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Despite a gloomy economy, consumers are still spending

Last updated on: May 3, 2012 13:31 IST

Despite a gloomy economy, consumers are still spending

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Hindustan Unilever, the country's largest fast-moving consumer goods (FMCG) company, has reported 20.4 per cent growth in its consolidated sales for the quarter ended March 31.

Of this, 9.6 per cent came from volume growth, and the rest from price increases. For Dabur, which gets 70 per cent of its business from India and the rest from exports, consolidated sales for the quarter were up 23 per #162 more than half of that, 12.4 per cent, came from higher volumes.

A further seven per cent came from price increases and the rest from foreign currency gains. Out of the 30 per cent growth in Godrej Consumer Products' soaps business, 17 per cent was contributed by volumes; out of the 13 per cent growth in hair colour, the share of volume growth was seven per cent.

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Photographs: Danish Siddiqui/Reuters

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Despite a gloomy economy, consumers are still spending

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This means two things: one, the market is buoyant; and two, as a result, pricing power has returned to companies. FMCG companies were faced with higher commodity input costs in the last quarter; they have been able to pass these on to the consumers. Most of them have, thus, seen an improvement in their operating profit margin.

Hindustan Unilever Chief Executive Nitin Paranjpe has said that there is no evidence of large-scale down-trading -- consumers settling for lesser-priced options. In fact, a large number of them are up-trading. This is crucial.

At the first sign of a slowdown, which is accompanied by fears of lower disposable incomes and joblessness, consumers first cut down their FMCG budgets by down-trading. The absence of down-trading means customer sentiment is not weak.

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Photographs: Ajay Verma/Reuters

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In the last quarter, the rural market has grown faster than the urban market. According to Nielsen, FMCG growth was 10.7 per cent in the rural market and 10.8 per cent in the urban market during the quarter ended December 2011; for the quarter ended March 2012, while growth in the urban market improved to 16.5 per cent, it rose even higher, to 17.2 per cent, in the rural market.

In the non-food category (packaged food is a largely urban product category, except biscuits which sell in large numbers in villages), rural growth at nine per cent was below urban growth of 12 per cent during the quarter ended December; for the March-ended quarter, rural growth at 17 per cent has more or less caught up with urban growth of 18 per cent.

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Photographs: Adnan Abidi/Reuters
Tags: FMCG , Nielsen

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For the FMCG sector, the rural market accounts for 40 per cent of the market. For large companies like Hindustan Unilever and Dabur, the split is 50:50.

Some companies have mounted special rural-focused drives; but higher support prices for various crops, an increase in farm wages and redistributive schemes of the government have all been important, as have expectations of a normal monsoon.

There is much gloom about macroeconomic fundamentals. Yet consumer sentiment seems to contradict any sense that the India story is stuttering.


Photographs: Reuters

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