Mar 3, 2010|
FMCG: The ground reality is...
We at Equitymaster constantly endeavour to provide our investors insight into the ground realities of the businesses of companies. For this purpose we recently visited one of the outlets of Big Bazaar. The first thing we noticed was the discounts and various offers being given on almost the entire range of HUL's products. This is in line with our view that HUL is trying to readjust its product pricing to compete with price warriors. The competition seemed the most intense in the soaps and detergents and the oral care category. We observed discounts and various offer packaging for soaps including Dove and Lifebuoy which are HUL's flagship soap products. In oral care we observed Colgate was also fielding various offer packs to compete with HUL's offers. The biggest occupier of Oral Care shelf space was Colgate while the second was HUL and third Dabur. We also saw toothpaste from Ajanta on the shelf. This is in line with market share ranking of the players. Supermarkets are clearly the place where people go to stock up for the month as we saw a trend towards larger pack sizes being sold here.
From the Big Bazaar we visited a grocery shop in a residential colony. Here we discovered that smaller packs ruled the roost. While there were deals like the ones we observed at Big Bazaar there were not as many deals available. The reason according to the shop keeper was that larger retail chains were able to get better deals from the FMCG companies as they buy large quantities at one go. While the shop stocked a large variety of soaps, the shop keeper indicated that there was more demand for Dove, Pears (from HUL) and Cinthol Deo Classic (from Godrej) in that area. Surprisingly, ITC's Vivel Di Wills while available wasn't selling well in the area. The preferred toothpaste in this area was Colgate Advance Whitening while Brook Bond Red Label Tea from HUL witnessed the maximum demand. Moreover, the biscuit brand having the highest selloff rate was Tiger from Britannia.
From here we visited the slums. While the shopkeepers were generally distrustful of us, we managed to interact with a shopkeeper there. These shops operate mainly on credit from FMCG companies. Inside the shop, our main observation was that all FMCG products were available. However, they were of smaller unit size. This is in line with what the FMCG companies have been telling us. One negative point we heard was against Unilever. This being that HUL due to large number of products is unable to focus on marketing them properly. Moreover the shopkeeper was critical that HUL constantly changed the MRP of its products unlike other FMCG companies. While the shopkeeper was critical of HUL, we believe in the strengths of the company. The company has recently suffered due to competition and the discount offers are the results of price rationalisations (downward re-pricing). In the slum we visited, the most popular washing power was Tide while the shampoo was Heads & Shoulders, both from P&G. The soap which was most popular was Lifebuoy. However, here the largest revenue came from products which were unbranded.
From our visit it has become clear who the category market leaders are. We believe that the incremental growth will come from the bottom of the pyramid. Once a company converts a customer from using unbranded products to using its branded products it will be able to reap rich benefits as the customer up trades in the future. This makes it very important to position one's products carefully today. Furthermore, with the help of this study we can pinpoint the market leaders of tomorrow.
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