Large fast-moving consumer goods (FMCG) firms are ramping up their premium portfolio to drive growth in high-margin products and improve profitability, as the sector continues to battle a slump in rural demand.
In the past six months, Hindustan Unilever Ltd (HUL), Reckitt Benckiser (India) Ltd, Jyothy Laboratories Ltd and Dabur India Ltd have entered niche categories and launched premium products. Most of these products are sold exclusively on e-commerce platforms and are targeted at young Indians.
Company executives and analysts said catering to the urban consumers is crucial in the wake of the slowdown as urban consumption has continued to maintain the pace of growth despite a weak rural demand. According to market researcher Nielsen, urban areas contribute around 63% of the overall FMCG spending. However, a drop in rural consumption, which was historically growing 3-5 percentage points faster than urban, has led to the overall slowdown in the sector. According to Nielsen, FMCG value growth slowed to 10% in the April-June period from a year ago. Volume growth during the same period dropped to 6.2% as compared to 9.9% in the previous quarter.
“In a tough time like this, we have to work on a combination of strategies and see all aspects both for rural and urban customers. Even as we work on driving rural volume through smaller pack sizes, we get the value growth and more profit from premium products only," said Ullas Kamath, joint managing director, Jyothy Laboratories.
In the year so far, the Mumbai-based company, which makes products ranging from soaps to homecare items, has introduced premium variants for four of its brands. Among these are a glycerine variant of its Margo soap, tamarind range for Pril dishwasher and Maxo Advanced, a mosquito repellent.
In August, HUL introduced a new premium laundry brand, Love & Care, targeting affluent Indians. The last time the company introduced a new brand was 32 years ago. An HUL spokesperson said launching the brand was part of the company’s plan “to drive premiumization across categories".
British consumer goods firm Reckitt Benckiser brought its global liquid detergent brand Woolite to India in May. Sukhleen Aneja, chief marketing officer and marketing director, RB Hygiene Home South Asia, said the product launch was in line with the company’s strategy to bring products that serve the evolving consumer needs.
“Urban growth is still robust. Companies which are cash-rich are trying every way to innovate and explore various markets. Growth is only going to come from premiumization and companies want their profit margin to improve," said Sanjiv Bhasin, executive vice president, (markets and corporate affairs), India Infoline Ltd (IIFL), a brokerage firm.
Last month, Dabur introduced its first hair oil and shampoo for children, a segment that has hardly seen any national brands yet. Rajeev John, head of marketing (home and personal care), Dabur, said the products have been launched on e-ccomerce platforms targeting millennial and urban consumers.
According to Rajat Wahi, partner, Deloitte India, most FMCG firms are continuing to target customers in metros, tier I and tier II cities as part of a long-term strategy to build the premium category along with their effort to expand into the mass market.
“While there is an effort to drive consumption in rural and urban markets, they are trying to further push the urban consumption by launching these new premium products," Wahi said.