With the variety on offer, customers have little to worry about issues like inflation. Life’s not so blissful for players though, and inflation is just the tip of the iceberg, says savreen gadhoke of B&E
Criminal seems to be the right word for it, when you look at
the state of affairs in the FMCG sector. It takes some of the country’s best marketing minds to research extensively on customer behaviour and prepare a ‘fool proof’ strategy to win in the market place. Millions are spent on advertisements, quite often with the ‘celebrity price tag attached’, managing distributor relationships, sponsorships, PR initiatives, et al. And when the product reaches the point of purchase, the time that the customer may take to bring this entire exercise to naught (by rejecting the product of course), could be not more than a fraction of a second. Like we said, criminal!
And when customer loyalty is already such an expensive commodity, unforeseen phenomena like the recent upsurge in inflation, which surpassed the 13-year high figure and touched 12.01% (for the week ended July 26, 2008), can make matters even worse. Current rising prices of raw materials, fuel, energy and essential commodities have hit the bottom lines of these FMCG companies. According to a report by ASSOCHAM Eco Pulse, the sector witnessed an increase of 16.2% in the prices of key input materials within the three months ending March 2008. As a result, net sales recorded a marginal increase and the sector witnessed a fall of 15.38% in net profits on q-o-q basis, thereby putting pressures on the volumes, which grew by a meager 5.76% during that period. Rakesh Kumar Sinha, COO, Godrej Consumer Products Ltd. (GCPL) told B&E, “The challenges are rise in raw material and commodity costs that are disturbing the entire FMCG industry, specifically the personal care segment...”
But hold on! There is good news in the air this time around. For, in the quarter ending June, 2008, the picture has transformed quite dramatically. The FMCG sector has performed significantly well in terms of its profit and sales figures. While HUL recorded an increase of 13.20% in its net profits on a sequential y-o-y basis, Nestlé India achieved a record growth of 26.54% in its net PAT.
Other FMCG players like Colgate-Palmolive (India) Ltd., Dabur India Ltd., Britannia Industries Ltd. too recorded an increase of 18.13%, 11.94% and 11.63% in their net profits respectively, despite the fact that the prices of key raw materials like palm oil, edible oil, milk, et al, rose by an average of 15-20% during the period. Beverage companies were even luckier, as a Coca-Cola India spokesperson revealed to B&E, “Economic bureau has attached an economic weight of 0.1 on soft drinks, so the beverages market was not impacted much...”
A spokesperson from Dabur tells B&E, “Intelligent buying of raw materials is among the various initiatives undertaken by Dabur to increase efficiency and reduce cost of operations.” The company has benefitted from doing its purchasing on futures exchanges. Tushar Bhattacharya, a FMCG analyst at FICCI states, “New product launches, modernised packaging, introduction of low-unit packs (LUPs) and increase in volumes are few strategies that the FMCG companies in general have adopted to fight inflation.”
Another tactic employed was price hikes wherever possible. HUL and GCPL amongst others raised their prices by 2-20% to come out of the situations arising out of increasing raw material prices. As prices of milk marked an increase of 15-20%, Amul reacted in a similar manner. R. S. Sodhi, Chief General Manager, GCMMF (parent company of Amul India) told B&E, “Despite increase in inflation, there was no reduction in demand for our milk products. Subsequent to the rise in the prices of milk, Amul raised the prices of its products in the range of 5-15%.” Dabur India also hiked prices by around 5% of some products in key categories like hair care and oral care.
And those who did not increase their prices (to retain customers) resorted to another smart game plan. Instead of increasing prices, few of the companies reduced the weight of their products and sold it at the same selling price. Anand Shah, FMCG analyst with Angel Broking calls this phenomenon as pack rationalisation and states that “it is a kind of price hike only but directed by quantity.”
Criminal seems to be the right word for it, when you look at
the state of affairs in the FMCG sector. It takes some of the country’s best marketing minds to research extensively on customer behaviour and prepare a ‘fool proof’ strategy to win in the market place. Millions are spent on advertisements, quite often with the ‘celebrity price tag attached’, managing distributor relationships, sponsorships, PR initiatives, et al. And when the product reaches the point of purchase, the time that the customer may take to bring this entire exercise to naught (by rejecting the product of course), could be not more than a fraction of a second. Like we said, criminal!And when customer loyalty is already such an expensive commodity, unforeseen phenomena like the recent upsurge in inflation, which surpassed the 13-year high figure and touched 12.01% (for the week ended July 26, 2008), can make matters even worse. Current rising prices of raw materials, fuel, energy and essential commodities have hit the bottom lines of these FMCG companies. According to a report by ASSOCHAM Eco Pulse, the sector witnessed an increase of 16.2% in the prices of key input materials within the three months ending March 2008. As a result, net sales recorded a marginal increase and the sector witnessed a fall of 15.38% in net profits on q-o-q basis, thereby putting pressures on the volumes, which grew by a meager 5.76% during that period. Rakesh Kumar Sinha, COO, Godrej Consumer Products Ltd. (GCPL) told B&E, “The challenges are rise in raw material and commodity costs that are disturbing the entire FMCG industry, specifically the personal care segment...”
But hold on! There is good news in the air this time around. For, in the quarter ending June, 2008, the picture has transformed quite dramatically. The FMCG sector has performed significantly well in terms of its profit and sales figures. While HUL recorded an increase of 13.20% in its net profits on a sequential y-o-y basis, Nestlé India achieved a record growth of 26.54% in its net PAT.
Other FMCG players like Colgate-Palmolive (India) Ltd., Dabur India Ltd., Britannia Industries Ltd. too recorded an increase of 18.13%, 11.94% and 11.63% in their net profits respectively, despite the fact that the prices of key raw materials like palm oil, edible oil, milk, et al, rose by an average of 15-20% during the period. Beverage companies were even luckier, as a Coca-Cola India spokesperson revealed to B&E, “Economic bureau has attached an economic weight of 0.1 on soft drinks, so the beverages market was not impacted much...”
A spokesperson from Dabur tells B&E, “Intelligent buying of raw materials is among the various initiatives undertaken by Dabur to increase efficiency and reduce cost of operations.” The company has benefitted from doing its purchasing on futures exchanges. Tushar Bhattacharya, a FMCG analyst at FICCI states, “New product launches, modernised packaging, introduction of low-unit packs (LUPs) and increase in volumes are few strategies that the FMCG companies in general have adopted to fight inflation.”
Another tactic employed was price hikes wherever possible. HUL and GCPL amongst others raised their prices by 2-20% to come out of the situations arising out of increasing raw material prices. As prices of milk marked an increase of 15-20%, Amul reacted in a similar manner. R. S. Sodhi, Chief General Manager, GCMMF (parent company of Amul India) told B&E, “Despite increase in inflation, there was no reduction in demand for our milk products. Subsequent to the rise in the prices of milk, Amul raised the prices of its products in the range of 5-15%.” Dabur India also hiked prices by around 5% of some products in key categories like hair care and oral care.
And those who did not increase their prices (to retain customers) resorted to another smart game plan. Instead of increasing prices, few of the companies reduced the weight of their products and sold it at the same selling price. Anand Shah, FMCG analyst with Angel Broking calls this phenomenon as pack rationalisation and states that “it is a kind of price hike only but directed by quantity.”
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