Fast-moving consumer goods giants are facing a dramatic shift to low-priced brands, complicating their efforts to break out of a years-long slump.
Most consumer goods makers, including Hindustan Unilever Ltd., ITC Ltd., Nestle India Ltd. and Britannia Industries Ltd., have reported a muted volume growth in the quarter ended September as shoppers tightened purse strings in a bid to tackle inflation. This was exacerbated by an increase in competition as regional players re-entered the market with falling commodity prices — a trend seen across food as well as personal care categories.
"Over the last year, bigger local brands have seen faster growth than the categories they were present in," said K Ramakrishnan, managing director- South Asia, Worldpanel division at Kantar.
Volumes of Sargam, a detergent bar brand based in Madhya Pradesh, grew 35% in the year through August 2023, while the category expanded 1%, according to data shared by Kantar with BQ Prime. XXX, another South-based detergent bar brand, grew 34%. While the spices volumes rose 4%, brands such as Bharat Masala and Sakthi Masala Pvt. reported a 17% and 18% expansion, respectively, outpacing bigger national brands.
The story of biscuits and salty snacks category has also been similar.
Among regional brands, Priya Gold grew 16% and volumes of Jaya Biscuits jumped 18% against versus the category growth of 9%.
Salty snacks maker Bikano's volumes grew 53%, while they rose 29% for Balaji Wafers Pvt. and 25% for Yellow Diamond against 8% for the category.
Regional brands are also expanding their visibility after emerging stronger from the Covid-19 disruption. Rajkot-based Balaji Wafers, for instance, is setting up its first wafers and namkeen manufacturing unit in north India.
Rohit Jawa, the newly appointed chief executive officer and managing director of Hindustan Unilever, has acknowledged that smaller players are growing significantly ahead of large peers in tea and detergent bars segment.
The little-known local rivals not only ate away volume growth, but also market share.
"The number of local players that have come in the market have just increased. In tea, small players' market value has grown 1.4 times that of large players. In detergent, small players' market value has grown 6 times that of large players," Jawa said. "There are certain pockets of our portfolio primarily in the mass-end, where we have seen a dip in our market share."
HUL and Britannia have turned to price cuts across soaps to biscuits to counter competition. But these don't seem to be very large. Britannia, for instance, reduced prices by 1.5% in the quarter ended September from the peak level, after increasing them by 22% during the inflationary environment, implying the price growth is still above 20%.
HUL reduced prices in categories like soaps, skin cleansing, detergent and other laundry products. The company's management said that it doesn't expect that "cutting price will get more growth" in a muted demand environment and amid fluctuating commodity prices. "It's a very complex set of decision," it said, indicating that it will not aggressively cut prices. The temporary dip in shares is cyclical, according to the management. It expects the company to gain back share as consumption recovers.
HUL's Chief Financial Officer Ritesh Tiwari liked resurgence of smaller brands to falling commodity prices.
"If I just go back to a little longer history, in 2007-08, we saw this happening in skin cleansing; in 2012-13, this happening for laundry; in 2013-14, we saw it happening for tea," he said. In each of these periods, we have seen this behaviour where when commodity prices come down after rising sharply, the volume recovery takes some time to happen."
It is at this point that the small players, who vacate the market during the peak of inflation, make a comeback betting on benign commodity prices, according to Tiwari. "And after some point in time—like everything else in life—as prices stabilises, the market equilibrium gets established."
Britannia Industries gained market share in the quarter ended September through price reductions in certain stock-keeping units, said Varun Berry, chairman and managing director of the company. The price cuts also helped it maintain competitiveness. The maker of Good Day biscuits will continue to expand its reach despite the slowdown, Berry said, as he expects demand "will come back and when it comes back, we will benefit from that".
In biscuits, Britannia enjoys penetration in households of about 94%.
Nestle India, too, faces stiff local competition in coffee, even though the prices are currently high and may not be beneficial for local players.
In the noodles category, there are some entrants in the ‘masala’ category, but the company said there has not been any major traction for other players yet. Kantar data showed that brands such as Gujarat-based Balaji Gippy and Karnataka-based '1 to 3 noodles' have turned aggressive in their respective markets.
"Price point is still important," said Suresh Narayanan, chairman and managing director at Nestle India. A third of Maggi's portfolio is low unit price point, 25-30% is premium, while the rest is mainstream.
Recently, the company re-entered the Rs 10 price point to stave off competition and gain market share.
Nestle India has also raised prices of more than half of its portfolio to offset input cost pressure. But the maker of KitKat chocolates and Nescafe coffee does not expect a big rollback in prices, despite stability in costs.
Pricing would be the last option as the core strategy is penetration-led volume growth, said Narayanan.
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