INSUBCONTINENT EXCLUSIVE:
From bigger awareness levels to better product quality, attractive offers and consumer shift to naturals; it looks like we have a good
tailwind for volume and profit growth, though some challenges remain.
So, what to expect from this sector in 2019
1) We expect naturals
segment within well penetrated categories to continue growing, led by a strong shift in consumer preferences to buy products which are
herbal, natural, organic and to shun products with chemical substances.
2) Naturals as a segment is already 25 per cent of toothpaste
(10-15% YoY).
3) In personal care products (shampoos, fairness creams, conditioners, hair oils), consumer in urban markets is definitely
additional benefits (especially hair fall control, hair repair, volume, hydration) by including ingredients like argan oil, turmeric, aloe
vera and keratin.
4) Categories that can see tailwind in skincare are pure extractions of rose oil, argan oil/Moroccon oil and virgin
coconut oil, which consumers are using now instead of creams
However, since these pure oil extracts are expensive (Rs 650 -1,000 for 25-100ml bottles) and getting added as an additional product in skin
Hair oils with anti-hair fall benefits are growing fastest
The low-cost segment, which has coconut and amla hair oil brands like Parachute, Anmol, VVD Gold, Dabur Amla, Nihar Shanti Amla, Parachute
Jasmine and Dabur Jasmine is growing at 6-15 per cent per annum
by 360-degree push by top players like HUL, PG, Jyothy Labs for Surf Excel/ Surf Excel Easy Wash, Ariel, Ariel Matic, Tide Plus, Tide
Naturals, Henko Lintelligent
Companies are ploughing back commodity benefits, tax rate cuts, input tax credit on wider basket of goods and services and spending on both
ad-spends and promotional offers to sell larger SKUs (stock keeping units).
In modern trade and e-com, it has now become a norm almost to
sell 4kg / 6kg SKUs in detergents and 375/650ml SKUs in shampoos
With more awareness, consumers are shunning local brands and premium players are offering additional benefits, upgrading technology to
This is not affecting margins of these companies, as selling more volumes only gives them scale benefits and bargain power
A similar trend is visible in shampoos, hand wash and shower gels.
BSE FMCG index vs BSE SensexRural markets improvingKey categories such as
detergents, toilet soaps, dishwashing bars, hair oils, shampoos, fairness creams and toothpaste have all witnessed rural growth outpacing
urban growth by 1.5 times (high single digit volume growth) at offtake levels and have also seen an improvement in trajectory on absolute
level as they grew by 1.1 times urban growth in 2017
According to AC Nielsen, full-year consumer offtake was 13.5 per cent in 2017 and is expected to drop to 10-11 per cent in 2018 and
stabilise at those levels going forward
The reason behind dip in growth from 2017 to 2018 was effect of a lower base in 2016, which caused 2017 growth figures to spike.
FMCG
stocks'performance in 2019Premiumisation through smaller-sized packs All dominant market leaders have converged to a single strategy of
expanding reach through affordable packs in their respective categories while strategically pricing them at 1.3-4 times base
portfolio.
Categories that have benefitted from this strategy are detergents (Surf Excel Easy wash sachet at Rs 10), post wash fabricare
(Comfort - HUVR priced at Rs 3/sachet), shampoos (Pure Derm (HUVR) sachet priced at Rs 3 (7ml) to up-trade consumers from Clear (HUVR)
priced at Rs 1.5 (5ml) and Tresemme sachets used to up trade consumers from Sunsilk), Rs 10/20 packs of toothpaste (Swarnavedshakti by
Colgate), biscuits (Marie at Rs 5 price point, Nutrichoice, Goodday Wonderfulls priced at Rs 10-30 per pack), bakery (Britannia has covered
sachets), and milk beverages priced at Rs 25 per tetra pack (Nescafe, Britannia).
(Sagarika Mukherjee is Vice Pre sident for Institutional
Equity Research at Elara Capital
