For the last few quarters, fast moving consumer goods (FMCG) companies have counted on volume growth to drive topline numbers. They haven't been disappointed with volumes growing between nine and fourteen per cent for most consumer product companies right through to the first quarter of the current fiscal. But the slowdown that has hit a number of others sectors appears to have finally caught up with FMCG too. Companies such as Hindustan Unilever (HUL) and Marico saw lower volume growth in the three-month period ended September 2012 versus quarters earlier.
HUL's volume growth, which hovered in the 9-10 per cent zone over the last four quarters, came down to seven per cent in the three months ended September 2012 thanks to a disappointing show by personal products. In the case of Marico, volumes tapered too especially in Saffola, which was down to six per cent from 13 -14 per cent earlier.
"There are challenges in the short term. Over the last few months, we have begun to see some slowdown in discretionary categories, where there is an opportunity for the consumer to defer the choice between today and tomorrow," Nitin Paranjape, managing director & chief executive officer, HUL said.
Chaitanya Deshpande, executive vice-president and head, investor relations and M&A, Marico said, "The next two quarters could be challenging as the slowdown in discretionary persists. Typically, FMCG tends to get impacted with a lag. It is now showing."
While companies on an average in the second quarter posted a decent set of numbers with topline growing between 15 and 20 per cent and bottomline growing by over 20 per cent, analysts say that the road ahead is not likely to be easy.
While the wholesale price index ( WPI) is currently at 7.8 per cent, the consumer price index (CPI) continues to hover in the region of about 9-10 per cent.
With the recent fuel price hike, both WPI and CPI are likely to go up further hitting discretionary spends even more. Food companies have already borne the brunt of a slowdown in discretionary spending in the June 2012 quarter with volumes coming off by 3-4 per cent. The trend is likely to be no different in the second quarter. Nestle and Britannia are yet to announce their second quarter numbers.
Against this backdrop, consumer product companies are not likely to take up prices significantly. Says Sunil Duggal, chief executive officer, Dabur India, "Who wants to add to inflationary pressures? The approach to price hikes will be cautious."
A Mahendran, managing director, Godrej Consumer (GCPL) endorses this view. "I don't see the calibrated approach to price hikes changing anytime soon. This will continue for some time," he adds.
With commodity prices coming off a bit in the last few months thanks to a revival of the monsoons, companies have desisted from taking up prices. Copra prices, for instance, are down by about 10 per cent, while palm oil is down by about 25 per cent in the last few months.
To keep momentum going therefore, companies are likely to push their advertising & sales promotion expenditure in the next few quarters.
