Double Whammy Inflation hitting FMCG sector with low sales & high input cost : ASSOCHAM

With the prices of key raw materials touching new highs, FMCG companies registered a 16.2 per cent rise in their cost of raw material within three months ending March even though its sales growth stagnated to mere five per cent, the ASSOCHAM Eco Pulse (AEP) has stated.

According to ASSOCHAM Paper on “Inflation hit FMCG sector”, the sales of major FMCG players have been considerably low as the inflation across the commodities has affected the consumer goods segment.

The net sales registered a marginal increase of 5.76 per cent for the period January-March 2008 on sequential quarter basis. FMCG majors Godrej and Marico registered a decline of 0.88 per cent and 8.28 per cent, while HUL and Dabur posted a 15.72 per cent and 16.47 per cent increase in their total income on sequential quarter basis.

In a statement, the ASSOCHAM President, Mr. Venugopal N. Dhoot said, “the spiraling prices of essential commodities have impacted the companies’ bottom line. The sector witnessed a decline of 15.38 per cent in their net profits on sequential q-o-q basis putting pressures on their volume growth, which grew by only 5.76 per cent in Q4 2007-08. The big dampener, rising input costs of wheat and milk, has shown no sign of relief. Price rise of key inputs in FMCG sector like wheat and milk rose to 1.13 per cent and 9.13 per cent in Q4 from 0.38 per cent and 8.84 per cent in Q3 respectively”.

The rise in the prices of fuel and power cost from 0.65 per cent in Q3 to 5.06 per cent in Q4 in 2007-08 have also contributed to the increased input costs.

Mr. Dhoot added, “despite a 15.7 per cent growth in its total income, HUL reported a decline of 39.41 per cent in its net profit after tax in the fourth quarter as compared to Q3 of the FY 2007-08”.

Sequential quarter (Q4 over Q3, FY2007-08)
comparison of top FMCG companies
(in percent)

Company name	Total Income	Net Profit	Advertisement expenses	Wage cost	Consumption of raw materials
HUL	15.72	-39.67	-215.07	9.8	24.44
Marico	-8.28	-11.1	13.4	18.29	3.58
Dabur India Ltd.	16.47	-5.55	12.62	48.71	28.6
Godrej	-0.88	-5.11	23.26	0.6	8.54

Rising wage costs have also hit the bottom line of the FMCG companies. Net profit margins of Marico and Dabur India ltd. recorded a decline of –11.1 per cent and –5.55 per cent on sequential quarter basis owing to the rise in their wage costs by 18.29 per cent and 48.71 per cent respectively.

The intense competition in FMCG sector makes advertising as an important expense. Godrej Consumer Products Ltd. (GPCL) has registered a 23.26 per cent increase in the advertising and sales promotion activities on sequential quarter basis. With the increasing input costs and advertising expenses, the company registered a decline of 5.11 per cent in its net earnings.

( source: assocham )

Tomorrow is a new consumer! Who is the future Asian Consumer?

The world is looking intensely at Asia today. Not for its spirituality or its exotic cuisines, but as a critical contributor to the sustenance of its core economic superiority. Having reached a “launching pad” level of economic growth (or getting there real fast, depending on the specific country), and with its very large young populations, Asia is moving rapidly towards becoming not only the world’s largest producer and consumer, but also the largest productive workforce. Marketers and policy makers everywhere are keen to know how to exploit the rapid transformation happening here.

We begin with a macro perspective on the big environmental changes occurring in Asia today, then examine the consumers more closely with selected insights about youth and women, and finally end with a discussion on some thoughts on how marketers can devise strategies to deal with this exciting new opportunity - Asia. We have resisted the temptation to quote extensive demographic data and focus instead on consumer issues. Nonetheless, ‘Asia’ is not one entity, and any attempt at addressing it as one, must necessarily become a little panoramic in nature.

1. The Meta Trends

To simplify the myriad changes taking place here, we will use the concept of Meta Trends. A meta trend is a transformational or transcendent phenomenon, not simply a big, pervasive one – it implies multidimensional or catalytic change, as opposed to a linear or sequential change. It happens as a result of evolutionary, system-wide developments that occur simultaneously in a number of individual demographic, economic, and technological areas. Instead of each being an individual free-standing global trend, it is a composite of trends. A brief description of these trends at a macro level will be followed by a more in-depth exploration of the impact of these trends on consumers and their consumption behavior.

Three meta trends transforming this region today are discussed below:

Economic growth and globalization:

High GDP growths throughout most of the region and impressive increases in exports and outsourcing income have led to higher incomes and better living standards. Real average household incomes will continue to increase between 1.3% and 4.9% per annum between 2002 and 2012. High income segments are projected to grow even more rapidly in size. For e.g., the number of households earning over US$30,000 in 2001 will increase by 8.6% in urban South Korea, 3.3% in Taiwan, 4.9% in Singapore, 3.7% in Hong Kong and even 1.3% in Japan (Asian Demographics Ltd). Needless to say, there are vast differences between countries in levels of economic development – from the cheap, high quality labour of China; to the high technology-high value consumer market in Japan; the increasingly wealthy ASEAN consumers; the potential alliances with the highly developed Korea and Taiwan; or the relatively poor, but highly optimistic, talented and fast developing Indian business outsourcing market.

