Big FMCG sales come in small packages
LUX soap at Rs 10, Good Day biscuit packet at Rs 5, Nestea premix ice tea pack at Rs 2. These are some of the most popular offers in the consumer products market where companies expect low-priced units to account for more than 40% of their total sales this year.
With rising prices of food and commodity products forcing India’s huge middle class market to lap up low-unit packs of soaps and detergents, shampoos, biscuits and snack foods more than ever before, companies such as Hindustan Unilever (HUL), ITC, Britannia, Frito-Lay, Godrej, CavinKare, Dabur and Nestle are banking on these ‘magic price points’ to push volumes. Last year, such packs accounted for 25-30% of their sales.
“The Rs 5 and Rs 10 price points in India continue to be magical in providing affordability and accessibility across a wide variety of foods,” says Vinita Bali, CEO of Britannia Industries, which recently introduced Good Day biscuits in Rs 5 packs.
This is because most Indian households spend a large chunk of their disposable income on food, and they have to adjust their expenses on discretionary items when the prices of sugar or dal rise, she says.
The price of sugar, which is also a raw material for biscuit and confectionery makers, has doubled from Rs 17/kg to Rs 35 over the past one year.
Nestle has introduced Nestea, its premixed ice-tea, in refill packs of Rs 2 and Rs 10. Till now, the brand was only available in packs of Rs 75. FMCG’s rural focus drives small size sales
PEPSICO’S snack foods arm, Frito-Lay, has started advertising its Kurkure brand in packs of Rs 3 and Rs 5. “We are trying to recruit new consumers and drive category penetration on Kurkure with price-pack play,” says Deepika Warrier, marketing director of Frito-Lay. Small packs will account for about one-third of the firm’s business, she says.
While the slowdown in economy and inflationary pressure have impacted the disposable income in the hands of people, another factor driving the low-price unit growth is the increasing penetration into rural areas and the bottom-of-the-pyramid market.
“There is so much unexplored potential in rural areas. Keeping low-price points is crucial to get into these markets,” says Dalip Sehgal, managing director of Godrej, which is selling its No. 1 soap, Expert hair colour and Nupur henna at the Rs 5 and Rs 10 price points.
Godrej is strengthening its distribution by tapping new channels like barbers and salons to push its shaving creams and talc and advertising its low-price units both regionally and nationally, he adds.
CavinKare, which began the sachet revolution by selling Re 1 shampoo packs in rural India in early 1980s, says sachet shampoo sales have accelerated over the past few months from 70% to over 80% of the Rs 2,400-crore shampoo market.
“Small packs are growing faster because they drive penetration specially in rural markets and offer convenience of use. We have not seen much upgradation from sachets to bottles,” says V Ramesh, executive director of CavinKare, which sells Nyle and Chik shampoos in 50 paise and Re 1 packs.
Small packs help attract new users into a category, says V S Sitaram, COO of Dabur India, which recently rolled out Hajmola in 50 paise packets and Amla hair oil in Re 1 sachets. Low-priced packs contribute close to 35% of total sales of Dabur that also owns Vatika and Chyawanprash.
Both Hindustan Unilever and ITC are now focusing their advertising for Lux and Vivel soap brands, respectively, on the Rs 10 price point instead of brand attributes.
According to Cadbury India’s director for marketing Sanjay Purohit, the growth of lowprice units is led by a market need to encourage consumption and push growth in the smaller markets. The chocolates and confectionery maker has launched a Rs 2 version of its flagship brand Cadbury Dairy Milk, called CDM Shots, and will soon introduce smaller packs of its premium brand of chocolates, Bournville.
Analysts feel the trend will force companies increase volume discounts and consumer promotion schemes to push sales of larger units. But even then, the small will keep getting bigger, as the market penetrates and competition tightens.
“We expect low-pack units to become the highlight of the industry, with competition across categories intensifying. Downtrading and downpricing (weight reduction rather than price hike) is likely to become a reality, with a focus on sustaining volume growth and protecting market share,” says Anand Shah, FMCG analyst at broking and advisory firm Angel Broking.
Growth rates in the FMCG sector accelerated since April 2009 to cross 20% compared to 17-18% last year.
Interestingly, the expansion of low-price units — a popular phenomenon in emerging and developing countries — does not favour the country’s nascent organised retail sector. More than 70% of low-unit packs are sold through kirana, or mom-and-pop stores, that constitutes almost 95% of the total retail market.