“Club of Knowledge Hunters”

FMCG cos buck downtrend, may grow 17%

Posted by retailigence on October 13, 2008

AMID the financial meltdown and the worst industrial growth in a decade, FMCG sales seem to be bucking the trend and are expected to remain steady in a scenario where consumer sentiments otherwise seems shaky. The sector is expected to post a robust 15-17% topline growth in the July-September quarter led mainly by price hikes even though volume growth could be relatively slower.
Henkel India MD A Satish Kumar says: “Consumption in the FMCG sector may get impacted if there is a prolonged liquidity crisis but as of now we are not witnessing any dip in sales. The current financial scenario does not have an immediate relevance to the FMCG sector, as the sector is, to some extent, insulated.”
Heavy dependence on the agri-sector and FMCG not being very capital-inten
sive are among the factors that have insulated the sector from the downturn. Angel Broking’s Anand Shah says: “We expect most companies, including HUL, to post a 16-17% topline in the quarter. Bottom line pressures, however, are likely to continue because of rising commodity costs and the impact may be felt in the third quarter.”
“There is no cause for worry at the moment. But, the overall state of financial chaos could have a bearing later. We need more innovation in products, packaging and price points to fuel growth,” said
CavinKare CMD CK Ranganathan.
Dabur CEO Sunil Duggal said: “We find sectoral growth to be in aggressive double digits, aided by factors like a higher quantum of price increases. We are, in fact, seeing sharp increase in the uptake of charger
brands with more people coming into the consuming basket, converting from unbranded to branded products, which we believe is because of higher commodity costs and government sops.”
Similarly, Godrej Consumer Products ED
& president Hoshedar Press
said the company did not expect any immediate impact on consumer spending because of continued value growth. However, Mr Press said: “We will sharpen focus on our v a l u e – f o r- m o n e y brands such No 1 soap with additional advertising and distribution, because volume sales have been relatively lower.” But there are concerns about the future. Industry officials say average monthly spends have shot up by over 30% quarter over quarter while annual salary hikes have not kept pace with inflation. Most categories – soaps and detergents, shampoos, toothpastes and hair oils— have witnessed price increases of anywhere between 5% and 15% in recent months. Given stiff competition, companies have little choice but to increase spends on promotions, distribution and advertising. Also, the savings on account of tax holidays are expected to decline leading to pressures on margins.
Market watchers add there are signs of downtrading to lower-priced and smaller SKUs across key categories, resulting in companies stepping up focus on price-competitive brands.
Over the past several months, while average consumer spends on daily use products have shot up, modern retailers have not been able to offer any significant relief to consumers at a time when they are also dealing with higher operating costs. “We have tried to shore up individual category growths though consumer offers,” said the CEO of a leading Indian modern retailing company.

Source: Economic Times


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