As the third quarter results season ends, one unhappy conclusion is that the sales of FMCG companies have been a disappointment. Hindustan Unilever (HUL), Dabur, Patanjali, ITC, Emami have all reported flat or low single digit volume growth. Value has been a little better because of price increases.
NielsenIQ, the market research company, said in a recent report that overall sales volume grew by 7.src% in quarter three, while sales by value grew by over src0%, there is a dichotomy here.
In sharp contrast to all this, the Index of Industrial Production (IIP) numbers that came on February src2 said that consumer non-durables, which means FMCG, their output contracted by 7.6% in December.
CNBC-TVsrc8 spoke to Jayen Mehta, Managing Director of Gujarat Co-operative Milk Marketing Federation Ltd (GCMMF), Roosevelt Dsouza, Head Customer Success-FMCG at NielsenIQ, and Anjan Chatterjee, Chairman and Managing Director at Speciality Restaurants, to understand the contrasting trends in the FMCG sector.
Mehta highlighted Amul’s strong src5% growth in both volume and value, attributing it to deep distribution and an omnichannel approach.
Chatterjee pointed out that while premium brands continue to grow, mass-market brands are also seeing strong demand. With smaller players gaining ground, the discussion explored whether large FMCG companies need to rethink their strategies.
This is the edited excerpt of the interview.
Q: How do you explain this so-called dichotomy, when the individual results came, HUL said flat, Patanjali said flat, which means zero volume growth, while some of them, of course, Emami and all have given 5% but your numbers look much better. Who is growing?
Dsouza: I do not see this as a dichotomy. If we look at for the first time this quarter, the growth in value has actually come in because of price growths. The first time we have seen price growth, the last time we saw this was June quarter 2023 and after that, there has been a suppression of price in the market, which are not really being passed on to the consumer. We have seen that happen in quarter of July, August, September, coming up at about src.50% price growth, this time we have seen 3.5%.
If you look at the volume growth at 7% along with the price growth, that is when you get a value growth in double digit. So to me, if you remove the price growth, the volume growth is marginally higher.
Q: It is still higher than almost all the individual FMCG companies whom we cover as listed stocks so that’s the dichotomy I want to understand. Is it that smaller companies have grown well, unlisted companies have grown well?
Dsouza: We look at always the large companies, and, we call them giants, in our own internal parlance, and they are growing between src to 4%. These are companies which are over ₹5,000 crore turnovers. W e have seen double-digit growth – what we would call the regional players, or more focused on couple of states, here and there, and that is where we are seeing a huge influx of growth coming from them, which is pushing up the overall growth.
We are also in line with what the large giant growths are getting reported. But if you look at the overall industry, that is where we at least see the small players having a big impact.
Q: Is there a premiumisation trend or a consumer downtrading trend?
Dsouza: Premiumisation also has been growing almost at src0.6% this quarter. But that’s been like 8%, 9%, src0% and src0.6%. We have seen the mass brands is where, for the first time in this quarter, it is doubled sequentially, and it has also at src0.6%.
There is a segment that goes after premiumisation, and that’s going to remain, but we are also seeing mass brands ties in very strongly with the local player story, there is a small pack play there.
They are bringing so much out in the market, and there is a consumer for that as well. That is why we see that growth also going up, there is play at both ends of the spectrum.
Q: How is the sales experience been in quarter three, in volume and value separately?
Mehta: Quarter three was very good. We had almost src5% growth, almost the same in quantity as well as value, because we didn’t take any price hike, except for a small increase in milk, which was earlier in the year. It has been a good quarter, the current quarter also has been doing good, with almost 22% growth recorded in January and almost the same numbers we are looking at in February and March.
Q: 22% year-on-year, growth in dairy products?
Mehta: Yes, it has seen the best ever growth and the best turnover of over the last 50 years of GCMMF.
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Q: What are we seeing over here? Here is an unlisted giant telling us that their volume has grown by what, src5% in Q3 and in January by 22% that is the massive growth. Is it that the listed companies are getting something wrong, and that urban consumption is not a problem, but specific companies are not getting it right?
Dsouza: We represent the entire FMCG industry and so I am surprised when I see results from Amul. What is happening is that the regional players which reginal focus are really going deep in terms of distribution and coverage within the region before they get into the national level. That is where you are seeing growth pockets coming up, and probably that penetration of distribution is what is helping them grow.
If you look at it from a very macro perspective, it looks like it i a src0% growth. But, when you start unpeeling the onion, that is when you will start seeing where the growth is coming in. 9-9.50% kind of volume and value growth is coming from small and mid-sized players.
