1、FMCG PulseOctober 2022FMCG Volume growthFigure 1Sep-20Oct-20Nov-20Dec-20Jan-21Feb-21Mar-21Apr-21May-21Jun-21Jul-21Aug-21Sep-21Oct-21Nov-21Dec-21Jan-22Feb-22Mar-22Apr-22May-22Jun-22Jul-22Aug-22FMCG:Big ChangesThe Consumer Price Index in August 2022 had jumped back to 7%after a marginal decline in Jul

2、y.This means that In?ation has remained higher than the outer band of RBIs comfort zone for the eighth month in a row.FMCG growth also remained sluggish.It has been 16 months since we saw growths north of 1%in the country.Annually this resulted in a volume contraction to the tune of 1%and in the qua

3、rter ending August,this resulted in a 0.4%degrowth.However,Urban is very likely to come out of the woods in the coming quarter.Part of it is because Urbans mega growths induced by the pandemic Urban India has faced the brunt of the FMCG losses.Its de-growth started in May 2021 and was the cause of A

4、ll India numbers crashing through the?oor.For thirteen straight months Urban FMCG was losing volumes at over 3%.Theyve only started to recover since June of 2022,but are still in the red.This decline is worrisome because it is already coming on back of months that have declined in the last year.have

5、 started to normalize since September of 2021,and this gives urban lower bases to conquer,and therefore a great chance at revival.Add to this,August of 2022 is 1.4%ahead of an average month during the quarter ending November of 2021.This has never happened in the last 18 months.Rural has until now d

6、riven whatever little growth was there at the FMCG level,however,in the last two months its growths were-0.3%(July)and 0.2%(August);however,the positive for Rural is that September 21 was the real lean period for it A Possible Reversal8%6%4%2%0%-2%-4%We are in the middle of the festive quarter.At th

7、e FMCG level we hardly see any seasonality due to festivals.Typically,during the festive season sectors such as fashion,jewellery and consumer durables get a signi?cant boost.All of these are high priced items and therefore the focus on FMCG tends to be minimal.This is the primary reason why we do n

8、ot see signi?cant FMCG level growths,barring a few categories like Oil,Ghee etc.,Yet,in 2020 with a majority of the market still closed and people still huddled up at homes,the focus was solely on FMCG.As a result,it was the In 2021,however the same season shrunk by 1.9%.Not only was the big base a

9、reason,but the markets had opened,and shoppers saw the worst behind them by the time the festive season kicked.Therefore,the big-ticket items saw their entry once again into the households and FMCG tapered as a result.There isnt much happening this year to see any change to the 2021 trend this year

10、around.We therefore expect a very muted festive quarter.best recorded quarter at 5.5%growth over the previous festive season.The Festive Quarterin terms of volume growth,therefore a low base is going to help keep Rural volume growth just a?oat at least until January of 2023.With this,there is a real

11、 possibility that Urban volume growth starts dominating Rural volume growth from the next quarter.Ever since April of 2022 however,India has been averaging 4.1 billion trips every month,17%more than the pre-pandemic period.This means a household repeats an FMCG trip ever 55 hours on an average now.D

12、uring this time 19.2 billion FMCG packs were purchased,averaging 62 packs per household.Compared to the pre-pandemic period then,India is shopping more frequently and Prior to the pandemic 3.5 billion trips were made to the shop to purchase FMCG products by India every month on average.This translat

13、ed to a trip per household once in every 61 hours on average.As a result,before the pandemic 15 billion FMCG packs were sold across the country,which is about 51 packs per household in a month.buying more packs.Most of the pack growth come from Foods.Pre-pandemic close to 23 packs of Food products w

14、ere purchased every month on average;however,between May and August,2022 this jumped to a massive 31 packs of Food products every month.Shrinking pack sizes both from the manufacturer and the consumer end had caused this kind of an explosion.While the packs bought pre-pandemic weighed 438 grams,in t

15、he more recent period this was just 309 grams.This kind of a massive decline is unique to the market and is re?ective of the in?ationary scenario we are experiencing in the country.The Pack ExplosionAdd to this,Insecticides and even Pre&Post Fabric Care products are also signi?cant stress.The August

16、 quarter of 2022 tracked 9%behind for the former and 4%behind for the latter.Unfortunately,none of the hygiene categories made signi?cant long-term gains because of the pandemic as the pandemic only in?uenced consumer behaviour for a season,but could not have major impact on their general behaviour.

