Local FMCG Players Make A Comeback As Giants Combat Inflation, Rural Stress

The local brands—operating within a single market—are growing faster in all categories from noodles to dishwash bars and are grabbing market share from powerhouse brands of multinationals like Hindustan Unilever Ltd. and Nestle India Ltd. They are able to do it by keeping prices low and acing the tasting test, data from marketing data and analytics firm Kantar showed.

Dishwash brands like Reflect in Maharashtra and Supremo 51 in Madhya Pradesh as well as Karnataka's 1 to 3 Noodles brand have doubled their growth over the 12-month period ended April 2023, according to the data.

Karnataka-based Teju Masala grew 65%, while Balaji Gippi noodles in Gujarat saw a growth of 58%. The intense competition from the local peers has hurt brands like Rin and Wheel from HUL's stable, Nestle's Maggi, MTR Foods Pvt.'s spices and Marico Ltd.'s Parachute as well as Dabur's hair oil, the report showed.

"Any local brand coming back is a pressure for a national brand," K Ramakrishnan, managing director at Kantar Worldpanel, told BQ Prime. "They are aggressively competing for the shelf space as well as the mind space of a consumer who is still grappling with high prices of everyday essentials."

The volume growth of local brands has grown 12.7% over the 12-month period ended April, while that of national brands have increased at a slower pace of 8.5%, Kantar data showed. In terms of volume share, these local brands are also catching up with the big players, which are present in more than eight cities. For the 12 months ending April, the national brands had a volume share of 36% versus the local brand's 27%.

These brands also continue to gain market share from the unbranded players. For instance, Delhi-based Pansari Group, a consumer goods maker with products ranging from edible oils to instant mixes, said sales have improved as consumers shift to branded commodities from loose products. "The trend that has been followed by cities has taken a significant turn in rural areas as well," said Shammi Agarwal, director, Pansari Group. He added that demand has "increased dramatically" in July.

"Moderating inflation and expectations of a near-normal monsoon are expected to further contribute to rural demand resurgence," Agarwal said.

Another market researcher, NielsenIQ, also gives credence to the trend stating that small manufacturers are driving the value and volume growth, led by rural areas. It is particularly rampant in non-food categories.

"At this stage, it is important to focus on the right assortment and pack sizes of products," Roosevelt D'Souza, lead, customer success, NIQ India, said. "The reduction in input costs, if continued to being passed on to consumers, will increase consumption, benefiting all manufacturers."

During the first-quarter earnings call, the FMCG giants like HUL and Britannia Industries Ltd. have highlighted renewed aggression from smaller and regional players, who were severely impacted and some of those even went out of business during the peak of inflationary pressure.

HUL, the country's largest consumer goods maker, said it lost some market share in certain pockets of the portfolio, primarily in the mass segment. Britannia said it had taken price cuts to stay ahead of the growing competition.

Demand trends remain tepid during the April–June period, with slower-than-anticipated volume recovery and an increase in competitive intensity.

Most companies expect volume growth to improve although confidence on pick-up remains mixed, with Dabur India Ltd. being the most optimistic, followed by Marico Ltd., Britannia Industries Ltd. and Tata Consumer Products Ltd. Commentary by HUL seemed more cautious as monsoon remains a monitorable for rural recovery.

Revenue growth should slow down further as pricing growth dips, according to the companies. The soap-to-staple makers are expecting to further ramp up advertising spends, taking a hit on margin. Advertising spends have jumped sharply on a quarter-on-quarter basis. Most companies are reinvesting gains from gross margin on ad spends to drive volume as competition from local players intensifies. While gross margin recovery should continue, the companies expect higher ad spends would cap near-term margin upside.