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Despite the slowdown, FMCG cos see sales volumes surge

March 26, 2009 02:26 IST

Slowdown? If there is one, producers of colas, tea, biscuits and toiletries  --  or fast moving consumer (FMCG) goods  -- haven't noticed. All of them are reporting substantial growth in sales volumes in the first three months of 2009.

A major reason for this surge in sales is changing income demographics -- newer buyers in small towns are opting for branded products. Also, price cuts have reduced differentials between premium and economy products, inducing consumers to spend.

Carbonated beverages is a case in point. The industry is expected to end the first quarter of this calendar with a 25 per cent surge in sales volumes against 10 per cent for calendar year 2008. A Coca-Cola India spokesperson attributed this surge to excise breaks, from 14 to 9 per cent, and the fact that the company was extending its cold storage coverage to make the product available to more consumers. 

Kishore Biyani, chairman of Future Group, the country's largest retail chain, confirmed that sales of food, grocery and FMCG products in his stores have grown around 15 per cent, but non-food and non-FMCG products are growing at only 5 per cent.

"It has to do with demographics. A whole host of new customers, who earlier aspired to buy branded products, are joining the fold for the first time. And that is ensuring there is no slowdown," he said.

For instance, packaged tea company Twinings India Country Head Suresh Iyer said, "Many consumers who are non-branded tea drinkers, which constitutes 60 per cent of the market, have shifted to branded products. Two, new value-added products like wellness and health tea markets are growing at 50 per cent and are catching on," he said.

ITC Foods, which has various product lines from biscuits, spices to potato chips and snacks, has seen sales volumes grow 15 to 16 per cent in the first three months of this year.  "Apart from repeat customers, who are not reducing spends on these items and might be cutting other big ticket products like, say, a TV, new consumers who use unbranded products are trying us as our distribution penetrates these markets," said an ITC Foods source.

Indeed, observers point out that income levels in the newer markets in India's smaller towns have not really fallen so drastically. "In B- and C-class cities, where most people have small businesses and services, income levels have not fallen as much as they have in the big cities. This has sustained growth," said Gaurav Marya, president of Franchise India Holdings, a consultancy firm tracking retail franchisees.

Lower commodity prices have also helped push sales for many branded FMCG products. K S Oil, one of the largest players in the branded edible oils business, especially in mustard, has seen a 25 per cent growth in volumes in January-March this year over last year.

"What we are seeing is per capita consumption of packaged edible oil, which was only

2 kg per year, increasing in rural India, but it is stable in urban India," said Sanjay Aggarwal, managing director of K S Oils. "Also, mustard oil prices have fallen 20 per cent owing to lower raw material prices, making it affordable in rural India."

Similarly Gurnam Arora, managing director of Kohinoor Foods, which sells packaged basmati price, said a 30 per cent fall in prices of rice has worked wonders for sales volumes. "In the last quarter of 2008, prices went up, forcing consumers to shift from basmati rice to other products. But the fall in price has had the reverse impact," he said.

And of course, the old reason that people have to eat, wash and groom even in a slowdown holds. Packaged hair oil producer Marico Industries, which has seen sales volumes grow 12 per cent, confirmed that consumers are not reducing purchases. "These are daily consumption  products and the price points are not high — between Rs 30 and Rs 70 — and we have not seen any trend of consumers not buying such products," a spokesman said.

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