17、Rubs and Balms had seen a signi?cant growth as demand for Cold Rubs increased manifold during One of the sectors to truly bene?t from the pandemic was the Home Hygiene sector.Floor,Toilet and Bathroom Cleaners all recorded excellent growths as a sense of hygiene took over the nation.With the pandemi

18、c ebbing,there is a serious decline in these categories.In August,18%lesser volumes were purchased than were purchased in September of 2020;and 8%lesser compared to September of 2021.the pandemic.Yet,in the quarter ending August 2022,the category plummeted by 17%.Chyawanprash which created waves bec

19、ause of its immunity positioning in the early days of the pandemic had su?ered a 75%loss and Honey fell by 56%.All of this signifying that the pandemic days at least from an FMCG context are largely at a pause right now.With categories like Chocolates,Soft Drinks,Biscuits,Salty Snacks and Noodles al

20、l continuing their robust growth,this means that the pandemic codes are slowly expiring and indulgence has peaked.Brands that continue to give an experience are therefore likely to win,especially now since we expect Urban to creep out of the swamp it had been driven into.Given that we also see an ex

21、plosion of both trips and packs,it is important for brands to be available throughout.This has been a message weve now repeated over and over the next one year,we see this as being extremely critical.Pandemic PainsIn the past,the acquisition strategy had worked brilliantly for Reliance Retail.It now

22、 has over 60 brands,a large section of which are international.These include Jimmy Choo,Michael Kors,Steve Madden,Hamleys and the like.Reliance Retail registered a Net Revenue of over USD 20 billion in FY 22 making it the largest Retail brand in the country.According to a Bernstein report,Reliance R

23、etails revenue is larger than all its nearest competitors combined,and the 40%CAGR at which it has grown in the last?ve years is the best in class.Yet,Reliance Retail had its inception only in 2006.Reliance has this reputation of becoming the number one company in almost all?elds it enters.Take Jio

24、for example.Founded only in 2016,Jio is now Indias largest mobile network operator and the third largest in the world based on usership.Airtel generates more revenue in India,but Jio has more subscribers.However,there is a big caveat here.Organized retail or mobile networks are relatively new to Ind

25、ia;but FMCG has been there for generations.Great big brands from houses like Hindustan Unilever,Procter&Gamble,Nestle,ITC,Godrej,Dabur,Marico etc.,have found their space in the Indian household and have been for decades.Their distribution models and connections have been set and have been working fo

26、r long now.As we noted some time back,in our previous newsletters,it is challenging to launch new brands.For every 100 brands that are launched,hardly?ve brands make it to 1%penetration within the?rst year.The last big multi-category brand launch was Hindustan Unilevers Ayush,but its success is rela

27、tively muted;if we have to look for a truly successful Indian FMCG brand launch,it has to be Patanjali,which now reaches over half of Indias households through one of its products.Patanjali had a story and a novel factor.It played on Indianness and Ayurveda.But even with it,Patanjali quaked the indu

28、stry for a couple of years and then the giants responded.For Reliance,getting the proper story is the?rst challenge.Is it a house of brands,like Unilever or a Branded house like Patanjali?Does it play on trust,quality or price?How can Reliance counter its many challenges and what could we expect in

29、the coming few years with Reliances entry?Heres our point of view.Point of ViewTowards the end of August,news broke out that Reliance Retail would enter the Indian FMCG space some time during this year.In tandem with this decision was the announcement that Reliance Industries had acquired Campa Cola

