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MARKETING Still Life With FMCGs The picture may look vividly cheerful, but the tale that follows is of a tragedy in the making: the FMCG market is declining and the durables one seems set to follow suit. Now, it gets interesting... By Seema Shukla
All is not well in the Rs 43,000-crore Fast Moving Consumer Goods (FMCG) market, and it is the categories that enjoy the highest penetration (proportion of the population that uses the product) that have been hit the hardest. ''It is the high-penetration categories that are slowing," rues Rakesh Kumar Sinha, General Manager (Marketing), Godrej Consumer Products. The penetration of tea, at 99 per cent, is near total. Toilet soaps clock in at 97 per cent, and toothpowders and toothpastes together-both are rarely used in the same household-tot up an impressive 80 per cent. Just how disastrous this decline is for marketers is evident from even a cursory look at two leading FMCG companies, HLL and Colgate-Palmolive: 72 per cent of the former's turnover and 89 per cent of the latter's come from the sales of products in the categories listed above. Future growth, then, will come only from an increase in population and per-capita consumption (itself a function of discretionary income).
Coping with this requires a fundamental change in the mindset of typical FMCG companies: the rapid upsurge in incomes over the past decade meant all they had to do to sell more was focus on getting the product to the customer. According to research conducted by the National Council of Applied Economic Research (NCAER) penetration (growth in number of purchasing households per 1,000 households) contributed nothing to the growth of the toilet soaps market between 1998 and 2001 (See Factors Driving Growth). Increased consumption (read intensity of usage) contributed 1 per cent; rising income, 35.2 per cent, and growing population, 63.8 per cent. "In the long run, the impact of penetration and consumption will be negligible in categories like toilet soaps and detergents. The only factors that will determine growth are income and population," says R.K. Shukla, a senior statistician at NCAER. Distribution-led growth, then, is out. Now, companies have to address far more complex issues, related to product and price. "There is clearly a plateau in some industry segments,'' says J. Ramachandran, BOC Professor of Business Policy at the Indian Institute of Management, Bangalore. ''Spikes are needed. There is a clear need of breakthroughs on the price-product front to help FMCG companies.'' The simplest way to achieve this, of course, is to launch products at the lower end of the price-spectrum. If companies like HLL, Colgate-Palmolive, P&G, Reckitt-Benckiser, and others have been unable to achieve these breakthroughs, says Santosh Desai, Executive Vice-President, McCann Erickson India, it is because of their lineage, "Genetically, MNCS aren't built for this. Their business models are margin-centric; at the lower-end of the market, you need to be volume-centric.'' What's worrying is that the trend of declining (or slowing) growth is happening in durables too. Data just in shows that the refrigerator market declined by as much as 10 per cent in terms of volume in the first quarter (January-March 2001) of this year. And data available with CETMA indicates that the colour television market is also on a decline (See Durables Catching The Chill). Says Rajeev Karwal, Senior Vice-President (Consumer Electronics), Philips India: ''Consumers are spending less as compared to last year, though we expect things to pick up a little after the monsoon.'' The 'Potential' Debate There is room for companies to grow the market. "None of the markets we are in, are mature," claims Aart C. Weijburg, Director (Detergents), HLL. "It's true that soaps, at around 90 per cent, is among the most highly penetrated markets. But if you look at per capita consumption, in India it is 0.4 kilogrammes a year. Thailand boasts a per capita consumption of 0.6 kgs; Brazil, 1.3 kgs. Just in soaps (then), there is a long way to go before we look at (market) saturation". There is no arguing with those numbers. But companies have been loath (or plain unable) to tap that potential. Over the past six quarters, the sales figures of leading FMCG companies have slowed to the point of near-stagnation (See By 2000 Several FMCG Sectors Had Stagnated). And most companies, believes Ashish Jain, an analyst at ICRA Advisory Services, have done little to get the market to grow. "There is a market, sure, but companies have to look at it differently. They haven't done that. Instead, they are waiting for consumers to graduate to the next income level." For