|Chennai||Rs. 28730.00 (1.13%)|
|Mumbai||Rs. 29740.00 (-0.13%)|
|Delhi||Rs. 29200.00 (0%)|
|Kolkata||Rs. 29350.00 (0%)|
|Kerala||Rs. 28000.00 (0%)|
|Bangalore||Rs. 28400.00 (0%)|
|Hyderabad||Rs. 28470.00 (-0.11%)|
It was a year with some high points. Despite hectic lobbying, the government refused to budge from its stated intent of standardising packs of fast-moving consumer goods (FMCG), a move first notified in 2011. The norms were eventually implemented in November, nearly four months after these were supposed to debut.
The paradigm shift meant firms manufacturing products from 19 identified categories could no longer tweak with grammage as they earlier did when input cost pressures became unmanageable. The only concession was the exemption of small packs from the norms.
Typically, value packs, which fall in the Rs 1-10 price range, constitute 25-30 per cent of overall sales for an FMCG company. In the case of biscuits, it could be higher at about 55-60 per cent.
Analysts say the move not to standardise small packs will help companies since they act as recruiter packs, that is, entry-level products familiarising consumers to the brand. This is critical, they say, as introducing standard packs at the entry-level could lead to odd pricing, discouraging consumption.
While firms stand to gain with the exclusion of small packs, the bigger fallout of standardisation will be its impact on pricing. This will be on the watch list of most in 2013. "There will be an increase in the cost of beverages, cereals, edible oil, detergent, flour, salt and mineral water, among other categories. This is clearly an issue," says Gaurav Sharma, vice-president at consultancy Tecnova India. At a time when consumers continue to battle inflation, the likely impact on pricing hardly bodes well for them.
While 2013 brings with it new hope that interest rates will eventually go down, challenges abound. Harsh Mariwala, chairman and managing director, Marico Ltd, puts it simply: "I think growth in FMCG will take off with economic growth. In the last two quarters, there has been some pressure on volumes due to consumers cutting back on spends. It would be worth noting how things shape up in 2013."
This volume slowdown has affected companies across the board from Hindustan Unilever (HUL) to Marico. HUL saw volume growth come down to seven per cent in the quarter ended September from nine-10 per cent in the previous four quarters. Marico, too, saw its volume growth taper in brands like Saffola, which was down to six per cent from 13-14 per cent.
“There are challenges in the short term. Over the last few months, we have begun to see some slowdown in discretionary categories, where there is an opportunity for the consumer to defer the choice between today and tomorrow," Nitin Paranjape, managing director and CEO of HUL, had said at the time of announcing the firm’s second-quarter results in October. Predictably, as Marico’s Mariwala says, economic growth will be key to fuelling demand. But that remains a bit of a question mark at the moment with estimates suggesting otherwise. From about eight to 8.5 per cent growth levels that the Indian economy has seen in the past few years, estimates have now been pegged at about six to 6.5 per cent for the current financial year. Consumer companies are nervous that lower growth estimates will not kickstart sufficient demand for their products in the marketplace.
Says Shantanu Dasgupta, vice-president, corporate affairs and strategy, South Asia, Whirlpool of India Ltd: "Demand for home appliances suffered in 2012 due to a combination of factors: high interest rates, persistent price hikes, etc. I am hoping it will ease in 2013."
Among durable categories, products like washing machines, air conditioners, refrigerators and microwave ovens were worst hit in 2012. But categories like LED TVs, mobile phones and tablets didn’t suffer this fate. Their growth was in double digits.
“The consumer electronics market is expected to show further momentum in 2013. Pricing would be linked with input costs and any change in taxation would determine further steps in pricing. We expect the trend in terms of flat panel television sets, especially LED TVs, to continue as category consumption grows in smaller towns,” says Mahesh Krishnan, vice-president, Samsung India. “Similarly mobile phones are expected to sustain their growth linked with replacement demand in metros and larger cities and growing penetration in smaller markets.”
Most consumer goods firms remain optimistic about their prospects in rural areas, which today give them nearly a-third of their sales. “The year 2012 saw demand for Dabur’s consumer products in rural markets grow much faster than in urban markets. We will continue to drive growth on the back of our distribution enhancement initiatives, unique promotional activities and product innovation in these areas,” says Dabur’s Chief Executive Officer Sunil Duggal.
Soft drinks makers, who witnessed a 20 per cent volume growth during April-June, are also betting on the rural market. According to a Coca-Cola spokesperson, India’s per capita consumption of products manufactured by Coca-Cola India is still lower than countries like China, where per capita consumption is 38 bottles a year against 12 bottles a year in India. “The Indian market, especially in rural areas, has a huge untapped potential,” he adds.