India remains on the cusp of achieving the feat of being the most populous nation in the world. Life expectancy since our independence in 1947 has doubled. So, if there’s one thing we can bet on are the capacity of consumer companies to drive consumption for this large, growing and essentially more affluent society.
So, what’s the challenge?
The sales of the 30 listed FMCG companies in India, after expanding at 11-13 per cent between June and December quarters of 2018, fell to 9 per cent growth in the March quarter of 2019 and further to 7.3 per cent in the latest June quarter.
The government responded with a corporate tax cut, hoping that companies pass this on to consumers to drive consumption. However, according to a recent Crisil survey, about a third of large companies won’t shift to the new tax regime. The primary content is that the tax savings directed to capex investments alone cannot revive demand.
Business leaders across FMCG are approaching this in their own unique manner.
Just as the Mac Burger’s sales is considered as an indicator of currency parity and inflation across the world, the sales of Parle Glucose biscuits indicate the health of the Indian economy. Both Parle Products and Britannia recently expressed concerns over the offtake of their small Rs2, Rs 5 and Rs 10 biscuit packets.
With flagging biscuit sales, came the shocking news of Parle planning to layoff 10,000 personnel due to the slowdown brought on by the high GST charged on biscuit packets.
Industry leaders are trying to tackle these problems on a daily basis in their boardrooms and with execution on the field. Here are the broad approaches that these FMCG enterprises taking to address the market challenges brought on by the slowdown.
What they want?
A reduction in GST from 18% to 5% on products worth Rs100/kg or less.
The biscuits industry is essentially a high-volume, low-margin one with very high price elasticity. GST impacted margins. Biscuit manufacturers coped by increasing price which unfortunately had a cannibalizing effect where demand dropped.
Parle has been demanding GST relief to boost demand where the gains can be passed on its customers.
The DNA of Parle Products is producing low cost biscuits in large volume. It was the world’s largest producer of biscuits and Parle-G is the brand that dominates the market. Its P&L is dominated by revenues earned from Parle-G.
Parle-G should become the anchor to distribute all other products that the company wants to take to market. The biscuit is available across every nook and cranny of the country.
However, the biggest drawback is that the company is unable to map the availability of its products due to indirect distribution through wholesalers. Parle should instead focus on direct distribution to drive profitable growth and shift the focus towards its more premium products.
The brand should leverage technology to do direct distribution. It can solve many of their woes. With gamification and advanced analytics tools such as suggested orders, they can improve retail execution. We do see them strained in the short term, but for the medium to long term, it’s a question of how well they can leverage tech.
If there is ever a giant in the Indian FMCG industry, its HUL. For many decades now, this personal and home care brand has been paying a lot of attention to the Indian consumers and consequently growing like no other.
While the brand posted strong results in the quarter ending in September 2019 with a 21% profit rise YoY to Rs 1848 crores. Yet demand hasn’t yet picked up for the brand.
HUL Solution: A key strategy identified by HUL remains to leverage data and technology (including artificial intelligence) across the value chain.
Further, HUL has reduced prices of soap brands Lux, Dove & Lifebuoy by up to 30% on the back of reduced input cost to drive up consumption.
HUL remains the gold standard in the Indian FMCG ecosystem. Its understanding of customers remains its strength with their Winning in Many Indias strategy which helped the company to focus deeply on localizing products.
HUL is also one of the biggest spenders and brand builders. But it has lagged behind its peers for not evolving enough and launching new products that don’t keep up with the changing preferences.
To boost consumption, HUL has announced a 30% price drop for its soap brands including Lux, Dove and Lifebuoy. In the short term, they will bounce back on the back of price elasticity. But in the long term, they need to focus on Just-In-Time distribution to retailer to ensure they don't go down the Nokia path.
For HUL, the biggest challenge is business description. In the short term, they will rebound.
For someone like HUL the biggest challenge is that of business disruption. So in the short term they will rebound on the back of price elasticity but in the long term they need to focus on Just-In-Time bases fulfillment to retailers to ensure HUL doesn’t go down the Nokia path.
They need to connect directly with retailers before its peers do the same to maintain its competitive advantage. To continue its latest positive results, there’s some work cut out for the brand if it wants to maintain its pole position in Indian FMCG,
If the industry gets its operational efficiencies on track and combined with renovation and innovation, it will be able to counter the economic slowdown, Nestle India chief, Suresh Narayanan said. (Source: Leading Media)
Bizom Analysis: Nestle gets just about a quarter of its sales from rural. So, in many ways, it's been unable to penetrate rural as it would have liked. Nestle has a huge capability of innovating and bringing good offerings for the consumer. But like most FMCG companies in India have figured, to get operationally efficient, you need an effective tech solution that can work well in rural to be operationally efficient.
