FILLING UP SHOPPING BASKET

FMCG Riding on Price RiseComing amidst rising input costs, many local and regional players found it difficult to compete with established players on the pricing plank. This made several consumers shift from unbranded product to branded ones as the price differential watered down.

The double-digit sales growth in the consumer product may not be purely on account of growing demand, as widely perceived; it's price increase and popularity of premium products that are driving the value growth.
Data from India's largest household research firm IMRB that tracks consumption trends in several sectors reflects that while demand in most categories remained stagnant in 2010, sales growth was mainly on account of price hikes and the launch of premium products by most companies, which bring in higher revenues to marketers.
In the current inflationary market, this trend is likely to continue even in 2011.
"Coupled with price hikes, we are also seeing grammage reduction in several product categories now, which will negatively impact volume," says IMRB Insights Director Shweta Kulkarni.
Here, sales imply revenues realised, or value, and demand reflects the volume or number of units sold.
"However, there will be a reversal trend in foods, especially branded commodities as most companies have started to drop product prices," says Kulkarni.
Demand for most packaged food products, which account for 70% of FMCG sales, either fell or remained stagnant during 2010 due to inflation in basic items such as wheat and edible oil.
In the case of personal care products, volume growth was average but sales shot up because most companies increased prices and launched top-end products.
"We see consumers shifting to higher priced products, which helped companies increase sales by value," says Godrej Consumer Products MD A Mahendran. "There were also uptrading from local and regional brands to established brands in the personal care segment, which helped increase the consumer base in 2010."
Shampoos and skin-care products grew double digit in value terms despite stagnant volume growth.
All this helped companies report good revenue growth even though volume growth was much higher in 2009.
In 2010, total sales of the top eight consumer product companies in the BSE FMCG index grew 12% over 2009 to Rs 36,085 crore. The net profit growth was 12%.
Only home care segment reported higher sales and increased consumption. Companies including Hindustan Unilever, Reckitt Benckiser and Dabur launched more than a dozen new products in the segment.
"Innovation in product development, resurgence of modern trade and a boom in modern homes have been the key drivers of growth in the home care products market," Dabur's home care category head Rohit Prakash Gupta says.
However, established categories such as washing powder had higher volume than value growth due to price discounting as multinationals Hindustan Unilever and Procter & Gamble went for a price war.