30、,a brand once owned by Pure Drinks and is purely nostalgic now.Reliance is not a complete alien to the FMCG space.It is operating Private Label brands like Good Life,Mothercare,Snac Tac etc.,These brands were being sold exclusively in their brick&mortar and digital stores.However,since August,these

31、brands have made it to the General Trade.These are the brands with which Reliance would logically begin.And these are no pushover brands.Take Snac Tac for example.It is a snacking brand,operating in Noodles,Biscuits and Salty Snacks among others.It has a penetration of nearly 2%in Urban India,but re

32、member it was sold only in Reliance stores,so that penetration itself is not meager.When we zero-in on shoppers buying from Reliance Retail stores the numbers swell up further Snac Tac Power up Private LabelsIn our 2020 Launch Litmus,we identi?ed that out According to various media reports,Reliance

33、is already eyeing brands like Lahori Zeera and Bindu Beverages,along with CavinKares Garden Snacks for acquisition.The strategy for now seems to be acquire local brands and build a portfolio.None of these brands are market shakers.Therefore,the bene?t for Reliance seems to be:one,developing a portfo

34、lio of brands and two,get access to their manufacturing facilities and distribution arrangements.of 348 brand launches 37%belonged to Foods and 20%belonged to Household Care.Of those brands that managed 1%penetration after the?rst year 72%came from these sectors.Clearly,shoppers are more open to try

35、 out brands in these sectors more,so the strongest competition from Reliance is going to be here.Incidentally,as seen before,it also has strong private label brands to?eld.Reliances acquisitions for the most part seem to be focused on the Food sector,which also gives it a greater possibility of succ

36、ess.Aggressively AcquirePart of Patanjalis success could be attributed to its strategy of being a Branded house.Almost all its FMCG products are marketed under the name Patanjali.For a while,its success with products like Dant Kanthi rubbed o?on other products and the penetration grew quickly as a r

37、esult.Reliance,given the nature of its Private Label brands and acquisitions,likely,will not go the Patanjali route and choose to be a house of brands.Thats one big challenge as each brand has to be meticulously built and managed and would put Reliance a step behind Patanjalis trajectory as a result

38、.A House of BrandsAs noted,the biggest task for Reliance would be in Distribution,and true to its nature Reliance seems to be already aggressive in this area.But Reliance is not really a laggard in this sector.Over the years JioMart has expanded its merchant partnerships.It has as of now onboarded 2

39、 million merchants and targets 10 million merchants in the next?ve years.To put these numbers in context,HUL has 9 million retail partnerships,ITC 7 million and Nestle 4.5 million.It has also been reported that Reliance is giving super-stockists a margin of 6%while other FMCG companies o?er somethin

40、g in the vicinity of 3%.Most FMCG companies are predominantly dependent on FMCG;Reliance is not.It could theoretically take a hit with even its retail margins for the short-term and get trials up;and as every marketer knows with penetration comes frequency.Getting into a margin game with Reliance is

41、 next to impossible with the current in?ationary environment and margins already su?ering for the core FMCG players.This concedes some ground to Reliance as a result.To sum it up,Reliance perhaps will?nd it tough to attain the same level of rapid success it managed in Retail and Telecom;but that sai

42、d it is not going to lag either.Like the last decade belonged to Patanjali,this decade could surely belong to Reliance if it plays it cards right,and as of now,it sure seems to be doing so.Disruptive Distributionoccupies over 15%of the volume of the snacking sector(biscuits,noodles and savories)purc

43、hased in Reliance Retail stores.Likewise,over 10%of the volume for Edible Oils;over 20%of the volume for Atta and Spices purchased in Reliance Retail belong to Reliances own Good Life brand.Reliance supports these brands in its own stores;yet,when the shopper is presented with multiple brands,a good

