FMCG cos ride the fast lane on stable prices.

The fast-moving consumer goods have started moving off the shelves faster in the past two months on stable prices, tempting companies to boost promotional activities and offer products at multiple price points. Key product segments such as soaps, detergents, toothpastes, biscuits, snack foods and soft drinks saw volume growth of more than 20% in April-May 2009, with companies ploughing back savings from lower commodity prices into brand building, consumer discounts and promotions, coupled with improved distribution strategies. In fact, most players have taken a break from their two year-old practice of raising prices since input cost pressures have come down.

The growth rate this year is expected to be volume-led. “Since April this year, we are witnessing an upturn in growth rates. Post-election results and a stable government assuming office, sentiment across corporates, trade and consumers has turned positive,” said Parle Biscuits executive director Arup Chauhan.

These companies are also investing significantly in distribution and tailoring their products and prices to specific geographies as demand picks up in both urban and rural markets. “Both urban and rural growth numbers are encouraging and we are recording our strongest growth in recent years. Buoyed by the overall political stability and expected fiscal stimuli, consumer confidence has picked up remarkably,” said Godrej group chairman Adi Godrej. Rough industry projections estimate growth at 30% in 2009-10. The industry recorded 17-18% volume growth in the last financial year.

Dabur has delivered its best organic growth in a decade in 2008-09 and is optimistic about continued strong performance. “New products contributed almost 20% to the sales growth during the last fiscal and we expect this contribution to go up to 30% in 2009-10,” Dabur COO VS Sitaram said.

Outlining key drivers that have led to growth at Dabur, Mr Sitaram said focus on rural markets in key states, coupled with sharper brand strategies, increasing competitiveness of brand propositions and investment in sales force with the introduction of category-focused teams in top markets worked for the company. Dabur ended 2008-09 with a 17.5% growth in net profit and gross sales of Rs 2,834.11 crore, up 18.3% over the previous year.

With summer setting in, the beverages segment too is witnessing higher sales. PepsiCo is recording a 30% growth in the current quarter against 12% in the same quarter last year. “The beverages arm has been clocking unit case volume growth of 30%, with both carbonated and non-carbonated drinks posting healthy growth,” said PepsiCo India chairman & CEO Sanjeev Chadha. Rival Coca-Cola’s India division has been posting unit case volume growth of 31% — its highest since the pesticide controversy in 2003.

To address healthy rural demand and a cautious urban consumer, companies such as Hindustan Unilever (HUL), Nestle, Procter & Gamble, Godrej and Dabur are shifting focus to volume growth and making higher investments in mass brands. HUL, which had been focusing on premium high-margin products, is now sharpening its mass-products strategy.

Foods companies such as Nestle, Britannia and Frito-Lay have introduced multiple price points to prevent the consumer from downtrading. Latest ACNielsen numbers indicate that low-priced packs are growing faster than bigger ones.

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2 Responses

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