Opportunity in crisis: FMCG firms use pandemic to focus on volume, margin

Towns and rural areas have led the revival in FMCG segment since June, with the trend expected to last at least for the next two quarters.

The Covid-19 pandemic has allowed fast-moving consumer goods (FMCG) companies to pay attention to both volume and profit growth, something that is considered difficult in the normal course of business. The reason for this is the nature of the FMCG industry.

When companies chase volume growth, margin expa­nsion takes a hit, since the product mix is skewed towards mass-market items that are not considered to be margin-accretive. Similarly, high-value or premium products are regarded as margin-accretive, but restricted to a smaller base of people, impacting volume growth. The pandemic, however, has seen consumers seek value and trust, giving a leg-up to orga­nised FMCG players. At the same time, as Kaustubh Pawaskar, associate vice-president (research) at brokerage Sharekhan, explains the health crisis has shifted focus of companies to newer areas of growth, aiding topline.

“Before Covid, hygiene and immunity were not key avenues of growth, which they now are. This has helped FMCG firms from a topline perspective. At the same time, rural sales momentum is high, which is aiding volume growth,” he says.

According to market research agency Nielsen, small towns and rural areas have led the revival in FMCG since June, with the trend expected to last at least for the next two quarters. From a mar­gin perspective, it is aggressive cost savings that is coming to the rescue of most firms, something that many plan to adopt as a permanent feature to navigate a crisis.

“Most firms have looked at costs in a big way. We are, for example, looking at Rs 150 crore in structural savings on an annualised basis, implying we intend to undertake these savings permanently every year. Everything is up for review barring investments behind digital, innovation and leadership capabilities and we have begun accruing savings from August-September of this financial year,” Saugata Gupta, MD and CEO, Marico, said.

Dabur’s CEO Mohit Malhotra says the company has begun a cost-savings programme under ‘Project Samriddhi’. “We have identified cost savings worth Rs 150 crore that can accrue due to Samriddhi. However, this financial year we will undertake Rs 50 crore of cost savings, which will be enhanced as we go forward,” Malhotra says.

Companies are also ramping up rural distribution, coming up with smaller packs across brands and looking to improve penetration of their products in every possible way.

As Varun Berry, managing director, Britannia Industries, said, “We are looking at democ­ratisation of our products.”

As in-home consumption begins to taper, Britannia has put a strategy in place, which involves taking the Rs 5 price-point beyond its core brands of Marie Gold, Good Day, and Milk Bikis into other products. For instance, the company has launched Rs 5 layered cakes and has introduced centre-filled biscuits called Treat Bursts at Rs 5.

More such launches are likely in the months ahead to tap into the value and trust attrib­utes that consumers are seeking.

In an investor meet, Nestlé India’s Chairman and MD Suresh Narayanan said the firm would look at penetration-led volume growth. But it would not sell products that did not contri­b­ute to operating margins.

As an FMCG analyst, who declined to be quoted said, “The volume and margin strategy has to be played by category, intent, competitive intensity and ambition. What a company wishes to achieve has to be spelt out clearly otherwise numbers can get disaggregated.”

Clearly, companies have their tasks cut out when it comes to managing both.