FMCG players seem to be regaining their pricing power, with Hindustan Unilever taking price increases of 5-8 per cent in soaps and detergents, Dabur India hiking prices by 3-4 per cent and Britannia Industries 5-10 per cent on select brands of biscuits over the past six months.
After dealing with rampant inflation, bruising competition and parsimonious consumers in 2009 and 2010, listed players in the fast-moving consumer goods (FMCG) segment can now look forward to an easier year ahead.
A 20 per cent increase in Corporate India's wage bill, strong hiring plans and a good monsoon may put consumers in a mood to spend more lavishly on FMCGs this year.
Rural, wage push to demand
As escalating food prices took a bite out of the consumer wallet for much of 2009 and 2010, leading FMCG companies were forced to cut selling prices in categories such as detergents, hair oils and biscuits to drive volume growth.
FMCG behemoth Hindustan Unilever closed 2009-10 with a decline in its sales, while the top line for the 12 leading listed players crept up only by 2 per cent.
Demand rebound
However, demand for FMCGs appears to be on the rebound in recent months.
For one, with food price inflation subsiding from a peak, consumers are beginning to again experiment with ‘aspirational' products, pushing up sales for skin care products, health supplements and processed foods in the recent September quarter.
Two, the good monsoon and a rebound in agricultural output is helping rural demand for the bread-and-butter FMCGs such as soaps and shampoos.
Players such as Dabur India note that rural sales of shampoos and toothpastes grew at higher rates than urban sales in the April-September period. Colgate Palmolive, Hindustan Unilever and Dabur, who derive over half of their sales from rural India, may be the key beneficiaries of this.
Sales growth for the listed FMCG companies thus averaged a reasonable 10 per cent in the first half of 2010-11, aided mainly by better sales volumes.
What could also keep the higher FMCG demand going is the fact that Corporate India is back to handing out handsome wage hikes.
For the first six months of 2010-11, the combined wage bill of the listed BSE 500 companies shot up by 20 per cent, putting an additional Rs 17,000 crore in the hands of its workforce.
This income buoyancy seems to be allowing FMCG makers greater freedom to pass on rising input costs to their consumers.
In fact, with input costs rising, soap and detergent selling prices have already been pegged up by 5-6 per cent, coconut or hair oils have seen prices rise by 10-13 per cent, and biscuits by 5-10 per cent in the last six months.
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