The Hindu Business Line : Regional brands keep FMCG giants on their toes

IF 2001 was a tough year for the Goliaths who dominate the Indian market for fast moving consumer goods (FMCG), 2002 was a harrowing one. For, in addition to a steady shrinkage in demand for most product categories, the traditional market leaders had to contend with a host of regional and local brands, which nipped at their heels and bit off significant market shares. Here's a run-down on the FMCG industry saga over the year.

Local challengers

Some of the most successful FMCG brands in 2002 came, not from the stables of a Hindustan Lever and a Colgate, but from obscure regional players such as Kaleesuwari Refineries, Parakh Foods, Anchor Switchboards and Kanpur Detergents. Over the past couple of years, brands such as Gold Winner and Gemini in refined oils, Anchor White in toothpastes and Ghari in detergents have managed to sustain double digit growth rates, even as the market leaders have struggled to hold on to single digit growth rates for their brands.

Yes, the comparison is unfair, as the local brands had a minuscule base to start with. But these brands have demonstrated it is not impossible for a new challenger to break into the traditional bastion of one or two large FMCG players. Traditionally, large FMCG categories in India have been dominated by just one or two players, who rule the roost by dint of their sheer financial muscle and distribution reach. But, of late, successful regional brands have been finding chinks in their armour. And how!

Aggressive pricing

In the edible oils market, as national players were forced to hike their selling prices in response to rising commodity prices, both Gemini and Gold Winner have used aggressive pricing to woo consumers away from the national brands. Packed tea too, has seen similar trends. The limited differentiation in grocery and the flexibility offered by a restricted area of operations have stood these companies in good stead. Anchor White, among the few debutants in the toothpaste market to garner a significant share, first wooed the retail trade with high distribution margins, and then used rock-bottom prices to lure consumers into trying the product. Though none of these companies can match the market leaders in adspend, they have used focused regional and local advertising to draw consumers' attention to their brands. The mushrooming of local and regional media has undoubtedly helped the local players milk the most from their ad budgets.

Banking on `power' brands

While the local brands have been adding to their brand portfolios, the market leaders have largely stayed off new product launches.

In keeping with its "power" brand strategy, Hindustan Lever's marketing strategies in 2002 revolved around rejigging and relaunching established brands such as Lifebuoy, Rin, Surf and Vim. The company phased out brands such as Sunlight in detergents, and Jai in toilet soaps, so as to focus better on its 30 power brands.

The strategy appears to have worked, as brands such as Lifebuoy and Rin have moved into a higher growth trajectory after the relaunch.

In fact, HLL's "power" brand strategy has found a few followers in the FMCG market, with companies such as Godrej Consumer also announcing plans to focus on a clutch of key brands.

Streamlining adspend

While the "power" brand strategy has helped the leading players put their marketing prowess behind their most important brands, it has not really helped them save on adspend. For most FMCG companies, advertising and promotion spends in 2002 grew faster than their sales. In high penetration categories such as soaps, detergents and toothpastes, marketing efforts of the players revolved around persuading existing consumers to use more of the product or to upgrade to a higher-priced brand. The slew of "100 gm free for every 150 gm" offers in toothpastes and the series of promos on the 2 kg packs of premium detergents were both intended to induce existing consumers of a product to pep up their usage of the brand.

Companies operating in relatively low-penetration categories such as chocolates, shampoos and skin creams tailored their marketing strategies to bringing in new users, through scaled-down versions of their brands in affordable pack sizes. The low-priced Chocostik, a liquid chocolate in a small-sized pack, launched by Nestle India, has helped pep up the company's topline and is now a large contributor to the company's revenues. Nestle India is now trying out a similar small-sized Rs 5 pack for Maggi noodles.

Shampoos have been among the few FMCG categories to register a positive growth rate in 2002, and growth in this category has been driven mainly by sachet packs and by scaled-down 50 ml bottles priced at less than Rs 10.

Overall, the FMCG slowdown of the past three years has served a useful purpose. At one level, it has made sure that the dominant players in the market no longer enjoy unlimited pricing power, as they have in the past. There now appears to be a greater effort on the part of the players to hold selling prices and look at their own operations to save on cost. At another level, the emergence of the regional challengers has made sure that consumers of FMCG products have a few more choices in their purchases of essentials.

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Regional brands keep FMCG giants on their toes