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Hair oil, biscuits bear slowdown brunt

Most of these products fall in the discretionary category where consumers - especially rural ones - reduce spending when financial conditions are weak.

, TNN|
Updated: Dec 12, 2019, 11.19 AM IST
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(This story originally appeared in on Dec 12, 2019)
BENGALURU: Hair oil, shampoos, toothpastes and biscuits have been among the worst hit in the FMCG industry due to the prolonged slowdown in consumer spending, which has hit volume growth of major players in the previous quarter.

Most of these products fall in the discretionary category where consumers - especially rural ones - reduce spending when financial conditions are weak. Rural markets are the biggest contributors to volume growth in these products, and these markets have been severely hit by the economic slowdown.

Toothpaste volumes, which have been in a free fall for some time, shrunk 3% in the last quarter compared to a growth of 13% in the same period last year, while hair oil grew at just 0.4%, compared to 12% in the comparable period last year, data from market research firm Nielsen, sourced from industry, showed. Shampoos have been hit the most, with nil growth compared to about 20% a year ago.

“Ever since I have been in this industry, I have never seen hair oil growth so gloomy. In the second quarter of this year, the volumes are flat, that is a big cause of concern, but the bigger cause of worry is the growth engine, which used to be rural growth, is for the first time negative,” Sumit Malhotra, MD of Bajaj Consumer Care, had said last month.

“Hair oil and shampoos are discretionary and such categories tend to witness a decline during a slowdown,” Abneesh Roy, EVP at Edelweiss Securities, said. Consumers, especially in rural areas, have tightened their purse strings in spite of a good monsoon this year. A survey by the National Statistical Office, now junked by the government, showed that spending fell for the first time in four decades in 2017-18, the fiscal which corresponds to the period after demonetisation and the implementation of GST.

Marico CEO Saugata Gupta said that in addition to the slow consumption, constrained liquidity conditions have led to a correction in trade inventories, particularly in wholesale and rural, thereby affecting growth of companies. To navigate this, companies are trying to expand their rural reach, trying to approach more retailers directly rather than through wholesalers. Dabur said it is expanding its range of products in the rural market through lowunit-price (LUP) packs to push up demand.

Biscuits, another staple product, saw growth tanking to 5% from 15% just a year ago. “What is worrying is that small packs are seeing a decline. There has been no issue in consumer demand for premium sub-segments and bigger packs in biscuits, which are still growing,” said Mayank Shah, category head at Parle Products. The category, worth Rs 35,000 crore, is India’s largest consumer product segment.

The slowdown has led Britannia to hold its launches. “We had a fairly packed calendar. But when we started to see the slowdown, we decided to postpone these launches because we were seeing inefficiencies coming into the system,” MD Varun Berry told analysts.

While most categories fell, Godrej Consumer Products, on the back of recovery in household insecticides portfolio, posted the highest volume growth of 7% year-on-year among staples companies.
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