Indian FMCG sector is getting leaning and meaner

By know most of us know that FMCG companies are facing a problem. The rural demand has slowed down and input costs have gone up. As a result, operating margins of companies are under a lot of pressure. But that is the business trend. There is a different trend that is manifesting at the consumer end. As products gets costlier due to price hikes, consumers are plumping for lower priced products. FMCG companies are also helping them in the process with leaner and meaner packs, or what is called down packing for the market.

Some of the numbers released by the market research firm, Kantar, are quite revealing. One finding of Kantar is that every kilogram of packaged consumer goods sold in India via FMCG outlets between February 2022 and April 2022 were 10% costlier compared to a year earlier. That is largely because, FMCG companies with the pricing power have hiked the prices of these products in sync with the rise in raw material prices.

Now comes the more revealing part of the story of FMCG products in the February to April period. The average per-kg price of FMCG products jumped 10.1% in sync with higher raw material costs and that is perfectly understandable amidst rising raw material costs. At the same time, the average pack size shrank by nearly 15%. That essentially means that packaging is getting leaner and meaner in line with lower demand. According to Kantar, buyers are ok with lower quantity as long as they can save on their household budget.

What exactly does this reflect in terms of product strategy. Essentially, it reflects the attempts by companies to cut product grammage to save on costs. This concept of grammage cuts is  most pronounced in the case of product categories like malted food drinks, salty snacks, soft drinks and hair oils. According to Kantar, the number of FMCG packs bought increased by 15%, indicating that as prices rose, consumers purchased smaller packs.  In a nutshell, FMCG is starting to feel the pinch of high inflation.

There have been some anomalous numbers coming from the FMCG sector. For example, the overall FMCG volumes fell by 1.1% yoy in the quarter ended April 2022. However, during the same period, the sector reported value growth of 9%. In the month of April alone, according to Kantar, the FMCG volumes fell by 1.4%. The slowdown in volumes is largely in the case of product categories like wheat flour and edible oils. Both these products are seeing tepid growth after a few robust quarters of growth before that. 

In addition, the government has also been distributing free wheat and atta in the post COVID scenario as part of fiscal mitigating measures. This resulted in a 23% fall in atta demand volumes in April 2022, especially the demand from the most vulnerable sections that got this government benefit. It must be noted that wheat flour and edible oils contribute as much as 45% of FMCG volumes. 
 

According to the research of Kantar, as many as 37% of the categories it tracked either lost volumes in the period to April 2022 or grew at a slower pace. This encompassed categories like atta, edible oils, hand wash, floor cleaners, hair oils and detergent bars. Even as volumes fall and people struggle to pay the steep prices one solution is emerging in the form of leaner and meaner packaging. This is helping people get the satisfaction of using FMCG products and at the same time paying a lower price for it. 

This down packaging of FMCG products is the big trend that has defined products in the last few months. Consumers are preferring smaller sizes and manufacturers are repackaging accordingly. In short, the FMCG segment is getting leaner and meaner and nobody is really complaining about it.