Overall FMCG performance in general:
As per AC Neilson report, FMCG sector overall has performed very well for the March quarter in terms of pricing and volume both.
Rural and urban both continue to drive the growth.
There was good volume growth in laundry business and personal wash has seen a double digit growth.
FMCG sector has seen some down trading in some of the categories.
Closure and consolidation of the organized retail had its impact on the FMCG sector.
In March quarter, the company has taken appropriate pricing action to protect consumer and face up the competition.
For 12 months periods ending March, FMCG business grew by 18%, HPC business by 18.5% and Food business by 7%. Net sales were up by 15.5%. Advertisement and promotion cost increased by 11%. OPM increased by 40 bps to 14.5%.
The personal product portfolio especially oral care and food business has been affected due to pressure on modern trade business.
The company is concentrating on strengthening its rural distribution business. 50% of the sales come from rural region.
In urban distribution model, the company has gone for zero inventory models with distributors, which has been successful in Mumbai and some of other cities and will launch in some of the other big cities.
Low commodity price and cut in excise duty has helped to go for cut in product prices.
The company has gone for an average price correction of 10% to 12%. Average price correction in soap and detergent from Dec’08 to March’09 is around 5%. Price correction has taken place in mass category, which is price sensitive, where the company has put on grammage on premium products. In right sizing, it has increased Wheel size from 275 gms to 325 gms.
Lifebouy in 90gm and 20gm seen price reduction of Re. 1. In SKU of Lifebouy of Rs 6, there was cut of Re. 1 to Rs 5. The company has re-launched and change the communication strategy of Lifebouy.
Breeze has been made more competitive and is now comparable in pricing term with regional and local players. The company has now also focused more on the communication of the Breeze brands to consumers.
In Lux, the company has gone for increase in grammage, from 100 gms to 125 gms and from 60 gms to 75 gms. The company is running multi pack schemes in Lux and Hamam in Delhi, Punjab and Haryana.
The company has become more aggressive on brands like Rexona and Liril.
The company has re-launched Lux, Vaseline and Ice Cream variants.
To make up poor performance of Pepsodent, the company has reduced price of SKUs of Rs 13 to Rs 10 and Rs 6 to Rs 5. This has received a good response from consumers.
For the quarter, A&P investment has grown by 3% with media spends up by 27%, offset by lower promotions.
As per AC Neilson report, the company is losing market share. Skin cleansing category has seen a loss in market share between Jan-Mar’09 period. The loss is more in mass segment where price is key point.
The capital employed has increased due to inflation. Capital employed in soap and detergent has increased in March quarter due to large receivables and lower oil creditors.
During low cost period, laundry business is more affected as inis mass segments large numbers of palyers are there. Along with it, tea businesses where loose tea and commodity players are there, got affected.
Future outlook
The management said “Trade off between the competitive growth and profitability growth, the company will go for competitive growth”.
The management has now 30 days and 50 days planning panel, which will take decision on the changing scenario and based on it will take appropriate action on the products. As such, it expects the June quarter and future quarters will see the transaction effects, which the company has under taken.
The launches & re-launches and right sizing will take place in coming months.
Mass category will be taken care. Access to distribution in rural and urban will be taken care. All this effect will be seen in H2FY10.
The company has large capital expenditure for FY09. But after 2010, capital expenditure will be around Rs 300 to Rs 400 crore.
A&P cost will not come down but might increase marginally in FY10.