Smaller packs see big interest as spending slows


September 27, 2012

Nupur Anand & Priyanka Golikeri, Daily News & Analysis (DNA)

Mumbai/Bangalore, September 27, 2012

FMCG companies are dusting off their strategy of selling products in small sized packs to prop up falling sales in the discretionary food segment.

Volumes in the discretionary category have dropped 2-7% in the first six months of this year, though sales of essential food items have stayed firm.

As a result, a host of products such as noodles, biscuits, chocolates and other snacks are increasingly being made available by companies in small sized packs, or sub-Rs 10 price points, to lure consumers who have cut spending due to the ongoing economic slowdown.

Smaller packs have been successfully used by FMCG firms to tap the rural and bottom-of-the-pyramid segments.

PepsiCo, Nestle and ITC areamong those which have launched products in the psychological price points of Rs 2, Rs 5 and Rs 10.

Analysts said when volumes are threatened it is a sound strategy to increase the focus on the sub Rs 10 price point.

“In a slowdown, consumers, especially those from the bottom of the pyramid, might not mind spending Rs5 or Rs 10 for a pack of noodles or chips, but will surely feel the pressure if they have to shell out Rs50 for a larger pack,” V Srinivasan, research analyst, Angel Broking, said.

Even premium products such as oats are now available in the quick-to-go Rs 10 pack.

PepsiCo, a major player with Quaker Oats, has products in in different flavours. These smaller packets are not only available in the neighbourhood departmental store but at even big retail chains.

“Sub-Rs 10 is the psychological price point for any product otherwise perceived as expensive. Packs in this category are not just meant for the rural and semi-urban segments but also for the urban consumer. Packs containing say just five biscuits or lesser quantity of chips are often consumed by people while travelling,” said Devangshu Dutta, CEO of retail consultancy firm Third Eyesight

Abneesh Roy, analyst with Edelweiss Securities, said apart from helping in expanding consumer base and footprint, this strategy will help the companies in tweaking grammage.

Companies can reduce weight on products that are priced below Rs 10 and go for non-standard packs, which allows them to defer price hikes, he said. For instance, recently Nestle reduced grammage for Maggi Noodles from 80 gm to 75 gm for a Rs 10 pack, effectively leading to a price hike of 7%.

Rikesh Parikh, vice-president, equities, Motilal Oswal Securities, said that strategy works to their advantage as for the same price, they can sell a slightly lesser quantity of the product.

After the packaging norms kick in from November 1, companies will have to sell products only in standard packs. However, these rules are not applicable on price points below Rs 10.