44、 number of them are opting for Reliance brands on deals,and that is a window into the future.These same proportions will not exist in general trade,but these brands are no pushovers either.Expense Share of IndiaFigure 1How India Spends!The average Indian household spends a little over Rs.14,000 per

45、month.But there is a wide disparity in these spends.For example,the top 1%of these spenders spend Rs.2.2 Lakhs every month on average and contribute to 12%of the total spend.But thats too small a percentage for us to look at,so lets take the biggest spenders who account to the top 25%of spends.That

46、comes from just 5%of the households and given their nature to spend big,lets call them super spenders.The bottom 25%of the spends come from half the countrys population lets call these households the lean spenders.Lets dive into these households to understand how di?erent they are and how far they e

47、xist from the average.This gives us an idea into how India spends.Overall,24%of Indias spends are on groceries.Thats about Rs.3400 per month.Thats the biggest sector that the country spends on.But the lean spenders only spend Rs.2144 on them,yet,this accounts to 33%of their spends.In fact,groceries,

48、dairy,fruits and vegetables the daily essentials contribute to nearly 53%of the lean spenders total spend.On the other hand,the super spenders spend a little over Rs.7,200 per month on groceries.Yet,the grocery contribution to their overall spends is just 12%.This is a recognizable facet we often se

49、e in FMCG purchases too.The lean spenders always skew towards essentials because of their limited incomes.As such,in any economically stressful situation,these households have very little leeway to part with the categories they are already buying and therefore appear more stable than the rest of the

50、 country.This is also the reason why during every slowdown or high in?ationary period in the past,it is Rural that led Urban in growth.Grocery Dominant41%21%18%6%5%6%3%Groceries,Dairy,Fruits&VegetablesRent,Utilities&Medical ExpensesCommute&EducationCommunication&EntertainmentFashion,Salons&SpasEMIsR

51、estFor ever Re.1 spent on Education in a lean spender household,the super spender spends Rs.25.Likewise,the preference for a personal commute vehicle means that a super spender spends north On an average the super spenders spend 10X more than the lean spenders.But there are some important sectors li

52、ke Education and Commute where this gap widens even more,pointing out the priorities in both these sets of households.of Rs.7,500 per month on commute while the lean spender spends just Rs.450 translating close to a 17X spend increment.Fashion and Accessories are not something that are spent monthly

53、,but in the last 3-months the super spenders have spent close to Rs.10,000 on this sector;while the lean spenders spent less than Rs.700.The Big di?erentiators19%of the lean spenders live in Urban India,whereas 70%of the super spenders live in Urban.However,30%of the super spenders actually hail fro

54、m the towns that have less than 10 Lakhs population.In our analysis on Indian cities called“Cityscapes”,published in our previous newsletter,we mentioned that the biggest metros do not turn out to be the biggest spenders on FMCG.This turns out to be true even from an overall spend perspective.The su

55、per spenders in metros spend Rs.46,200 per month but those in the small towns spend a tad bit more at Rs.47,500.This analysis is part of a study conducted in July of 2022,to understand the impact of In?ation on the Indian consumer.The study was done on over 6000 households across the Indian states a

56、nd in both Urban and Rural areas.The study also identi?ed that 92%of the Indian households were impacted because of in?ation,while even those that were not impacted still are cautious in their purchases because of whats unfolding.The study also classi?es households that are“highly impacted”,“moderat

57、ely impacted”and“minutely impacted”to give perspectives on how their behavior is changing and how that is in turn impacting brands.To know more details on this reach out to us.Geographic splitRent,Utilities and Medical expenses these are unavoidable,but sizeable expenses in a household.Together,on a

58、n average they contribute 21%of all spends,or just above Rs.3000.The lean spenders spend just about Rs.1400 on it,or less than half of the average.Part of that low number is because some of these households have only basic electric appliances,avoid gas for cooking and live in kuccha houses.The super spenders also spend 22%on these,just like the lean spenders,however,their 22%accounts to Rs.14,000 almost 10 times what the lean spenders spend.The unavoidable RUM