Premium demand fuels consumer companies’ hunger for growth

Cost conscious? Not exactly.

The local consumer is eagerly lapping up premium products, particularly in segments like packaged foods, health, beauty and home care, say fast moving consumer goods (FMCG) makers.

All that uptrading is, in fact, giving the likes of Hindustan Unilever (HUL), Marico and Godrej Consumer Products a reason to scale up, both within and outside the country.

It’s the pace of premiumisation that’s encouraging the players, rather than the trend per se, says R Sridhar, chief financial officer, HUL.

“There is a fair amount of change taking place in India driven by what is happening in the macro-economic context. We see that change is in the terms of households that are moving from bottom of the pyramid to mid-class, middle moving to affluent. You can see that clearly in personal products, there is drive towards premiumisation.”

Saugata Gupta, chief executive officer, consumer products, Marico Ltd sees a convergence in rural and urban aspirations, in daily necessities and discretionary items alike.

This may be why brands originally meant for urban consumers are now eagerly sought after in small towns, too. Among these: HUL’s Axe deodorant, Dove soap, shampoo and conditioner, Comfort fabric-conditioner, Pond’s Age Miracle creams.

The deodorant category is in fact growing at a whopping 40% year on year, while skin creams, hair care, and packaged foods clock 20-25%.

Small wonder the FMCG industry is growing in strong double digits.

Marico’s Gupta sees packaged foods, health and beauty products makers recording explosive growth over the next decade. Given the increasing propensity to spend on products that make one look good and feel healthy, even premium products related to personal grooming, health and home care are seen finding takers.

“In the last 10 years, the big change that has happened in the consumer space is that India is no longer about price, but the equation has moved to value. So if you have to deliver value, it has to be quality and features along with price and not just low price,” says Gupta.

All this has also made India highly attractive for international consumer companies, increasing competition and pushing local players to transform.

This also explains Indian FMCG companies’ newfound aggression to acquire companies in emerging markets and grow fast.

For one, Godrej Consumer Products has made as many as seven international acquisitions in Asia, Africa and South America in the last one year, the most recent being that of South African hair care major Darling Group.

“We see our company being much larger after five years than it is today. We see considerable expansion both in our sales and our profit. We see ourselves operating in many new countries in the world. As we accumulate the recent acquisitions, and as we look for more acquisitions, we will add very considerably to our presence across the world,” said Adi Godrej, chairman, GCPL.

Per capita consumption of most items is on the rise and there is a clear trend of uptrading, said Godrej, adding that Indian companies will not be found lacking in effort to tap this demand.     Turn to Page 10

Harsh Agarwal, director, Emami Ltd couldn’t agree more. “The strategy for most Indian FMCG companies for fulfilling their international vision seems to be focused on the emerging markets, because the multinationals are already very strong in the developed markets. Our strategy too is to concentrate on markets like Africa, Middle East, Bangladesh,” he said.

Last year, Dabur India acquired Hobi Kozmetik Group, a leading personal care products company in Turkey and a US-based personal products company Namaste Laboratories LLC, even as Marico bought a Vietnam-based firm, International Consumer Products.

Sector analysts see inorganic growth becoming the buzzword over the next decade.

“International business would continue to be a growth driver as Indian companies gain larger scale and competence of operating in Africa. Indian FMCG companies, among them Emami, Marico, Dabur and Godrej Consumer, are well-placed to tap inorganic growth opportunities. The companies’ capability to innovate and develop new products and monetise niche opportunities would also be critical in maintaining leadership in their core categories —- because traditional categories are extra competitive,” analyst Arnab Mitra of India Infoline wrote in a June report.

Analysts also said that the competitive intensity in some of the emerging markets are not so high as in India and many strong local brands were available at good valuations for Indian FMCG companies to look at and grow scale.