Indian FMCG makers face stagnant market
results for the past quarter, but all face a similarly daunting
future: nearly stagnant demand for many products, with any rise in
profit coming primarily from cost cutting, according to a Reuters
report.
Indian makers of fast moving consumer goods (FMCG) posted mixed results for the past quarter, but all face a similarly daunting future: nearly stagnant demand for many products, with any rise in profit coming primarily from cost cutting, according to a Reuters report.
The sector, which makes products for daily use such as soaps, shampoos, toothpaste and food items, is rife with discounting.To cope, companies like giant Hindustan Lever, India's largest company by market value, ITC, the nation's largest cigarette maker, and Nestle India are spending heavily on advertising to stimulate sales, putting further pressure on bottom lines.
"There is no single trigger for the demand for such goods to pick up in the urban markets," said P Krishnan, country manager for Skandia Asset Management Asia."In fact...consumers are economising on their household budgets."
India's immense population of one billion-plus people offers tremendous market potential to companies selling products for everyday use. But its many languages, size and poor infrastructure can make it a difficult place to operate.
Widespread poverty and an extremely low per capita income of less than $500 (€574) a year also mean many Indians are extremely price conscious, leading to cut-throat competition for virtually any product aimed at a mass market.
The growth of grocery store chains selling lower-priced, private-label brands is adding to the pressure.
"New retail chains like Food World, Health & Glow, Subhiksha, Giant and others are not only catching the eye of the consumer in the staples segment like flour and rice but also in FMCG products like detergents," The Economic Times daily said in a recent article on the issue.
"Food World currently has 72 stores while Shubhiksha has around 115 stores and both are predicting 30 per cent annual growth in the next few years."
Hindustan Lever, though, believes it has devised a strategy to prosper even in the face of such brutal competition.Last February the company, which is 51 per cent owned by Anglo-Dutch giant Unilever, said it would focus most of its energy, and massive advertising budget, on marketing 30 'power brands' which generated 80 per cent of sales.
Its results for the past quarter and year indicated that so far the strategy is succeeding.Hindustan Lever reported its profit rose just 1.58 per cent last quarter from a year earlier. But excluding extraordinary items, profit rose by 16 per cent.
