Big FMCG brands overcome challenges, close gap with smaller players

Trend reverses as national firms tide over supply-chain issues, distribution challenges and retailer woes

Racks at local grocery stores are, nowadays, packed with popular trademarks. However, this wasn’t the case a few months ago. At the height of the lockdown small and regional names in food and fast-moving consumer goods (FMCG) beckoned for attention, seeing a sharp spike in off-take.

The trend has now reversed. Market research agency Nielsen’s FMCG index shows that the gap has narrowed between national and regional brands to nine points in August, as big names tide over supply-chain issues, distribution challenges, and retailer woes.

Nielsen says national and regional brands have been fighting to make their presence felt in the past few months, with the gap at around 11 points in March-April, when big brands had to temporarily suspend operations due to the nationwide lockdown.

This gap narrowed to eight points in May, as national brands fought back to revive operations, but increased again to 11 points in July, when vertical lockdowns were introduced in various parts of the country, impacting key players. 

"Despite the tug of war, the seminal trend is that big players are closing the gap with small brands. This comes as operations get back to normal after the disruptions witnessed earlier. National brands have also increased distribution and visibility. Many are pushing their presence aggressively into rural areas to tap into the growth there," said Sameer Shukla, executive director, retail intelligence, South Asia, Nielsen Global Connect. Small brands have limitations in expanding their reach and visibility, Shukla said, which is a clear advantage for large players. 

Sumit Malhotra, director, Bajaj Consumer, also said: “Small players may not have the wherewithal to take their presence into newer areas. Some of them could also be facing liquidity issues, which limits their reach.”

FMCG executives and experts endorse this view. Mayank Shah, senior category head, Parle Products, said: “The past few months have seen fluctuations within the FMCG market. Big brands were hit due to the nationwide lockdown, but have bounced back strongly.” Shah said this trend would continue as big players not only push their presence into rural areas, but the emphasis on trusted brands also grows among consumers.

Kaustubh Pawaskar, associate vice-president, research at brokerage firm Sharekhan, said the tilt towards trusted labels is higher in times of crisis. "Consumers will gravitate towards brands that evoke strong recall and have high trust codes, especially during a health crisis. The strategy for the national companies would be to keep these trust codes going by reinforcing quality standards and improving penetration," Pawaskar said.

New brand launches in categories such as health and hygiene and in-home cooking have increased sharply already as consumers pivot towards essential products in comparison to discretionary items, choosing to rationalise their household budgets.

While biscuit majors such as Parle Products, Britannia, and even companies like Gujarat Co-operative Milk Marketing Federation (GCMMF, the makers of Amul) reported strong growth rates in the April-June period, led by in-home consumption and focus on essentials, experts said these players had to be disciplined in their approach to take advantage of the uptick in consumption.

R S Sodhi, managing director, GCMMF, said the shift towards branded and affordable products would increase. “People have become value seekers. Affordability is key in challenging times. The second point is that consumers do not want to let go of quality, which is why trustworthy brands are in demand,” he said. Mohit Malhotra, chief executive officer, Dabur India, said promotional intensity is growing as large players entice consumers with multiple offers. He said companies are launching low-unit packs in rural areas. At the same time, price and grammage offers are visible on large packs in urban areas.

Nielsen said that retailers have pruned their assortments in August, reducing clutter and opting to stick with categories and products that are seeing greater traction. This is giving the large brands the room to flex their muscles.