Local consumer goods firms steady in slowing sector

Rural push, innovative products help Godrej Consumer, Marico, Dabur ride out trough

Indian consumer goods makers like Dabur, Godrej Consumer and Marico appear to be responding to the slowdown far more effectively than multinationals like Hindustan Unilever. The quarterly numbers declared so far point to this trend. While Hindustan Unilever saw its lowest sales volume growth in two years at three per cent, Dabur, Godrej Consumer and Marico delivered a stable set of numbers for the March quarter of 2013-14.

For instance, the Ghaziabad-headquartered Dabur and Mumbai-based Godrej Consumer reported 9.4 per cent and nine per cent growth, respectively, in sales volume in the March quarter, while Marico's growth for its India business, which constitutes 75 per cent of its turnover, was six per cent. Specifically, key brands Parachute and Saffola, whose sales volumes were down to single digits in the last few quarters, bounced back with 10 and 11 per cent growth, respectively, in the fourth quarter. In contrast, Hindustan Unilever saw personal products, which have historically delivered double-digit growth, slide to 8.3 per cent in the fourth quarter of 2013-14 from 12.4 per cent in the previous three months.

While Hindustan Unilever's large base and a slowdown in discretionary categories have been concerns  its management has repeatedly pointed out, analysts said the country's largest consumer goods company was reacting slowly to the environment.

These concerns were articulated by parent Unilever last week when it said it expected sales from emerging market to be weak in forthcoming quarters. For the March quarter, Unilever's underlying revenue in emerging markets rose 6.6 per cent, slowing from 8.4 per cent in the previous three months.

Analysts pointed to Dabur's rural push that had helped the company insulate itself from the consumer slowdown, which has affected urban areas more than the hinterland. Abneesh Roy, associate director for institutional equities research at Edelweiss, a brokerage house, said, "Almost 50 per cent of Dabur's domestic sales come from rural areas and this is something the company has been working at for the last few years."

According to Sunil Duggal, chief executive officer, Dabur India, the company had doubled its rural reach in the past year, helping it take its sales contribution from 40-50 per cent. The company's emphasis now is on 170,000 villages where household incomes are over Rs 1 lakh a year. Dabur is pushing everything here from fruit juices (Real Juice) to health supplements (Chyawanprash) to personal care products (Fem bleaching products) apart from hair oil and toothpaste.

Godrej Consumer, in contrast, said its managing director, Vivek Gambhir, was pushing innovative products, which had  helped the company derive over a third of its incremental revenue from new launches in the last few months. "Innovations such as paper-based mosquito mats for Rs 1 and a creme hair colour for Rs 30 are doing well because we brought the price barrier down without impacting quality," he said.

In the fourth quarter of 2013-14, Godrej Consumer reported a 16 per cent sales growth in hair colour and a 17 per cent sales growth in household insecticides though soaps saw sales shrinking by four per cent. Analysts attributed this to the high penetration of soaps, a challenge that confronts Hindustan Unilever as well. Hindustan Unilever derives close to half its revenue  from soaps and detergents. For the fourth quarter, Hindustan Unilever's soaps and detergents business grew 9.6 per cent, mostly due to the price increases it announced to cope with dearer palm oil, a key ingredient.

Announcing the results on Monday, Hindustan Unilever's Chief Financial Officer R Sridhar said Rs 5 and Rs 10 packs grew faster than other pack sizes in shampoos. Hindustan Unilever also has small soap and detergent packs and is expected to try this out in other categories to catch price-conscious consumers. But analysts said these initiatives were late in the day.

Rival Marico, for instance, has been aggressively pushing smaller hair oil packs for the last few quarters besides introducing value-added products such as hair colour to expand its consumer base. Saugata Gupta, managing director, Marico, said the thrust on value-added products would grow.