FMCG majors feel the pinch as consumers cut spending

21 Aug,2013

By Sagar Malviya


It’s official: rising prices and slowing growth are making Indians check their household shopping list from soaps, shampoos and skincare to packaged groceries and food items.


Market researcher Nielsen’ data shows that sales growth of more than a dozen key consumer goods categories in the June quarter was lower than both the previous quarter and the year-earlier period, more than one industry insider said.


Overall FMCG sales grew 11% in value terms in the June quarter, down from 12% in March and 17% in June last year, they said, quoting Nielsen data. Consumer goods companies confirmed the slowdown in demand. “The overall FMCG sector is seeing a slowdown in the last few quarters from double-digit growth few quarters ago to around 2% volume growth now,” Harsh Mariwala, chairman at Marico, said.


Combined sales of companies including Hindustan Unilever, Dabur, Godrej Consumers, Emami, Marico, GSK Consumer, Nestle India, ITC and Colgate India grew 13% during the quarter ended June, down from 15% a year earlier and 22% in June quarter 2011. Mr Mariwala expressed hope that good monsoon rains and a boost in manufacturing will check the slide.


“With a good monsoon and boost in manufacturing sector, we don’t expect demand to deteriorate further,” he said. With the rupee on free fall, however, not all share Mr Mariwala’s optimism. Analysts say the Indian consumer industry fundamentals are deteriorating and the tailwinds that supported the sector during the last couple of years are waning.


“With sharp rupee depreciation and essential commodities like crude and palm oil firming up, the headroom for gross margin improvement looks a lot smaller in second half than in the first half of this fiscal year,” a JP Morgan report dated August 19 said.


According to data, growth in overall non-food segment slowed to 13% in the year ended June from 15% in the year ended March. The biggest fall was in the male grooming segment where sales growth almost halved to 6% in June from 11% in March.


Nitin Paranjpe

Nitin Paranjpe, CEO of the country’s largest FMCG firm Hindustan Unilever, while declaring the company’s June quarter numbers last month had said, “There is a general slowdown across categories. We are witnessing a significant slowdown from early 2013 to the middle of 2013.” To overcome the slowdown in demand, companies are looking to increase or at least maintain their margins.


“For the first time, we are offering incentives to our sales force to sell higher margin products and have constructed three buckets – gold for high margin, silver for medium margins and bronze are lower margin,” Sunil Duggal, CEO of Dabur, said. Salespeople get more money if they sell gold products.


Companies with mass-market portfolios hope that consumers will continue to buy staples, even as they check spends on discretionary or premium products.


Vivek Gambhir, managing director of Godrej Consumer Products, for example, said a lot of the growth slowdown has been at the premium end, and hence his company has been insulated by overall slowdown thus far.


Source:The Economic Times

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