Major reforms announced last week might have boosted market sentiment, but consumer goods companies are keeping their fingers crossed.
Companies marketing discretionary products are a worried lot, as these are products that typically bear the brunt of a tough economic scenario. Predictably, in the last few quarters, consumption of such products has taken a hit. For instance, packaged food companies such as Nestle and Britannia saw low sales in the quarter ended June, as consumers cut back on items such as noodles, snacks and biscuits. Analysts say volumes of packaged food companies fell three to four per cent in the quarter.
Inflation, which continues to loom large after the rise in diesel prices, remains a concern.
To drive consumption, these companies have been shifting to small-unit packs in the last few months. At a recent meeting, Nestle admitted the slowdown in discretionary food expenditure could force it to think small. In keeping with this strategy, of late, Nestle has been aggressively pushing its Rs 5 Maggi pack.
PepsiCo, meanwhile, is set to launch its popular Kurkure snacks at Rs 2. Vidur Vyas, marketing director (foods), PepsiCo India, says increasingly, the strategy would be to drive affordable price points across brands. “The idea is to try and get as many consumers into the fold,” he adds. PepsiCo is expected to push the new product through small, traditional trade outlets. “Once the consumer is hooked to the product, the endeavour is to try and push him up the price curve, as Rs 2, Rs 3 and Rs 5 price points act as recruiter packs,” says Abneesh Roy, associate director (research), Edelweiss.
However, at a time when expenditure on essential food is rising, would the ‘small is big’ strategy succeed? On an average, consumers set aside about 30 per cent of their monthly income on food. But analysts say given the rise in prices, expenditure on food has risen sharply — to about 40 per cent. And, this is not expected to drop anytime soon, despite a revival in the monsoon in August.
More From This Section
After a dry spell for much of June and July, rains picked up in August, allaying fears of a drought. Overall, India received 739.5 mm of rains between June 1 and September 13, against an average of 801.3 mm for the period. In August, the country received 264.7 mm rainfall, against an average of 261 mm.
However, despite the revival in rains, several areas in Punjab, Haryana, west Uttar Pradesh and Bihar, the Saurashtra and Kutch regions in Gujarat and the Marathwada region in Maharashtra saw scanty rains, according to the India Meteorological Department. Analysts say consumption in these areas could slow. On an average, a third of the sales of fast-moving consumer goods (FMCG) companies is accounted for by rural areas and a slowdown in these areas could hit these companies hard, as these counted on rural regions to drive growth in the last few years.
Justin Sargent, managing director (consumer), Nielsen India, said FMCG growth in rural areas fell from about 17 per cent to 14-15 per cent in the last few months. In metros, FMCG growth fell from 13-14 per cent to about 11 per cent, while in towns with a population of 1-10 lakh, it stood at 12-13 per cent, compared with 15 per cent earlier. Only small towns (those with a population of less than one lakh), saw FMCG growth of about 19 per cent, he added.
Can festive season turn the tide?
Most consumer durable companies are banking on the festive season to lure buyers, and are offering discounts, value-adds and innovative products. The festive season, from August-end to November, accounts for 30-35 per cent of the sales of consumer durables and electronics companies. For most of these companies, months of planning go into ensuring the right product mix and promotions to drive sales during the period.
“We expect the festive season to lift the market spirit,” says L K Gupta, chief marketing officer, LG Electronics India. LG, the largest consumer durables maker in the country, is counting on products such 3D TVs, the new Optimus range of mobile phones and refrigerators, etc, to drive sales this festive season. Meanwhile, archrival Samsung has introduced more than 15 new smartphones and tablets and is pushing its new range of smart TVs, washing machines and direct-cool refrigerators.
Videocon is focusing on its audio-visual products. The company is also set to launch a new range of LED TVs that do away with the need for set-top-boxes. Anirudh Dhoot, director, Videocon Industries, says the demand for audio-visual products is particularly high in the festive season.
Appliance maker Whirlpool is counting on the buzz generated by the launch of its products across categories such as refrigerators, washing machines and kitchen appliances. The company, which launched the products in April, claims it has seen good traction in the market.