Small firms losing market to big FMCG brands as buyers go for trusted names

Normalcy in operations, push into rural areas aid growth

The window of opportunity that opened for small fast-moving consumer goods (FMCG) companies during the nationwide lockdown seems to be rapidly closing as consumers opt for big, trusted names across rural and urban markets.

Market research agencies, such as Nielsen and Kantar, as well as FMCG firms, say that a return to normalcy in operations and a distribution push into rural areas is aiding the growth of bigger brands.

The tendency to bank on established labels is stronger in a health crisis, says Prasun Basu, president, South Asia, Nielsen.

Small brands had gained in the lockdown months of March, April, and May because of supply-chain disruptions, says Basu.

“Small brands, especially in the food and hygiene segment, were agile and quick to take advantage of the absence of bigger brands during the lockdown. There was widespread pantry loading and retailers were pushing products that were available to them. This trend is now reversing. The July-December period will see the resurgence of bigger brands,” he says.

Already, most firms from Hindustan Unilever (HUL) to ITC, Britannia, Dabur, Nestlé, and Marico have indicated they are back to pre-Covid levels in terms of manufacturing capacity. They are seeing greater traction for their products in the marketplace.

Some of them have said that the sales uptick is visible in rural areas, which is expected to last at least for the next few quarters.

“There has been reverse migration of people to villages and the recall for large, trusted names exists among them,” says Varun Berry, managing director (MD), Britannia. “Supply-chain disruptions have eased and large brands are pushing aggressively into rural areas to capitalise on the demand revival in these markets,” he adds.

For instance, Britannia has narrowed the gap with competitors such as Parle Products in terms of distribution, reaching nearly 5.5 million outlets to the latter’s 6.5 million. At least 40 per cent of these outlets are in rural areas, say market analysts.

Similarly, companies such as ITC, HUL, and Dabur have been pushing their distribution footprint into rural areas, putting more field force on the ground in these markets.

While some analysts argue that localised lockdowns are slowing the pace of rural revival in FMCG, some say the slowdown will be felt the most by small firms.

“Small brands do not have the wherewithal to sustain operations,” says Sumit Malhotra, director, Bajaj Consumer Care.

“Large brands have the marketing muscle to promote their products, launch different pack sizes of their products, and increase their distribution footprint across markets. Their staying power in the face of a localised lockdown is also higher,” says Malhotra.

A recent study by Kantar shows that the annual growth of national brands over the past three years has outpaced regional brands by a wide margin. Between February 2019 and 2020, national brands grew at double the rate versus regional brands, says the study, touching 8 per cent for the period. Regional brands, on the other hand, grew at 4 per cent, it says.

K Ramakrishnan, MD, South Asia, world panel division, Kantar, says there are a few factors in favour of large brands. One, better spread of value packs across the portfolio of large brands. Two, better channel presence, including both online and offline. Three, constant innovation and churn that allows the portfolio of a larger brand to be more relevant to consumers — both in rural and urban areas.