India FMCG: When The Going Gets Tough
The Indian FMCG market, pegged at about US$ 36 billion, has grown robustly year-on-year for several years now—both in terms of volume and value-driven growth. In 2012, the industry grew at about 18 percent, which consisted of roughly equal measures of volume and value growths.
2013 took off to a decent start for the FMCG sector even though the rest of the economy was still looking glum, posting Q1 growth of 12.5 percent. By the end of the second quarter, however, the sector was staring at a significant slowdown. In fact, volume growth tapered through the quarters hitting a nadir in Q3, as total volumes contracted and overall growth was only 5.9 percent (versus last year).
The year ended with FMCG posting overall growth of 9.4 percent on the back of just one percent volume growth - well below the 18 percent growth seen in 2012.
Decoding The Consumption Decline
As the Indian consumer sought to maximise her household budget and balance her income versus expenditure, she appears to have made a series of rational decisions in altering her purchase basket.
Food items directly impact the health and well-being of her family, so in that regard, she did not compromise too much on food consumption and only down-traded to smaller packs on each store visit. We found that in several food categories, consumers actually increased their transaction volumes. In Refined Oils for instance, volume growth fell to six percent while the number of transactions grew eight percent in 2013. Similarly, Biscuits, Chocolates and Salty Snacks transactions grew faster than volume purchases. Specifically, small pack purchases grew significantly faster than the overall category in Foods. In Biscuits, small packs grew 24 percent, while the total Foods category shrunk. In Refined Oils, small packs grew 16 percent while the total category grew at only 6 percent.
When it came to discretionary items like Non-foods, specially personal care, she curtailed her spends by:
In fact, consumers bought less volume of Small packs in Washing Powders, Shampoos and Toilet Soaps, causing a deeper decline in volume than in the overall category.
The ‘RIB’ Cage Effect
Certain pockets of growth have insulated manufacturers during the slowdown, what we’re terming the FMCG RIB Cage—contribution from the Rural, Impulse and Baby-oriented categories. Companies with a focus on these three areas were in fact able to derive incremental growth in 2013 just as they have in the medium term.
Despite the slowdown, some companies were still able to achieve stellar growth. These companies outperformed the overall FMCG sector by playing on their strengths and pulling certain tactical levers at the right time. The Top 10 companies are unique in the sense that they derived both value and volume growth in a difficult environment and capitalized on opportunity in both urban and rural markets through premium offerings, expanded distribution, pricing right, and accelerating innovation.