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What consumer packaged goods will look like in 2016
3 min read.Updated: 04 Jan 2016, 02:00 AM ISTLivemint
Buoyancy in the market can be expected as the implementation of the Seventh Pay Commission's recommendations will likely see more money in the hands of urban households
Weak consumer sentiment and lower-than-expected demand impacted sales at large consumer goods firms in 2015 in both urban and rural markets. Rural demand suffered due to a second straight year of poor monsoon rains. However, analysts and executives expect some buoyancy in the market, as the implementation of the Seventh Pay Commission’s recommendations will likely see more money in the hands of urban households.
TRENDS TO WATCH
Ethnic products Driven by the soaring popularity of regional FMCG companies, multinational firms will launch more ethnic products. Regional consumer companies emerged as stars in 2015. The new year is likely to see more multinationals come up with a robust pipeline of products. Hindustan Unilever Ltd, for instance, has been heavily marketing its Lever Ayush range of Ayurvedic products.
Mergers and acquisitions More M&A activity is likely as contemporary companies look at mopping up traditional assets. In 2015, several organic and herbal brands changed hands. While Hindustan Unilever in December spent ₹ 330 crore to buy Indulekha hair oil from Kannur-based Mosons Extractions Pvt. Ltd, Kolkata-based Emami Ltd in June bought hair oil company Kesh King for ₹ 1,651 crore. More such regional or organic product firms could be on the acquisition radar.
Urban demand Urban demand is likely to improve, with the implementation of the Seventh Pay Commission recommendations, which are likely to put more money in the hands of middle-income consumers. Rural demand, which continued to decline for a second year in a row on account of scanty rains, will take more time to recover. Through 2015, most large consumer packaged goods companies passed the benefits of lower input costs to consumers. The benefits of benign commodity costs are likely to continue through 2016, say experts.
Start-ups Existing packaged foods start-ups will continue to garner more shelf space at modern trade stores. Food and beverage start-ups such as Hector Beverages (Paperboat), Cerena Beverages (Bira Beer), ID Foodsand GreenDot Health Foods Ltd (Cornitos) are already popular in urban markets, and some are looking to raise fresh rounds of funding.
Tax Margins at liquor and tobacco companies will continue to be weighed down in 2016 by hefty taxation. While tobacco/cigarette makers are expected to attract higher tax, liquor is expected to be excluded from the goods and services tax. The government is also mulling bringing sugary, fizzy drinks under the tax radar and has proposed a 40% ‘sin tax’ to be levied on the likes of beverage makers Coca-Cola and PepsiCo. The former has said that the move could force it to shut down factories in India.
Nestle India The company will be looking to regain lost market share and revive consumer trust after its Maggi noodles were ordered off the shelves in 2015 following tests showing monosodium glutamate and excess lead in its samples. Even though Maggi is back on the shelves, the local arm of the Swiss food company continues to battle court cases and laboratory claims.
Patanjali Ayurved Yoga guru Baba Ramdev’s company, which sells atta noodles, desi ghee and biscuits, made its mark on the consumer packaged goods scene in 2015. It tied up with Kishore Biyani-promoted Future Group to launch its noodles brand. With brand endorsers from Bollywood actor Hema Malini to Olympic wrestler Sushil Kumar, Patanjali is expected to close the current fiscal year with a revenue of 5,000 crore, up from 2,000 crore in fiscal 2015.
ITC Kolkata-based conglomerate ITC Ltd will continue to bolster its food and personal care portfolio, as its tobacco business faces heavy taxes. Currently at 9,038 crore, including packaged foods and personal care, ITC’s consumer packaged goods portfolio has been growing consistently. Analysts expect more product launches and strong advertising from the maker of Sunfeast biscuits.
Hindustan Unilever The country’s largest packaged goods company acquired Indulekha hair oil and sold Modern—its breads and bakery business—to private equity fund Everstone. This should benefit Hindustan Unilever when urban demand recovers and the infrastructure cycle picks up. In its second-quarter earnings, the maker of Lux soaps and Surf Excel detergents said a slump in rural demand for most of the year impacted profits.
Parag Milk Products Mumbai-based Parag Milk Products Pvt. Ltd is likely to raise about 325 crore from the capital market in 2016. Backed by IDFC Alternatives and Motilal Oswal Private Equity Advisors, Parag sells packaged dairy products such as Gowardhan ghee and Go Cheese. Dairy companies in the past five years have reaped the benefits as more Indian households upgraded to packaged dairy products—making it a 75,000 crore market.