FMCG sector logs 18% growth

From 7 per cent in 2005 to 18 per cent till August this year, the Indian fast moving consumer goods (FMCG) industry is living up to its name.

According to data from market research agency AC Nielsen, the non-food FMCG sales, which had started recovering from one per cent slump in 2003 to grow at five and seven per cent in 2004 and 2005, respectively, have moved into the fast-track.

The good news is companies and analysts are unanimously convinced that the growth is sustainable.

Industry experts attribute this to higher value growth on the back of price hikes undertaken by various companies this year. Not just that, even volumes have increased as more people at the lower end of the market are switching to branded products.

"The growth rate of a mass market brand would be far higher than a mid- or upper-end brand," said a Mumbai-based analyst.

D Sundaram, director - finance, Hindustan Lever, said of the 14.2 per cent growth by the company in the September quarter, about 11 per cent could be attributed to higher volumes and a better product mix (more premium products) and the remaining three per cent to the change in prices.

Hoshedar Press, president, Godrej Consumer Products, said people across categories and income groups were increasingly spending on personal care products as a result of higher disposable incomes.

At the higher end of the market, there has been a slew of premium products which have been introduced. For example, in the case of HLL, Ponds introduced its international range of face wash and skin solutions and Fair & Lovely introduced Menz Active.

Godrej on the other hand launched products like Glossy, a dishwash liquid brand.

A higher ad and promotional spend by marketers is the other reason that this growth has been attributed to.

"Most companies have been advertising heavily and a number of them have resorted to consumer promotions which though may eat into profits, have resulted in healthy brand sales," said an analyst with a Mumbai based consultancy.

While HLL increased its ad spend by over 40 per cent in the previous quarter, even smaller companies like Godrej Consumer have hiked ad spending by 23 per cent over the last six months.

As consumer confidence remains high in the country and companies saying that they will continue to invest behind brands, analysts see no reason why this growth would slow down over the next few quarters.