How small sizes are packing a punch in retail

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July 28, 2019 1:59 AM

How small sizes are packing a punch in retail, tempting manufacturers to come up with deals of innovative sizes and prices to continue the run of overwhelming sales without burning a hole in pockets

retail, low unit packs, FMCG brands, small packs of namkeen, Haldiram namkeens, Small packs, Cadbury packs, ecommerce, FMCG productsSmall packs, also known as low unit packs (LUPs), have a big market not only in cities buy also in rural areas where a majority of consumers face financial constraints and demand value for money.

Malka Silelan from Chitwana Sherpur in Mawana Tehsil, Meerut, mother of five and a domestic help, more often than not buys the small-size packets of Cadbury when her children crave for chocolates. “I buy Rs 10 Cadbury packs for my youngest son Anmol, because that’s what I can afford,” says Silelan. Humayunpur, a tiny village in Delhi’s Safdarjung Enclave area and home to mainly north-eastern migrants and Jat landlords, is the place where migrants like Silelan come to work daily. In Humayunpur lies Anil Stores — a kirana shop that stocks large volumes of small packs ranging from Rs 5 ginger garlic paste to Rs 10 Maaza and Rs 10 Cadbury chocolate – which, by default, seems to be the ideal place for people like Silelan for daily needs.

“A daily labourer doesn’t get paid everyday, so sometimes he borrows things and promises to pay me later. For such people, a commodity’s big pack is not only unaffordable but also carries the risk of wastage,” says Narendra Chopra, the shop’s manager. At Anil Store, 90% shoppers buy the Rs 5 ginger garlic paste packet. Only people from well-to-do households opt for larger packs.

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Interestingly, some north-east residents of Humayunpur show this peculiar habit of spending Rs 13 on an upmarket, ultra mild cigarette while picking up a Rs 32-pack when it comes to rice. For Anand Tiwari, who runs Tiwari Pan Bhandar in Noida, small packs of Haldiram namkeens, ranging from Rs 5 to Rs 10 are the fastest selling items. It is not surprising that he has to refill his stock every two to three days. Tiwari not only has office-goers coming to his shop for a quick bite but also migrant labourers who often pass by his shop.

Easy on the pocket

Small packs, also known as low unit packs (LUPs), have a big market not only in cities buy also in rural areas where a majority of consumers face financial constraints and demand value for money. Over the years, penetration of television and increased use of smartphones have raised consumer awareness about FMCG brands and aspirational products.

Rural India contributes 20% to the sales of Mondelez, with small packs driving its sales. “Rs 1/2/5 are the business driver packages for us. Majority profits come from there,” says Deepak Iyer, president of Mondelez India.
Key examples of LUPs’ success are detergent and shampoo/conditioner sachets, small packs of premium biscuits priced at Rs 5, smaller stock-keeping units of premium soaps and hair oils. Even basic nutrition drink Horlicks, offered by GSK Consumer Healthcare, comes in a Rs 5-pack for the rural market and Tier-II, III cities. Together, Rs 5 and Rs 10 packs comprise 75% of the overall biscuits market.

Rajat Wahi, partner at Deloitte, says, “Companies have come up with LUPs especially for low-income consumers in rural and urban markets in the price range of Rs 1- Rs 20 per unit. Given the cost of producing sachets per small packs, the margin for LUPs continues to be very low on very high volumes.” Most FMCG companies are looking to expand reach through affordable packs in their respective categories while strategically pricing them at 1.3 times the base portfolio. The LUPs help companies increase brand penetration and attract first-time buyers, who mostly buy on trial purposes, and low-income consumers. “With some e-commerce players looking to expand to Tier-II-III cities by tying up with kirana stores, the smaller packaging of FMCG products allows them to bundle several products on the supply side at lower-ticket size, thus improving their margins and offsetting delivery costs. It’s a win-win for both consumers and brands,” says Ankur Pahwa, partner and national leader — e-commerce and consumer Internet, EY India.

Consumption on the go

Most companies don’t mind the margin hit in the hope that consumers would inevitably upgrade to larger packs. Also, millennials, who are increasingly commanding a decent purchasing power, have given an impetus to demand for products that spell convenience. Small-size products aptly fit the bill. The biggest draw of these products is the ease with which they can be carried around — be it at work, on a road trip, in a palm-sized clutch or even during a trek. ITC, now a major FMCG player, recently migrated to low-unit price packs for premium products such as shower gel, body wash, hand wash, body sprays and cookies to initiate trials and promote adoption in more price-sensitive sections of consumers, especially the youth. A little while ago, it slashed by half the entry price of bodywash and handwash products to Rs 20 and Rs 10, respectively. Additionally, ITC launched a Rs 40-pack for Charmis skin cream, as compared to the earlier entry-level pack that cost Rs 180. Engage launched the first pocket perfume in India with Engage ON and is the market leader in the segment today. This summer, Engage ON launched a unique range with the Engage ON 2-in-1 perfume spray — a format which combines two fragrances in one pocket pack. The innovation caters to the evolving grooming needs and the want for variety.

