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FMCG firms see shrinking fortune at the bottom of the pyramid

Sapna Agarwal  |  Mumbai 

Small may be beautiful, but not always. Fast moving consumer goods (FMCG), which depend heavily on the bottom of the market are in trouble as far as their are concerned. And this is despite the fact that no price increases took place in this segment, even though raised prices roughly 17 per cent for soaps and 24 per cent for detergents.

Sample this: According to the latest Nielsen data for the 11-month period from March 2008 to February 2009, soap and detergent sales at price points of Rs 10 and below have actually declined. This should be a cause for worry for most companies, since a quarter of soap sales and 60 per cent of detergent sales come from this segment.

Although overall detergent sales volume dipped 3.6 per cent, the bottom of the category fell at a sharper rate of 5 per cent. In the case of soaps, overall sales went up a marginal 2 per cent, but dropped 8.5 per cent for the small pack category (see table).

The picture would have been worse but for Bharat Shining, to some extent. Sales of detergents in small packs declined 10 per cent in urban areas but rural areas saw a 2 per cent dip. The story was the same for soaps: Urban areas saw an 11 per cent decline, rural areas a smaller fall of 7 per cent.

The period also saw rural sales overtaking urban sales and accounting for close to 53 per cent of the overall market. Experts attribute this to the combined effect of good monsoons, the farm debt waiver and the fact that the financial meltdown hasn’t yet trickled down to the villages.

  Soaps Detergents (washing
powder, liquids,
detergent cakes/ bars)
Total market size as of Feb 2009 Rs 7822 cr Rs 10188 cr
*Overall volumes 2% growth 3.6% dip
Small packs as a percentage of overall market 25.00% 60%
Volume growth/ dip for small packs 8.5% dip 5% dip
Urban: volume growth/ dip for small packs 10.85% dip 9.55% dip
Rural: volume growth/ dip for small packs 7.12% dip 1.63% dip
* Percentage calculated for the 11 month period of March 2008 to Feb 2009 over the
corresponding period in the previous year.
                                                                       Source: Nielsen

One of the reasons for the dip in was the reduction in grammage. Owing to rising input costs last year, FMCG such as Hindustan Unilever, Marico and Godrej Consumer Products have been reducing grammage at price-sensitive market points without raising prices. "We had to increase rates or cut grammage to maintain profitability last year on account of increasing input costs," says H K Press, president, Godrej.

Faced with dwindling sales, companies are trying to pull out all stops to address the problems in the small pack segment. Amita Shetye, director, Client Service, The Nielsen Company, said it had become a tough task for marketers today to juggle the value-volume quotient of their products. "Over the years, this has resulted in an average increase in the value of washing powders and detergent bars, resulting in the overall decline in the average volume of these categories," he said.

First Published: Fri, April 10 2009. 00:10 IST