FMCG companies, this was a day that was bound to come sooner than latter. For most part of the 1990s, most product categories clocked impressive double-digit rates of growth-year on year, quarter on quarter. By the turn of the millennium, though, it was evident that the great rural-economy boom was over. And urban markets just couldn't grow any more. Companies reacted predictably, by increasing their advertising budgets, but this achieved little apart from increasing market-and media-clutter. Then, they discovered promotions. Data provided by research firm org-marg indicates that the promotional expenditure of some companies went up from 5 per cent of sales to 20 per cent. Almost 15 per cent of the toothpaste (grammage) sold in 1999 was free. That's the case with toilet soaps now, claims Satish Kumar, the CEO of Henkel-Spic, "The toilet soaps market appears to have shrunk because the free volumes given by companies is not being taken into account. Actually, we are producing and selling more soaps." A few companies did try to grow the market from the bottom up. HLL launched a slew of offerings targeting the rural poor: A1 tea; Aim toothpaste, and a repackaged Lifebuoy. Some analysts suggest that the company's recent move to prune its brand portfolio is a precursor to a massive mass marketing exercise. Growing the Market
Not all companies can be mass marketers. Indeed, some do not want to be that. Instead, they prefer to target lucrative niches, and focus on value-added offerings. That's the approach Gillette and Procter & Gamble have chosen to adopt in India. Others, says Shalini Oswal, an FMCG-tracker at Motilal Oswal Securities, may have no option but to ignore the mass market. ''Some transnationals are unwilling to sacrifice margins they have become used to over time.'' The argument is a trifle specious. India, as a market, is large enough to warrant local-strategies, and most transnationals operating in the country do recognise that. Still, few companies have been bold enough to make the kind of radical changes they need to in their marketing strategies to succeed. Even HLL does not directly reach 90 per cent of the villages in the country, which, together, account for 36 per cent of India's population. The company's experiments with self-help groups in Andhra Pradesh (See Selling To The Poor, Profitably, in this issue) may help, but eventually, it will have to innovate on the product front. "Often, the ability to increase demand is dependent on a company's ability to offer products at lower price points," says Nirav Sheth, an analyst at brokerage, SSKI. Nirma's toilet soap offerings have carved out a 22 per cent market share on the basis of price alone. "We are present in less than half the segments in the soap market, but an aggressive pricing strategy has helped us succeed," says Hirenbhai Patel, Chairman and Managing Director, Nirma Consumer Care. Marketing pros in FMCG majors couldn't ask for better company, as they set out to crack price, product, and penetration issues (direct reach as opposed to reach) related to stagnation and decline: their peers in consumer durable companies. Together, believes Rajeev Inamdar, President, ORG-MARG, these marketers will have to try and understand how consumers outside the cities behave.
"Marketers based in the large cities have still not understood the mind of the consumer (in small towns and rural India). But they need this customer to buy their products,'' says Inamdar. Watching their progress closely, will be those FMCG companies operating in markets that aren't declining. That, though, is primarily a function of penetration, not great marketing strategies. In some ways, the first years of this century could mark a point of inflection in the Indian context: over the course of the next few years most markets could show signs of stagnation and decline as marketers run through those consumers willing to buy their existing products at their existing price-points. To identify what IIM-Bangalore's Ramachandran calls spikes, they will now need to come up with innovative product-, pricing- and distribution-strategies. The game is afoot. -With
additional reporting by Shamni Pande |
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Facts
suffice, so we'll choose to omit the flowery opening: the most recent data
(January-March 2001) available on the sales of toilet soaps, detergent
cakes and powders, toothpastes, toothpowders, toothbrushes, and tea shows
a negative growth in terms of volume. To economise on words, that means
companies like Hindustan Lever Ltd, Henkel-Spic, and Colgate-Palmolive
sold less of these products in the first three months of this year as
compared to the first three months of last year.
