Godrej Consumer which saw negative volume growth is anticipating big turnaround with the launch of products at disruptive price points, amid an uptake in rural demand. Sameer Shah, Chief Financial Officer, Godrej Consumer Products Limited spoke to businessline on the company’s major plans.
Godrej Consumer has recently launched products at extremely competitive price points. What is the idea behind the pricing?
We are driving category development. We have launched products related to lower price points in hopes of driving the penetration up. For example, there are only 8 to 9 consumers who are purchasing household insecticides in aerosols format, once a year . The reason is the price, as the cheapest aerosol is available only for ₹110-₹120. The penetration is low as consumers could not afford it. With low pricing, we expect a lot of consumers to come into the format and also to upgrade. A consumer who is using a mosquito coil is not able to upgrade as the next price point after the ₹35 coils is at ₹80 electric machine, and then aerosol. We are trying to get products in between those price points. We are optimistic about getting such products at disruptive price points in formats where penetration is lower. We did something like this in our hair color portfolio about a year back where we had a creme format for ₹35 and we launched a ₹15 creme format. It has been a rank outperformer in terms of market share and penetration. The overall portfolio in terms of growth has been over the roof. Many consumers still use powders that are available at ₹15. We have launched creme at the same price point which is much safer and more convenient.
Do you see product price disruptions impacting the Fast-Moving Consumer Goods (FMCG) business?
There are different ways to look at this. As it could shrink the category size but again, if the format is under-penetrated where there are few users at this point then the risk is mitigated. The volume growth will be higher than the overall shrinkage of the category. If the category is highly penetrated then it is a risk, and the category size may shrink. It is based on which category the product is placed as one cannot have a broad-based strategy.
As commodity prices have stabilized and palm oil prices reduced, will Godrej Consumer take a price reduction?
In Q3,, we took an 8 to 10 per cent price drop in the soap porfolio. We always stick to the replacement rates and our pricing would resonate with that. If it crosses a particular band then we look into price increases or price drops. Further, price reduction depends on the palm oil price trend. From the peak of $1,900 it averaged $1,500 and it is now stable at around $800 over the last three to four months. We will see if the price holds and then will decide.
Godrej Consumer witnessed negative volume growth. What do you anticipate?
The trend reversed in the third quarter. Our consolidated Underlying Volume Growth (CVG) in India was at 3 per cent We will see good results going ahead and this quarter will also be meaningfully better following a gradual recovery in rural consumption amid development across categories in the product portfolio.
Are you seeing an uptick in rural sales? How is rural consumption?
There is gradual recovery if we aggregate the three to four months pre and post-festive as compared to the previous 6 to 7 months. The recovery will be led by rural people in the next 6 to 12 months. The biggest reason for the demand to return is the deflationary environment. The prices of commodities including crude or palm have crashed and the benefits are getting passed on to consumers.. We are seeing an uptick in our soap portfolio as it is a staple.
Is Godrej Consumer’s global business facing inflationary pressures?
The impact which we are seeing is more in the developed market. We have a presence in Africa right from manufacturing to distribution and the market is hot and cold in some ways. Indonesia is not different compared to India with the growth being excellent amid moderate inflationary pressures.