Britannia along with Parle Products is a major biscuits manufacturer and it has also felt the impact of the FMCG slowdown in the country. Vinay Subramanyam, Head of Marketing at Britannia said that the company along with marginal price increase will be going for cost optimization. The company aims to be more efficient in operations including reduction in logistics expenses.
Britannia’s focus on cost structures to improve margins seems to be conservative. It seems as if the company wants to sustain first and then to thrive. It’s possible that this approach has held them in good stead through 100 years of their existence.
However, the organization will continue facing the pressure to sustain its double-digit growth. Its strategy to move the product portfolio to higher margin premium products is a sound one. Still its focus on dairy doesn’t seem to be making a dent; so, its focus will remain on biscuits.
Britannia’s biggest challenge is to go deep into outlets where it distributes. Here’s what we mean.
On their website, along with multiple sizes, Britannia’s list of SKUs can exceed 100 in number.
Now, try stocking 20 SKUs in a kirana store. The sheer time taken dissuades shopkeepers from stocking beyond 5-7 variants.
For Britannia, with over 100 SKUs, it is a challenge to get more lines sold beyond the pull brands and therein lies the biggest opportunity that technology can help them solve.
Advanced analytics and order prediction algorithms can help them identify right outlets and help them drive greater product depth in order to drive greater growth. That, we believe is the key to success and something that Britannia needs to focus on.
Dabur has forecasted a mid-high single digit volume growth for 2019-20.
Dabur rebound strategy:
Among the key measures to drive this growth is a product shift to be done by
- Adopting Ayurveda into its healthcare business.
Here it intends to catch onto the trend of consumers increasingly shifting their preferences for Ayurveda-based products.
- Focusing on its eight power brands including Dabur Chyawanprash, Honey, Lal Tail, Honitus, Pudin Hara from healthcare and Red Paste, Dabur Amla and Vatika from home & personal care segments.
We can expect a media blitz focusing largely on these brands that contribute to over 70% of their revenues.
Dabur’s focus on its eight power brands is a no-brainer and we’re happy to see them go down that path. Many things in Indian FMCG work on this principle, including the fact that two lakh (1 in 3) villages contribute to 80% of revenues or that the top 10% of outlets typically contribute to half the sales. So, brand focus is great.
Now, talking about its move to Ayurveda, one must understand that this means that Dabur will start launching a slew of new products and variants. The biggest challenge in launching new products in the Indian ecosystem is that the success rate is for just one in 20 brands.
To make new products successful needs more than just a good product. It needs operational agility to ensure you are at the right outlets. You need to ensure that distributors pick up stock but with the correct expectations of an untested product that may not be accepted in retail and which may block their finances.
Most importantly, it needs a salesforce that is motivated to sell the new product despite the risks. They can ensure consumer demand and sidestep the disillusionment from retailers and distributors when the product doesn’t sell.
Technology companies that can provide retail intelligence which can help unlock value for FMCG companies. Look at below examples.
- A global chocolate company used gamification to drive very effective outcomes for a new product launch.
- A leading Indian beverage company identified and focused on the right outlet to drive greater penetration during a new product launch.
- A UK multinational home and personal care giant is leveraging mobile-based distributor management systems to generate greater productivity and growth from rural.
We do see these capabilities as an inherent gap for Dabur. However, therein also lies the opportunity. Building this retail execution capability is what we believe will be crucial to the success of Dabur.
A revival strategy is long due for a company that’s lost over 6% market share in the last five years. Yet with 52% market share, you still need to hold fort and continue to take the fight back to the competition. And here’s what’s frothing...
- Focus on ‘Naturals’ segment: Here they essentially are looking to counterPatanjali through Cibaca in the north and Swarna Vedshakiti in the south of India.
- Focus more on children
- Encourage greater consumption. 80% of India uses toothpastes for an average of five times a week.
Now imagine, the potential of using it twice a day. That’s approximately 14times a week. Almost 3x the usage.
Yes, finally the ones who are able to shed flab quickly, get leaner and able to move products quickly through to consumers will have a big advantage over those who don't.
The winners here are going to be much like the popular game show - Biggest Loser Wins.
About the Author:
Name: Akshay D’Souza
Designation: Chief Marketing Officer
Profile: Akshay has over 17 years of experience in the areas of Marketing, Product, Sales across Internet, Telecom and IT businesses.Having worked in both B2C and B2B, he brings unique perspectives from both worlds.
In previous roles, he's led Business Development for Skype in India through their partnership with Sify. Prior to that he's had over a decade of proven expertise in being able to build and scale platforms and businesses for various telecom companies including Airtel and Idea.