The Time for Personal Growth


August 1, 2011

Priyanka Pani, Businessworld

August 1, 2011

Rising inflation and interest rates have not really impacted the consumer confidence when it comes to grooming and personal care. This can be clearly understood from the fact that the FMCG firms have posted good volume growth in the personal care category, boosting their revenues.

Hindustan Unilever, India’s a largest household product and consumer goods maker witnessed a 20 per cent growth in the skincare and personal care products including soaps and detergents.

Similary, home-grown firms such as ITC, Dabur and Godrej Consumers have witnessed strong revenue growth in the personal care segment at 17 per cent, 19.4 per cent and 19 per cent respectively.

So does this mean that the people are buying more or is the growth just a result of the price hike that most of the firms took in the last few quarters to maintain margins?

A few analysts and consultants that we spoke to have different takes on the strong growth in the personal care category. While some said the growth came on the back of price hikes, others said that more product launches across sub-segments such as soaps, shampoos, conditioners, skin care and shower gels, and penetration into newer geographies drove the volumes.

"Most of the FMCG firms have further penetrated into new cities and have also acquired more customers in the cities in which they are already present. This has been through more product launches and introduction of new sub-categories also," said Devangshu Dutta, CEO and founder of retail and FMCG consulting firm Third Eyesight.

HUL, the maker of personal care products like Dove, Sunsilk, Lux, Closeup and the largest consumer products firm, caters to only 60 per cent of the entire Indian market and hence there lies a huge opportunity for the company to enter new markets. This is one strategy the company is focusing on seriously and has been able to grow consumption in the new geographies, basically the smaller towns and tier III citties.

"As we look ahead the FMCG market will continue to grow," Dutta said, referring to fast moving consumer goods. "However, input cost inflation will continue to remain high."

Another important factor that led to the growth in revenues was due to reduction in grammage and package, Dutta said adding that value growth is around 12-18 per cent for most of the companies based on this factor.

Commodity inflation continued to remain high and hence the companies were forced to pass on the burden to the consumers to some extent, without impacting the consumption story.

However, hike in pay-packages and compensation of the people in Asia’s third largest economy has also boosted consumption and is likely to only grow further.

However, the sector also witnessed some kind of downtrading with people in rural areas and with low income groups opting for smaller value for money packs, in the personal hygiene segment such as diapers and sanitary napkins, shampoos, hair oil and even tooth pastes, according to Indiabulls Securities’ Vice President, Anand Mour. "Most of the growth this quarter has come from a mix of volume growth and price hikes," he said.

Meanwhile, Dutta said that despite the government’s worries about inflation, consumer confidence levels have not been impacted so far. However, he says that further price hikes could lead to ‘second thoughts’ among consumers.

(This story was published in Businessworld dated 1 August 2011.)