A slowdown in the economy and weak sentiments coupled with weak monsoon could mean that consumers may not have to pay more for their soaps, shampoos, detergents or hair oils.
“Taking into account the slowdown in the economy and week sentiments, the fast moving consumer goods companies are not increasing prices this monsoon, despite inflationary pressures on input prices. They are also expanding channels, availability of stocks in rural areas and diversifying risk,” says Mr Akshay Bhalla, Managing Director, Protiviti Consulting.
“Good monsoon generally means 5 per cent incremental sales for the fast moving consumer goods companies. It used to be much higher in the past but today companies have penetrated deep in the rural sector and are closer to the customers. So the delta of sales owing to monsoon is not as big,” he says.
“So far, the monsoon coverage has been average. So we don’t see that impacting sales or production in the short-term. However, it seems that July-August rains will cover up the current deficit. Moreover, poor monsoon generally affects the food categories,” said Mr Krishna Mohan, CEO (Sales), Emami. It is the macro-economic indices such as inflation, level of rural financing and high interest rates that would affect consumption, he says.
The country’s economic growth rate slipped to a nine-year low of 6.5 per cent in 2011-12 and current account deficit touched 4 per cent. The share of agriculture in the Gross Domestic Product (GDP) has come down from 24 per cent in 2000-01 to less than 14 per cent in 2011-12. In order to ensure that farmers get the desired value for their agricultural produce, the Government has raised the minimum support price (MSP) of various kharif crops.
Therefore, in a scenario where there is an impact on the volume due to adverse monsoon, some adverse impact, if not all, may get compensated by increase in the MSPs, says Mr Chaitanya Deshpande, EVP & Head, Investor Relations and M & A, Marico Ltd.
While good monsoon ensures higher income at the hands of the rural population that keeps demand buoyant, a bad one can hurt the FMCG sector, by way of bad debts in loans, non servicing of interest and firming-up of agri-based raw material prices etc.
“We believe sustained food inflation and other macro concerns would affect the frequency of consumption of FMCG products or might lead to down-trading to low-priced products. Thus, we might see some moderation in the sales volume growth of FMCG companies in the urban markets,” according to Mr Kaustubh Pawaskar, Research Analyst at Sharekhan brokerage firm.
Input prices of food processing companies might go up due to monsoon failing. A lower output of agricultural products would increase the prices of certain agricultural products that are key inputs for some of the FMCG companies (especially the food processing companies such as Nestle India, Britannia Industries, Hindustan Unilever Ltd and GlaxoSmithKline Consumer Healthcare).
“Hence, the increase in prices of agricultural products would put pressure on the margins of such companies. The companies might opt for price hikes to mitigate the cost pressure,” the analyst reckons.
But that is not deterring the FMCG companies to come up with plans to push up sales. Germ protection increases during the monsoon and therefore, Reckitt Benckiser is all set top launch new improved Dettol soap. Mr Chander Mohan Sethi, Senior Vice-President – South-East Asia, Reckitt Benckiser, says: “New Dettol soap is yet another offering from Dettol that I am confident would provide unbeatable protection against germs. We are looking at a balanced trend this monsoon season, with maybe a little more sales coming from on urban markets.” Amway India Enterprises, the wholly-owned subsidiary of Amway Corporation (US), too, has introduced five products under the homecare segment in the laundry, surface and dishwashing space priced between Rs 279 and Rs 715. These include a multi-purpose cleaner, glass cleaner, dish drops and laundry detergents. 9 per cent of their sales come from home care segment.
Dabur India Ltd, for instance, has undertaken a mega initiative to expand its rural footprint.
“We plan to double our rural reach and have direct access to villages of 3,000 population. This initiative is being rolled out across 10 States that account for 72 per cent of the rural FMCG potential,” says Mr. Sunil Duggal, CEO, Dabur India. Under the initiative, the company would be doubling the direct distribution reach in rural markets, customise trade promotions and provide servicing through a dedicated sales team in these markets.
“Field resources are being deployed in deep hinterland in the high-potential districts of these states. Mobile phone-based application was provided to the field resources to guide, track and administer their work. Web-enabled information dashboards provided real time visibility of all information,” he says.