Small may be beautiful, but not always. Fast moving consumer goods companies (FMCG), which depend heavily on the bottom of the pyramid market are in trouble as far as their small pack sales are concerned. And this is despite the fact that no price increases took place in this segment, even though FMCG companies raised prices roughly 17 per cent for soaps and 24 per cent for detergents.
Sample this: According to the latest Nielsen data for the 11-month period from March 2008 to February 2009, soap and detergent sales at price points of Rs 10 and below have actually declined. This should be a cause for worry for most FMCG companies, since a quarter of soap sales and 60 per cent of detergent sales come from this segment.
Although overall detergent sales volume dipped 3.6 per cent, the bottom of the pyramid category fell at a sharper rate of 5 per cent. In the case of soaps, overall sales went up a marginal 2 per cent, but dropped 8.5 per cent for the small pack category (see table).
The picture would have been worse but for Bharat Shining, to some extent. Sales of detergents in small packs declined 10 per cent in urban areas but rural areas saw a 2 per cent dip. The story was the same for soaps: Urban areas saw an 11 per cent decline, rural areas a smaller fall of 7 per cent.
The period also saw rural sales overtaking urban sales and accounting for close to 53 per cent of the overall FMCG market. Experts attribute this to the combined effect of good monsoons, the farm debt waiver and the fact that the financial meltdown hasn’t yet trickled down to the villages.
| BIG FALL FOR SMALL PACKS | ||
| Soaps | Detergents (washing powder, liquids, detergent cakes/ bars) | |
| Total market size as of Feb 2009 | Rs 7822 cr | Rs 10188 cr |
| *Overall volumes | 2% growth | 3.6% dip |
| Small packs as a percentage of overall market | 25.00% | 60% |
| Volume growth/ dip for small packs | 8.5% dip | 5% dip |
| Urban: volume growth/ dip for small packs | 10.85% dip | 9.55% dip |
| Rural: volume growth/ dip for small packs | 7.12% dip | 1.63% dip |
| * Percentage calculated for the 11 month period of March 2008 to Feb 2009 over the corresponding period in the previous year. Source: Nielsen | ||
One of the reasons for the dip in small pack sales was the reduction in grammage. Owing to rising input costs last year, FMCG companies such as Hindustan Unilever, Marico and Godrej Consumer Products have been reducing grammage at price-sensitive market points without raising prices. "We had to increase rates or cut grammage to maintain profitability last year on account of increasing input costs," says H K Press, president, Godrej.
Faced with dwindling sales, companies are trying to pull out all stops to address the problems in the small pack segment. Amita Shetye, director, Client Service, The Nielsen Company, said it had become a tough task for marketers today to juggle the value-volume quotient of their products. "Over the years, this has resulted in an average increase in the value of washing powders and detergent bars, resulting in the overall decline in the average volume of these categories," he said.