Fast-moving costly goods? FMCG firms bank on expensive products amid slowdown

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Updated: Oct 23, 2019 5:51 PM

While FMCG companies have been reeling under demand slowdown for close to nine months now, it has not deterred them from launching premium products priced much higher than the standard range items.

At a time when companies are finding it difficult to sell even five-rupee biscuits, a plethora of new expensive products has emerged from traditionally value-oriented brands. (Representative Image: Bloomberg)

While FMCG companies have been reeling under demand slowdown for close to nine months now, it has not deterred them from launching premium products priced much higher than the standard range items. At a time when companies are finding it difficult to sell even five-rupee biscuits, a plethora of new expensive products has emerged from brands that usually target low and mid-range customers to sell items of daily use. Take for example, Hindustan Unilever, which recently launched Love & Care, a premium laundry care detergent at double the price of standard Surf Excel Liquid; or, the flavoured yoghurt Epigamia, which got funding from popular Bollywood actress Deepika Padukone when other brands were crying foul over slowdown; or Amul, which rolled out Camel milk just months ago, priced at nearly double the regular cream milk.

FMCG growth rate in the July-Sep quarter tumbled to less than half of that in the last year, Nielsen said in a recent report. “The India FMCG market is clocking a value growth of 7.3% in Q32019,” slipping from 16.2% in the comparable period last year, Sunil Khiani, Head, Retail measurement service, Nielsen South Asia, said last week. However, companies continued to launch new and more expensive products. “We noticed increased new product launch activity, more so at the premium end of various categories (in September),” Kotak Institutional Equities said in a research note last week.

Rich not hit by slowdown; willing to spend on new items

What is making these brands to launch expensive products when the economy is not in the pink of health? According to several experts to whom Financial Express Online spoke, brands tend to bank on the costlier products in order to cushion sluggish sales during a slowdown. “When growth slows down, the affluent still have money to explore new products/offering,” Debashish Mukherjee, a Partner at A T Kearney, told Financial Express Online. Debashish Mukherjee headed India Consumer and Retail Industries practice and led Asia F&B practice at A T Kearney. He has since moved on to another role in the firm.

Also Read: World’s most expensive chocolate in India: Where you can buy this Rs 4.3 lakh Truffle

For instance, the biscuits industry has been using this strategy to lever sales amid slowdown. “Premiumisation is the natural industry response to sluggish growth in demand… This is because, when faced with a maturity of demand and sluggish volume growth, launching indulgent premium products with the potential to attract huge numbers of consumers has generally proven a winning strategy in biscuits,” an analyst at Euromonitor International said.

Rs 5 biscuit sales down; Rs 30 cookies sales jump

While biscuit maker Parle has been facing the slowdown blues, it is still doing well in its premium category — the Platina range with biscuits such as Hide & Seek, Bourbon, Milano, etc. Parle has seen an 8-10% jump in its premium biscuits sales even amid slowdown, Mayank Shah, senior category head, Parle Products, told Financial Express Online. The company has kept up with the launch of its premium range products because “premium is doing really well and is actually untouched by slowdown,” he added. The company launched new products in Platina range just six months ago. Aimed at an elite set of consumers who can not only afford to pay more but are more willing to experiment, premium products are sometimes an improvisation of current product and “improve the utility of the existing product,” Mayank Shah said.

Why rich are spending more?

However, there is another reason that FMCG companies have been driving premiumization. The current slowdown largely emanates from rural areas, as confirmed by the latest Nielsen report; but private wealth has been on the rise and more people have larger disposable incomes than they had a few years ago. “Consumers aspire to move up the consumption curve and are willing to purchase products that are high on quality, irrespective of the price points,” Nestle India told Financial Express Online, confirming the rising affluence narrative. “This has encouraged us to continue with our plans of launching new products and scaling up existing products, both in the premium and non-premium categories,” Nestle spokesperson said.

Also Read: FMCG growth rate tumbles down to less than half; rural demand at 7 year low

Middle-income gap prompting companies to ask the rich to pay more

Surprisingly, it’s not the bottom end of the products that gets hit by the slowdown; it’s the mid-range items that bear the brunt. “In a slowdown, the middle-end of the brand market is stressed for volumes as there is a downgrade. The bottom end survives basis this downgrade, even as it sees some erosion,” Harish Bijoor, founder Harish Bijoor Consults Inc, told Financial Express Online. Thus, FMCG companies turn to the rich to fill the gap in the middle. “The top end of the market is insulated. Therefore the refocus on the premium segment,” Harish Bijoor said.

“It is an act of desperate measures for desperate times … also it is likely that this move is because the luxury buyer is willing to look at premium products as an acceptable choice. Being there in this product category will definitely benefit these brands even in these bad times,” N Chandramouli, founder TRA research told Financial Express Online.

Premium products to the rescue: HUL, Reckitt Benckiser show proof

Launch of premium products amid slowdown is already bringing results for FMCG companies. Reckitt Benckiser and Hindustan Unilever, both expanded into a comparatively nascent category of premium clothing care, remaining bullish on the evolving consumer needs and rising affluence. RB and HUL launched their premium laundry care lines — Woolite and Love & Care, respectively. As the trend of premiumisation continued, “after a gap of three decades, HUL Unilever in India launched a new detergent brand to leverage the opportunity further,” an analyst at Euromonitor International said.

Also Read: HUL remains skeptical about rural demand even after Q2

The Love & Care liquid detergent, twice the price of Surf Excel liquid, has been launched in three variants for silk, cotton, and woolen clothes. The success of HUL’s premiumisation move is evident in its Q2 results. “Household Care continued its growth momentum helped by upgradation and increase in penetration,” HUL said in a statement regarding its premium offering.

Meanwhile, FMCG demand is expected to pick up in the coming months. Market research provider Nielsen has upped its forecast for the Jan-Mar 2020 quarter. The Nielsen forecast indicates a sales revival at the beginning of the next year, finally breaking a year-long slowdown for the FMCG companies. But will that mean a break in the expensive product launches in the coming months? That’s a story for another day.

  • Edited by Shaleen Agrawal

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