Performance Of FMCGs In 2000-2004

2000 was a rather uneventful year for manufacturers and marketers of fast moving consumer goods (FMCGs). The growth rate of FMCG categories was torpid to say the least and the marketing environment was such that, even veterans like Hindustan Lever Ltd (HLL) and Procter & Gamble (P&G) found it difficult to hold on to their market share. The market grew more crowded, what with the entry of new brands entering categories which were virtually the bastions of HLL, Colgate or P&G.

Even in 2001 prominent, high penetration categories such as toilet soaps and detergent bars were very badly affected, actually shrinking in real value terms. Categories with a comparatively lower reach in terms of market penetration, such as shampoos and skin creams too slowed although to a lesser extent. The explanation for this could be that categories with high penetration levels, such as detergents and soaps also depend to a great extent on rural demand. The probable cause is a combination of both industrial slowdown as well as the almost-crisis in in the agricultural sector which forced consumers to cut back on spending.

The cutback in consumer spending pronounced itself in three trends:-

• Buyers moved from higher-end products to low-end products in an effort to reduce monthly grocery expenditure. Mid-priced and low-priced segments in soaps and detergents registered robust growth rates, while the premium segment faltered.
• Impulse products suffered while essentials managed higher rates of growth. Despite the slowdown, staple foods such as atta and salt managed to recorded superior growth rates, higher than those of supposed luxury products such as chocolates and ice creams.
• Low unit packs saw robust volume growth. Most FMCG marketers offered smaller versions of their products at affordable price points and these drew in new consumers.

2006 And The Retail Boom

2006 was a different story altogether though. The FMCGs seem to have gotten a new lease of life 2005 onwards. Be it hair care products to sunscreen, they were flying off the shop-shelves. In fact sale of white goods dipped while toiletries registered an increase. Such a sharp rebound was, however, unexpected. AC Nielsen's retail sales audit numbers for August 2006, show that sales growth was sound, recording a 24%. Even a year back retails sales growth were languishing near about a measly ten per cent. However it could be argued that the AC.Nielson's July 2006 figures were based on a bigger panel and resulted in better coverage of rural areas.

But, the trend continued in September quarter numbers too and everyone was relieved. Not so long ago, in July 2005 most firms were unable to pass on even basic cost increases and growth had plunged to under 3 per cent.

BSE FMCG Disappoints

Ironically though, the BSE FMCG index has slackened over the last three months since August after outperforming the broad market between February and July. This could be due to the underperformance of major players like HLL and ITC. Since mid-May, HLL underperformed by about 19 per cent.

Industry bigwigs were, however, hopeful. Many see the combination of increasing revenues, better marketing and technical innovation and effective price-value evaluation as a sign that the cyclical boom phase is well on its way. Most are counting on two factors as driving forces :-

• Increased market penetration in rural areas and
• A shift in urban outlook regarding expenditure.