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FMCG companies move fast on volume growth while rural beats urban

FMCG companies are also looking at increasing advertising spends in order to grow their brands

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Sharleen DsouzaAkshara Srivastava Mumbai/New Delhi

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Volume growth seems to be the latest mantra in the fast-moving consumer goods (FMCG) sector. This coincides with rural outpacing urban consumption in volume terms for the first time in five quarters, according to the NielsenIQ January-March data.
While focussed on volume, FMCG companies are also looking at increasing advertising spends in order to grow their brands.
 
Consumer goods major Hindustan Unilever (HUL) told its investors post its earnings call recently that its focus remains on driving competitive volume-led growth across its businesses.
 
 “We want to continue driving gross margin improvement. Even in this quarter, when we delivered a 23.4 per cent EBITDA (earnings before interest, tax, depreciation and amor­tisation), you saw a very strong 350 bps gross margin improvement. A large part of that got invested into advertising & promotion spends (A&P),” Ritesh Tiwari, chief financial officer 
 
at HUL, said.

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Varun Berry, vice chairman and managing director at foods major Britannia Industries, echoed similar sentiments. He told investors that the company would aim to grow volumes despite the outlook for the year not being deflationary. 

“Our outlook on this year is slightly inflationary, which is healthy inflation of 3 per cent or thereabouts,” Berry said. After elections and monsoon, the company would look at a double-digit volume growth, he said.

Dabur India and Nestlé India are on the volume growth path as well. Nestle India will concentrate on volume-led growth going forward, chairman and managing director Suresh Narayanan said after the company’s quarterly results. It recorded a volume growth of 4-5 per cent in the March quarter.

“My objective is to pace up on volume growth. Between 2016-17 and 2022, we had a volume growth of almost 8-9 per cent out of a total growth of 11- 12 per cent,” Narayanan said while adding that the company will now focus on ramping up distribution to drive penetration in the more than 200,000 villages it now covers. The company wants to increase its total retail outlets from 5.1 million currently to 6 million over the next four to five years to drive this growth. A good monsoon and the re-injection of money after the formation of a new government will drive up private consumption and benefit consumer companies, he said.  

Home grown FMCG player Dabur India, which recorded a volume growth of 5.5 per cent in FY24, too is planning to stay focussed on volumes this financial year. “If we have to grow, volume growth is mandatory. We have taken a target of mid-to-high single digit volume growth, for which we need to increase our penetration. With 80 per cent penetration, we are already present in eight out of 10 households. If we want our entire portfolio to every house, volume growth is something we have to do without any compromises,” said Mohit Malhotra, chief executive officer at Dabur India, during a call with investors after the Q4 results. 

Malhotra told investors that Dabur’s gross margin in mid-term to long-term will grow, but not to the extent it did in the previous year. That’s because the company wants to increase its media spend.

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First Published: May 07 2024 | 11:34 PM IST

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