“Pocket perfume has helped penetration of grooming products, more so in the lower strata. However, demand for pocket perfumes exists across geographies,” says Sameer Satpathy, chief executive, personal care products business at ITC, adding, “small packs’ contribution is higher in general trade stores compared to modern ones.”
Consumers across the country are discovering the convenience offered by travel packs. It has been seen that people who try a brand through small packs, mostly upgrade to its bigger sizes.

Mini bites for fitness

Even fitness enthusiasts looking to maintain a healthy diet but who can’t completely let go of that snack or chocolate, buy smaller packs to satisfy their cravings. Having realised that, FMCG companies are undertaking innovative packaging and pricing strategies to fuel this appetite. Even their premium products are packaged in more affordable formats. Harsha Razdan, partner and head (consumer markets) at KPMG India, agrees. “Small packs are convenient, easy to use and affordable and thereby tempt non-users to try out a new product,” he says. He reveals that an Indian multinational conglomerate in 2018, which wanted to expand its deodorants category, launched Rs 60 variants of a particular range of perfumes. Another leading Indian brand launched condoms leveraging small-value packs in states.“Small packs are estimated to account for 30-40% of FMCG sales. These have long been a critical lever to expand companies’ reach to consumers,” Razdan adds.

EY India’s Pahwa agrees that size certainly matters for the market, and what was traditionally thought to be only a rural strategy is now mainstream not only in India but in other countries too, including developed ones. Small packs of products in the FMCG space have multi-dimensional advantages as they allow consumers greater experimentation, help reduce wastage and support use-based consumption, provide easy consumption crucial for customers on the move and allow promotional bundling with other fast-moving products in a company’s portfolio. Small packs of beverages are especially popular with both children and adults in summers. While parents can get away with spending a mere Rs 5 to quench the thirst of their kids by buying them smaller packs, adults find it convenient to stop by a kinara shop near their house/office to take a quick sip.

Coca-Cola India seems to understand the potential and popularity of small packs of beverages, especially in summers. Various drinks that Coca-Cola offers are Aquarius Glucocharge (priced at Rs 10 for 200 ml), Minute Maid Vitingo (Rs 5 for 18 gm sachet), Maaza Refresh (Rs 10 for 100 ml), Kinley (Rs 10 for 500 ml) and Minute Maid Juices (Rs 10 for 150 ml) and Minute Maid Nutriforce (Rs 10 for 150 ml). Like Coca-Cola, a majority of market players have been leveraging the strategy of expanding their reach through affordable packs.

These include detergents (priced at less than Rs 10), post-wash fabricare (priced at Rs 3 a sachet), shampoo sachets (priced at Rs 1/2/3), toothpaste packs (Rs 5/10/20), biscuits (priced at Rs 5) and the more nutritive options priced between Rs 10 and Rs 30 per pack and milk beverages (priced at Rs 10-25 per tetra pack).Coca-Cola’s rival beverage enterprise PepsiCo offers food items like chips and oats to suit occasions and consumers across the country, apart from beverages. And, just recently, the company slashed the price of a Pepsi bottle from Rs 20 to Rs 15.

Dilen Gandhi, senior director (marketing), foods category, PepsiCo India, says, “As far as small-pack sizes are concerned, our snack brands have performed remarkably well. We are seeing that each price point has distinct consumer and customer requirement — catering to a unique occasion as well as offering convenience. Having said that, PepsiCo dominates the large pack space, which is an indication of the consumer appeal of our brands.”

Affordability redefined

More than three decades ago, CavinKare, a personal care player-turned-FMCG conglomerate, transformed the personal care industry by introducing 10-ml shampoo sachets under the Chik brand, with the goal of catering to “bottom-of-the-pyramid” consumers. The Rs 1,600-crore company is now trying to reproduce its earlier success in the perfume segment by introducing 2-ml perfumes packs.

Wahi says sachets can account for as much as 70% of sales in shampoos for many brands even today. Since India is a very price-sensitive and value-conscious market, it is critical for a consumer company to play the price-value equation with care and ensure it is able to ride the wave of a resurgent rural/agri economy. Because of this, according to KMPG reports, recently a food products company dropped prices of its premium biscuit brand to make it more affordable in rural markets. Without divulging names, Razdan claimed that a leading Indian conglomerate that operates in diverse sectors such as real estate, consumer products, industrial engineering, appliances, furniture, security and agricultural products enhanced distribution and reach to 60,000 villages directly with Rs 1 price points for soaps and household insecticides.

