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Rediff.com  » Business » FMCG shows signs of a let-up with volumes slipping

FMCG shows signs of a let-up with volumes slipping

Last updated on: November 11, 2012 13:06 IST

FMCG shows signs of a let-up with volumes slipping

Viveat Susan Pinto and Sameer Mulgaokar

For the last few quarters, fast moving consumer goods (FMCG) companies have counted on volume growth to drive top line numbers. They haven't been disappointed with volumes growing between nine and fourteen per cent for most right through to the first quarter.

But, the slowdown seems to have caught up with FMCG sector. Companies such as Hindustan Unilever (HUL) and Marico saw lower volume growth in the three-month period ended September 2012 versus the earlier quarters.

HUL's volume growth, nine-10 per cent over the last four quarters, came down to seven per cent in the September quarter due to a disappointing show by personal products. For Marico, volumes tapered, too, especially in Saffola, 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 Paranjpe, managing director & chief executive, HUL said.

Chaitanya Deshpande, executive vice-president and head, investor relations and M&A, Marico said: "The next two quarters could be challenging as the slowdown in discretionary persists. Typically, FMCG tends to get impacted with a lag. It is now showing."

While companies, on an average, posted a decent set of numbers in the second quarter, with top lines growing between 15 and 20 per cent and bottomlines growing 20 per cent, analysts said the road ahead is not going to be easy.

While the wholesale price index (WPI) is 7.8 per cent, the consumer price index (CPI) continues in the region of nine-10 per cent.

With the recent fuel price rise, both WPI and CPI are likely to go up, hitting discretionary spends more. Food companies had borne the brunt of the slowdown in discretionary spending in the June quarter with volumes coming off three-four per cent. The trend is likely to be no different in the second quarter. Britannia's top line growth for the second quarter was 8.7 per cent, lower than street estimates of 12-13 per cent. Nestle is to declare its results.

Consumer product companies are not likely to raise prices significantly. Sunil Duggal, chief executive, Dabur India, said: "Who wants to add to inflationary pressures? The approach to price rises would be cautious."

A Mahendran, managing director, Godrej Consumer, echoed the view: "I don't see the calibrated approach to price rises changing soon. This will continue some time," he adds.

With agri-commodity prices coming off a bit in the last few months on rains in the latter part of monsoon, companies have desisted from raising prices. Copra prices are down 10 per cent, while palm oil is down 25 per cent. Copra is used to make coconut oil and palm oil goes into making soaps.

To keep the momentum going, companies are likely to push up their advertising & sales promotion expenditure in the next few quarters, said analysts.



Tags: HUL , Marico , FMCG , WPI , CPI