FMCG companies look to reach wider social strata

Fast-moving consumer goods (FMCGs) firms in India are in for a balancing act. On the one hand, rising affluence has resulted in consumers spending more on premium products. At the same time, despite rising input costs, companies are forced to maintain certain price points at the lower end to increase their volume growth.

Apparently, Hindustan Unilever (HUL) may introduce premium hair colours under the Sunsilk brand, it still continues to sell Sunsilk shampoo in Rs 2 satchet. Satchets make up nearly 70 per cent of shampoo volumes in India. Similarly, HUL has introduced skin creams priced close to Rs 1,000 as a part of its Ponds International range, the Ponds talcum powder mini-pack is still prominently displayed at kirana stores at Rs 5.

Industry analysts said this was the case with all consumer goods companies, who have chalked out a demarcated strategy for driving volume and value growth. Even in relatively lesser value food categories such as confectionery, this strategy is at work. "We cannot leave the 50 paise price point as a large share of the volumes come at that price," says Sameer Suneja, head, marketing, Perfetti van Melle.

But with rising input and packaging costs, the company, like most others in its segment, has introduced value-added products at higher price points. "All the new launches are happening at a higher price point," said Suneja. But they are not ready to vacate the 50 paise slot.

The strategy is reflected in the company's financial performance. HUL, the largest FMCG company in India, posted a growth of 13.8 per cent in the first quarter of 2007, of which only a third was volume-driven. Even as 66 per cent of its growth came from price increases and a better product mix, the company is aggressive on its rural marketing initiatives.

Sumeet Budhraja, analyst, Edelweiss Capital, said most companies were wary when it came to vacating any price point below the Rs 10 mark. Even if companies face margin pressure on these product categories, they try and balance it through price hikes in the mid"� and higher-priced products and promoting the higher priced brands in their portfolio.

Britannia and Nestle have done this with Tiger and Maggi, respectively. As a result, the Maggi dal-atta and rice noodles from Nestle are priced at a premium to the basic variant.

On Tiger brand, Britannia has been test-marketing cream-filled variants in certain markets. These variants are over time expected to contribute to margins once the volumes start coming in. Market watchers expect this trend to continue as no company is willing to sacrifice either volume or value growth.