Young urban users and modern trade boost demand for premium FMCG products

17 Feb,2012

By A Correspondent


Makers of packaged food and personal care products are increasingly focusing on premium products as rising aspirations of young urban consumers and widening reach of modern trade help boost demand for high-value, high-margin products.

Contribution of premium items is growing in most FMCG categories, giving a breather to marketers fighting rising input costs and slowing overall demand, particularly in rural areas.

“Consumers are moving from value-added products to products that offer value benefits,” said Shirish Pardeshi, executive director and co-head, research, at Anand Rathi Securities.

Big retailers play a key role in increasing demand for premium products within a category, by helping companies directly engage with consumers.

Future Group, the country’s largest retailer, has reported premiumisation in the last several quarters. “Consumers are upgrading and there is not much impact of the external economic scenario,” said Devendra Chawla, president, Future group food and FMCG businesses.

Mr Chawla said the trend of premiumisation is high in categories like soaps – the premium variants (priced above Rs 35 per soap bar) accounts for 40 per cent of sales at Big Bazaar – biscuits and detergents.

Premium cream biscuits and cookies are growing 20-25 per cent a year, double the pace of mass variety Glucose and Marie biscuits, according to Parle Products, the country’s largest biscuit maker.

Contribution of Glucose and Marie to the biscuit market has slipped to around 55 per cent from 65 per cent in the past one year, according to B Krishna Rao, group product manager of Parle Products.



Modern retail has been the saving grace for FMCG companies that had warned of slower growth this fiscal, more so after they had to resort to multiple price hikes of up to 15 per cent due to increases in commodity costs and pressures on margins.

Retailers such as Future Group and Spencer’s Retail have reported rise in average purchase size of most product segments, confirming the premium drive.

Anand Mour and Shariq Merchant, analysts with financial services firm Ambit Capital, wrote in a report in January that growth is moderating in rural India, but aspirational consumption of young urbanites is driving premiumisation. Expansion of modern retail, which accounts for less than 10 per cent of the country’s Rs2 lakh crore retail market, will facilitate this premium drive.

A recent Nielsen study expects Indian shoppers to increase spending on FMCG at modern retail to $5 billion, or about Rs24,700 crore, by 2015 from $1.8 billion, or Rs8,900, in 2011.



“Absolute price is no longer the only consideration, the price benefit equation is what needs to be managed,” says Jayant Kapre, president of McVitie’s India, a subsidiary of British confectionery firm United Biscuits. The firm has rolled out a premium range of McVitie’s Hob Nobs biscuits.

Now Nestle is expected to launch a chocolate dessert called Fudge priced at Rs200, according to industry insiders. GSK has launched Horlicks Gold at a 30 per cent premium and within six months it has generated sales equal to 3 per cent of the more than Rs1,500-crore flagship brand. Marico, Dabur and ITC are all gung-ho about such products.


Source:The Economic Times

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