Mid-tier FMCG firms move fast

Even as large fast moving consumer goods companies like Hindustan Unilever and ITC struggle with their volume growth, mid-tier FMCG companies like Godrej Consumer Products, Marico, Dabur and Nestle have reported strong spurts in volumes as they focus on inorganic growth and rural markets, according to industry experts.

"Besides soaps and detergents, which are seeing consumers downtrade (switching to a smaller pack or a cheaper value product), the packaged goods market is seeing volumes grow at 6-7 per cent year-on-year (y-o-y) in the metros, at 10-12 per cent in Tier-II cities and at over 15 per cent in rural India," IDFC SSKI's Managing Director Nikhil Vora said.

According to research firm Nielsen, growth in value terms was in the range of 17-18 per cent for the calendar year 2008, as consumers continued to spend on packaged goods.

"Rural demand and an increased focus on rural markets is driving the overall FMCG sector," Antique Stock Broking's Vice-President for research, Abhijeet Kundu, said.

As such, Dabur --which has over 35 per cent of its portfolio focused on the rural market--has reported a volume growth of 13 to 14 per cent. Of this, 10-12 per cent is in the hair oil segment alone, its largest category. The volume growth is at over 10 per cent in oral care and at over 15 per cent in foods.

Likewise, volume growth for Marico is 14-15 per cent, Godrej Consumer Products over 15 per cent, Nestle 18-20 per cent and for Britannia it is over 14 per cent.

"These companies have a strong rural focus as well. For instance, Parachute--Marico's flagship hair oil business--will see  strong growth in rural India, as consumers shift from multi-purpose oil to branded hair oil. Likewise, Colgate and Britannia also stand to benefit on the back of their rural market penetration, as consumers uptrade. Even Nestle has increased its focus on the sub-Rs 10 price points," a recent report from IDFC SSKI said.

Moreover, GCPL, Marico and Dabur have also grown inorganically in the past five years, which resulted in over 10 per cent of their incomes coming from acquisitions and international operations.

"These companies have a huge appetite for inorganic growth and will continue to look for opportunities to grow inorganically," Angel Broking's FMCG sector analyst, Anand Shah, said.

On the other hand, large companies have witnessed their volume growth decreasing. For instance, HUL's year-on-year volume growth slipped from 10 per cent in January-March 2008 to 8 per cent in the quarter ended June 2008, and thereafter to 6 per cent in the September quarter, 2 per cent in the December quarter and, in the recently concluded January to March 2009 quarter, the FMCG giant's sales fell by 4 per cent.

The company, which makes such iconic brands as Lifebuoy, Dove, Wheel and Pepsodent, said its volumes suffered on account of consumers downtrading, trader destocking (traders reducing their inventory levels by 3-4 days, as it reduces costs) and also due to consolidation in the modern trade space after close to 1,000 retail outlets shut down.

As for ITC, with the discontinuation of non-filter cigarettes, its volumes are down by 3 per cent in the past few quarters. Besides, the maker of Sunfeast biscuits, Bingo chips and Fiama d'Wills shampoo is cutting its focus on the mass segment of biscuits to improve profitability.

"At best, the category would grow at 2-3 per cent in volume terms in the January to March quarter. Also, its FMCG profitability has come down to below 20 per cent from 45 to 50 per cent a few quarters ago," IDFC SSKI's Vora said.