Q: What we are seeing is Amul is growing by src5%, a number of the small companies that you pointed out are growing close to src0%, the small company number was 9% – I am only talking volume now and the giants are reporting, flat or 4.4% . Mr. Mehta, what is your sense? Is this poor penetration, what is going wrong here?
Mehta: I cannot comment on what others are doing. However, as Mr. Roosevelt mentioned, we have to focus on the basics. It is the width of distribution that we have, the depth of penetration of the products that we have in the market. Work on every single category you operate in, also not lose sight on what is going to happen for tomorrow, and prepare for the tomorrow’s customers, all these things you do together.
Also, omni-channel is the way forward because the Q-commerce, e-commerce, the modern format stores, our own Amul Parlours, and the 20,000 distributors that we have covering more than a million outlets on our direct basis, are driving growth here. We expect a much better growth also in the period to come, because we are entering the main marriage season, early summer is also there, and Ramzan and other festivals are also coming.
Q: The bigger problem that Amul may face, if the US insists that we bring down tariffs, or they will impose competitive tariffs, reciprocal tariffs. Now I checked up the tariffs on milk and dairy products is 30% in fact, 30 to 40% if you go to sweetened yogurt, etc. How do you think this will impact a Amul, in case we have to bring down tariffs to whatever src0% or something?
Mehta: We already have a tariff rate quota (TRQ) in place as far as the dairy products or skimmed milk powder is concerned. So while the duty on skimmed milk powder in India is 60%, if you import the src5,000 tonne under TRQ, you will get at src0% or so. We don’t have a challenge on that front, plus US is not looking at India as one market for exports of their milk powders. In fact, it is the other way. We are also a local player in the United States now, and Amul is perhaps the only brand of milk which is available coast to coast in US so we play both sides of the game.
Q: If the import of skimmed milk or dairy products is brought down to say, src0% from the current 30% you do not expect Amul will have to drop prices here in India. You think you will still be profitable?
Mehta: We would not encourage any imports, and dairy is one category which has been kept out of every single free trade agreement.
Q: I agree with you, the government has been extremely correct in protecting vulnerable segments and important segments in India. However, at the moment, we are faced with a different kind of geopolitics. If there is a gun to your head, and if the tariffs do come down to src0%, is there a genuine import threat, or will you still be competitive.
Mehta: We have to be competitive on a long-term basis and not short-term basis. So it is better that the government does not take these steps. We are sure that these discussions do not happen just in a jiffy. There is a long negotiation process, and it is not just for US, it’s for every single country of the world. These tariff cuts are not bilateral in any case, so we are not too much worried about it, because eight crore families depend on milk for livelihood, and the government is prudent enough to see that we don’t put their livelihood at stake.
Q: I do not for a moment doubt the government’s intent. This will be the last thing they will want to sacrifice in the entire bargaining list. But I am just asking you arithmetically, if the tariffs had come down, will Amul product still be more competitive?
Mehta: Obviously, they will sell, because if there is milk, you have to sell. But it’s not just US, there are many other countries who want to dump their surpluses into India.
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Q: So if it a src0% tariff, there is genuine danger, is what you are saying?
Mehta: Yes, absolutely, except once you cross the TRQ level of src0,000 tonne, obviously it will be a case of worry.
Look at the other way, we export to US, our butter, ghee, there is a duty ranging from 30 to 60% so it’s not they give us a duty free access to their markets, and we charge them duty, in fact, US charges higher duties on dairy products than India.
Q: What has been the experience at Speciality Restaurants in January itself? Has the consumption in volume terms improved over quarter three and how was quarter three in volume terms over a year ago?
Chatterjee: As you go out to Mainland China, and you go to all our favourite restaurants, October, November, December is thebest season for by and large, every food and beverage company. It was the best, as per the comparisons, but we have definitely shown a growth of around 6% and there is humongous amount of tailwind at that point of time.
Q: What about January, was January also 6% higher than year ago.
Chatterjee: Not really, because as once the tailwind goes away, you see comparisons of economy, accepting the fact that the new tax regime, which has come in, because we are at the upwardly mobile customer, wherein every penny counts for them. There has been inflation in the economy. There have been lots of challenges, food prices have gone up so there is a budget. They have a budget, but definitely over a period of time, January has not been as good as the January, February, March would not be as good as the quarter three, so there will be challenges.
Food and beverage is becoming slowly a bargain economy. Because if you see, unless you have a very strong brand, you will see people bargaining, asking for discounts, etc. We are very hopeful, because our same store growth has been very good, very steady, and we are very hopeful going forward.
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