(source : ACNielsen - India )

Hinterland overtakes cities in FMCG consumption

It’s a rural resurgence of sorts and has got companies revisiting their bottom of the pyramid strategies. Rural offtake across select categories such as shampoos, toothpastes and hair oils has grown faster than consumption in urban markets this year.

ACNielsen data for the January-July 2008 period shows that growth has been higher in rural markets across each of the categories by value and volume. The growth is being attributed to factors like higher prices of farm produce and farm loan write-offs, resulting in consumers upgrading to branded products.

Firms are addressing the increased demand by introducing SKUs (pack sizes) only for rural pockets, beefing up their distribution footprint and tailoring promotional and ad strategies specific to rural consumers — an example being upping the celebrity connect.

Take toothpastes — the category saw a 12.8% rural volume growth against 8.7% in urban markets in January-July 2008. Similarly, in the case of hair oils, rural value growth was 19.3% compared with 15.2% in urban markets during the period. Even an urban-centric product like shampoo saw rural volume growth at 11.8% compared with 8.8% in urban markets.
Dabur CEO Sunil Duggal said: “Demand for price-warrior brands and low-unit packs is being fuelled by the rural consumer. We are trying to penetrate the last mile in terms of distribution by expanding reach even in the smallest of villages. Also, since a celebrity-connect works better with rural consumers, we are tailoring our promotional strategies accordingly.

“In the case of Dabur, SKUs such as 30-gm Babool toothpastes, 20-gm Red toothpastes, shampoo and Hajmola sachets priced at Re 1 have all been created for rural and small-town consumers.

Marico marketing head Sameer Satpathy said that the company was tapping the rural growth story with increased micro-marketing, a stronger sales force and localised marketing. “As consumers move from loose to packaged products, rural demand is outpacing urban demand in select pockets. So, we are pushing, for example, Rs 3 price points for some of our products.” Mr Satpathy said that hair oil and branded starch were among Marico’s products that were growing faster in rural pockets.

In the automobile industry too, some of the rural resurgence seems to be evident. For example, in July, when car sales had turned negative in almost three years, mopeds, a mostly rural two-wheeler, had grown, if only just. Moped sales in July are up 6% from 37,192 units in the year-ago month to 39,486 units this time round. Motorcycles, which also have a significant rural footprint, are up after a bad patch that lasted for 12-18 months. Bike sales at 4,57,178 units are up 22% over 3,75,004 units last June.

A senior official with one of the top three auto financing firms said: “The assumption is right and the monsoon has been good with agri products growing at 6% clip. All of which will show up in demand.” But the rural-urban skew is so sharp in cars and even bikes that the upsurge will take a while to show up, he said. Typically, the top 200 cities account for 75% of the bike sales. In cars, the top 50 cities hog 80% volume.

Motorcycles are not the only category that’s doing well. Take tractors, a purely rural product. Mahindra & Mahindra COO (FES-division) Gautam Nagwekar said: “The tractor market should end the fiscal with around 11% growth. That’s darn sight better than what most analysts expect from the car market. Indeed, in the April-July quarter, car demand is up 9% though those figures don’t reflect the slowdown which kicked in from June.”

Of course, not everyone buys the theory that rural India is suddenly stepping on the gas. TVS Motor MD Venu Srinivasan said: “Actually, rural demand has been worse hit in motorcycles because of a financing crunch. That’s why more executive bikes rather than entry-level ones are selling.”

However, he does admit that the finance crunch has now come to cities and that mopeds have managed to hold their own in all this melee.

( source : Economictimes)

Amway to take on FMCG giants in India

After establishing itself as a major player in the home care, nutrition & wellness, cosmetics, it is time now for the Amway to take on fast moving consumer goods (FMCG) companies in India such as HUL, Dabur, Gillet.

The Rs 800-crore Amway India has forayed into the Rs 1,500-crore great value products market with a slew of launches such as coconut oil, amla oil, shaving cream, hair cream, disposable razors among few products recently. “We are looking at 3% to 5% in each of these segment in the first of year launch and hope to become a major player soon,” said William S Pinckney, MD and CEO, Amway India .

Addressing visiting journalists from Chennai on Friday at the company’s largest contract manufacturing facility at Baddi in Himachal Pradesh, he said, “We are bullish on the Indian market for these products. We believe given our brand equity and unique marketing exercise, the company hopes to turn the tide on its favour.”

“We are pitching our products at par with our competitors. We have 450,000 strong active distributors in India with wider public interface. With the strong brand, Amway hopes to garner sizeable market chunk of each product in India ,” he said further. The company has 102 products now under five different categories.

The company has roped in dedicated contract manufacturing facilities for each of these products. “For the first time in India it has started advertising these new products in print media and TV channels,” he added.

Earlier, talking about the Baddi facility, he said this is the largest contract manufacturing facility for Amway in India and manufactures 80% of Amway’s products in India . The Baddi facility is run by Sarvottam Care Limited and has invested over Rs 50 crore into this facility.

The facility manuafacture products in nutritional beverage, tablets and capsules, ‘Glister’ toothpaste, cosmetic creams, home care, he said. Responding to a query, “We have been growing fast in India and expect to end the current year with a turnover of Rs 1,000 crore and more from last year’s Rs 800 crore.

(source : financialexpress )

The rationale!

Well, this blog is an humble effort in making all the news/research materials/latest trends in the market/ links, which of course is pertinent to FMCG sector, available in a single space.