Consumer companies that increased rural distribution and offered smaller packs have done relatively better in the market, according to market researcher Nielsen Co. GlaxoSmithKline Consumer Healthcare Ltd should rank among these companies although, despite these efforts, the company has been finding sales growth coming under pressure.

The company’s domestic business saw volume growth of 7% in the March quarter from a year earlier, down from double-digit levels seen in the previous two quarters. And an increase in price and mix is what contributed to the 15% growth in sales during the quarter. While sales growth in health food drinks has slowed, compared with preceding quarters, that in categories such as foods and over the counter products has risen.

Though rural markets may be doing better in terms of growth, urban markets are more critical for the relatively high value products that GSK Consumer sells. If weak economic conditions are affecting growth, the problem is compounded by food inflation. Rising milk and milk product prices have led to an uncomfortable increase in its input costs that rose 17.4%—way ahead of sales growth.

The company has refrained from passing on the full blow of costs to consumers. It can afford to do that since its gross margins are quite high at 61.3%. Gross margin here refers to what is left over after deducting material costs from sales. That’s why operating profit margin declined by only 60 basis points, even after advertising and promotion costs rose 16.6%.

In the long run, the company expects volume growth to remain in the 6-9% range, according to an Edelweiss Securities post-results research note. That appears realistic and if economic growth recovers, can move to the higher end of that range. It can then also raise prices enough to cover cost increases and improve profitability as well. The company’s share has risen by around 10% since its results were announced in early-May.