Sunday, March 22, 2009


Downtrading evident in detergents, toilet soaps and tea: Cost cutting is not limited to MNCs in cities. Rural consumers are doing their bit in an environment of contracting wallet sizes. They are exercising restraint not only with relatively big-ticket purchases such as consumer durables, house repair/improvement, and apparel, but also with daily purchases like food and FMCG. Our interactions with consumers and the trade indicate that in the last couple of months, there has been sharp downtrading in detergents, soaps and tea. Consumers have shifted not only to discount brands of large players but also to unorganized and regional brands.

Gains from higher crop prices, farm loan waiver not percolating to needy farmers: We dug further into the reasons for the underlying consumption sentiment. Villagers had a story to tell. Farm output has been impacted in a few crops (cotton, sugarcane, pulses and vegetables) on account of untimely monsoons and poor seeds; consequently, the benefits of price increases have not accrued to the large section of the farming community. Moreover, small and marginal farmers have not benefited from farm loan waiver, as they mostly borrow from local money lenders. However, we caution that the Marathwada region may not be representative, as farm output has declined due to untimely rains.

Non-farm rural economy has started feeling the pinch: We were told that nearly 30% of the rural workforce is employed in non-farm areas and they bring about 50% of income to each household. Slowdown in sectors like construction/infrastructure, BPO, services (transportation/trade) has started impacting the non-farm rural economy. This is reflected in the sharp decline in the number of daily commuters from villages to nearby towns for employment.

Unorganized/regional players gain market share: Our interactions with wholesalers, retailers and hawkers (in haats/melas) indicated that unorganized/regional players have gained market share due to (1) downtrading by consumers, and (2) increased push by retailers on account of higher trade margins and longer credit period.

Outlook and view: Losing market share to unorganized players does not augur well for FMCG majors. We believe this could well be the scenario in the rest of the country, reflected by the fact that the overall FMCG industry has grown at a faster rate than our FMCG universe in 4QCY08.

To see full report: FMCG SECTOR