A leading milk foods manufacturing company introduced ghee in sachets under its main flagship milk brand in two SKUs of 18 ml and 9 ml at Rs 20 and Rs 10, respectively. A leading personal care player, which has transformed itself into an FMCG conglomerate with expertise in dairy, snacks, food, beverages and professional care businesses, studied rural buyer behaviour and introduced a shampoo brand in a sachet of 4 ml for 50 paise.

Titan’s Skinn fragrance also comes in small packs. “Consumers normally stock their fine fragrance bottle at home, and also want to carry them along wherever they are travelling,” reveals Ajoy Chawla, SVP (strategy and business incubation) at Titan Company. Titan’s Skinn perfumes launched their 20-ml travel packs for on-the-go usage. When small packs of perfumes are witnessing such demand, then why not cosmetics? CEO of Nykaa beauty products, Reena Chhabra, wonders aloud. She claims that in cosmetics, lipsticks are the star product. In the body and skin care segment, face wash, body wash, shampoos, hair conditioners, face creams and lotions are big draws as they are perfect to carry while travelling. India is a diverse country and catering to people of different classes with different needs is a challenge. So the question arises, which products sells the most and where?

Trial inducers

Wahi points out that households in Southern India buy more small-sized packs than the rest of the country — reflecting an openness to trying out new products, albeit at lower price points. The average size of packs bought in the south is 178g (excluding packaged wheat flour), significantly less than the average 215-g packs bought in the rest of India. According to Razdan, small packs, be it any product, are estimated to account for 30-40% of FMCG sales.
In the oral care market, LUPs would account for nearly one-fourth of the industry sales, while it would be as high as 80% for a category like shampoo.

Dabur India executive vice-president (sales) Adarsh Sharma highlights that demand for LUPs is higher in markets that have a high rural dominance like Uttar Pradesh, Madhya Pradesh, Bihar, Jharkhand and Odisha. PepsiCo’s Gandhi claims that only the company’s snack brands can truly claim to have national presence in the category. Every state and Union territory is represented in these pack mixes. “Having said that, some of the key markets for snacks in India include Uttar Pradesh, Rajasthan, Maharashtra, Gujarat, Tamil Nadu, Andhra Pradesh and Karnataka,” he adds. Within states, PepsiCo doesn’t see a very large variation within town-classes — small packs contribute equally to growth in both urban and rural markets. Within channels, they witness a clear split with organised trade channels focused on larger packs and traditional ones, like kirana, over-indexing on smaller packs.

Titan’s Skinn, available in 20ml affordable packs, are often used for gifting. These packs help Titan attract new consumers and the consumer demand is spread evenly across geographies in both metros and Tier-II cities.
Nykaa, too, has noticed a large demand from Tier-II and III cities, besides metros. According to Chhabra, the metro-based customer looks for convenience due to being on the go. In other cities, the consumer is more apprehensive and doesn’t indulge in impulse shopping. “Geographically, we can say that the north contributes more to the demand for cosmetics, while the south is for body, hair and skin care products,” she says.

Retail success

Online or offline? One would think that with everything going digital, the online marketplace would see a demand for smaller packs. But, online grocery stores like Big Basket and Grofers stay with medium-to-large value packs.“The demand for small packs is generally higher in kirana shops. That said, we are now witnessing an uptick in demand for such packs in supermarkets too, where there is a direct interaction with end-consumers. However, they do not have any significant presence in the online marketplace,” says Sharma.

Unlike FMCG products, perfumes don’t seem to be popular in local kinara shops. “For us the demand is largely coming from supermarkets and offline channels. We have also seen encouraging response for our travel packs from non-traditional touch-points like World of Titan and Titan Eye Plus stores,” says Chawla. When FE reached out to Amazon and Flipkart regarding the sale and popularity of small size products on their sites, both refused to comment.

In case of LUPs, the sales figures seem to speak for themselves. A careful glance at the oral care market would reveal that LUPs account for 25% of the industry sales. LUPs’ share would be 80% for a category like shampoos.
Also, Nykaa’s Chhabra is quite confident that the rise in demand for small packs of cosmetics will continue to grow. She sees “this category growing by 300-400% in itself.”

Low price point, portion control and convenient coinage are the driving factors behind the high demand for small-pack products of PepsiCo, both for consumers and retailers. Lay’s and Kurkure are the leading brands in Rs 5 and Rs 10 price points.

“Even in our more aspirational portfolio – Lay’s Maxx and Doritos — we have recently entered the small-size space and the consumer response to it has been very encouraging,” claims Gandhi, adding that the brand has recently launched Lay’s Maxx in Rs -10 pack. “The response to it has been very encouraging. We will continue to explore the right packs for our future launches in line with consumer requirements,” he says.

Evidently, when it comes to value for money, a large chunk of consumers refuse to put money on big packs. For them, good things come only in small packages — a secret decoded by shrewd marketers and companies.

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