumers have begun downtrading to counter the rising prices of fast moving consumer goods (FMCG). Even as the jury is out on whether downtrading is gaining momentum in the Rs 1,85,000-crore Indian FMCG industry and would accelerate in the next few months, others are debating over the prevalence of this trend altogether.

While some FMCG companies are witnessing strong signs of downtrading, there are others who are not apprehensive about consumers opting for cheaper variants this financial year. “I am seeing signs of downtrading in the discretionary part of the FMCG industry, which is visible more in urban markets as compared to rural India. To some extent, we are seeing lower growth in higher-priced brands while lower-priced brands are posting higher growth by 20%, ” said Dabur India managing director Sunil Duggal.

According to Duggal, Dabur's economy toothpaste brand Babool has registered a higher growth rate of 20% in the last few months. “We are looking at expanding the production of brands that are in demand now. If there's more demand for low-priced brands, we will increase our production capacity for these brands,” he added.

As rural demand is still strong for mass market products, Dabur is planning to expand its rural distribution network in the next few months. According to retailers in north Mumbai, the signs of downtrading is very strong in key categories such as toothpastes, toilet soaps, branded tea and personal care products. “Consumers are now asking for Babool or Vicco Vajradanti pastes as they are economically priced. Consumers are now choosing Girnar Tea or Wagh Bakri Tea to save money,” said a retailer in Mumbai.

Like Duggal, Tata Global Beverages (TGBL) managing director Harish Bhat is also seeing signs of downtrading in the domestic market. “But we have a well-balanced portfolio at different price points from Tata Tea Prmium to Agni to meet the changing needs of consumers. With investments behind all our brands, we will retain loyal consumers this year,” he said.

According to Bhat, beverage majors are facing two major challenges which include downtrading and increase in local and regional brands in India. “The market is very challenging and the competition is very intense now. We will support our brands with aggressive advertising campaigns,” he added

Meanwhile, with sales turnover of Rs 11,670 crore, Gujarat Co-operative Milk Marketing Federation (GCMMF), owners of the Amul brand, is increasing the production of smaller economy packs to retain consumers. “As there's an increasing demand for smaller packs for our dairy products, we are increasing the production of small packs. As of now, we are not seeing any signs of downtrading at Amul as consumers still look for quality dairy products,” said GCMMF managing director RS Sodhi.

The Indian FMCG industry, which registered 15% growth in 2012, is expected to slowdown in 2013. Boston Consultancy partner Amitabh Ball said a lot of discretionary and big-ticket spending is getting deferred with the economic downturn in India. “This is hurting categories like automobiles, personal care, luxury fragrances and durables. On the other hand, categories such as fresh food/nutrition and health are seeing trading up. We are witnessing some drop in volume growth across FMCG,” he added.

While some FMCG companies are gearing up to tackle the downtrading syndrome, there are others who are not worried about consumer's changing preferences this fiscal.

“Our sales growth has been good in Q1 FY14. Our brands are doing well across categories and we do not see any downtrading at GCPL (Godrej Consumer Products),” said GCPL chairman Adi Godrej.

Sharing similar views, ITC Foods chief executive Chitaranjan Dar said: “I am not witnessing any downtrading in the branded foods sector, Our sales ration between premium brands and mass brands remain the same.”

Echoing similar sentiments, Duncan Tea COO MC Appiah said there does not seem to be strong signs of downtrading at present as consumers have become conscious and more careful with their spending habits.

When consumers buy mass brands instead of premium products, it will have an impact on the overall margins of many FMCG companies, said an FMCG analyst with a domestic brokerage firm in Mumbai. “Currently, the down trading syndrome is visible only in certain categories. We will get a clear picture in the next few months,” he added.

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