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FMCG: What’s behind the smile? - Views on News from Equitymaster
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FMCG: What’s behind the smile?
Dec 6, 2005

Per capita consumption of oral care in India, like any other FMCG product, is amongst the lowest in the world. Oral care is one of the most neglected health care area in India. Many people in the country still clean their teeth with traditional products like neem twigs, salt, ash, tobacco or other herbal ingredients. In this article, we take a look at the domestic oral care sector, the players and the potential going forward. Indian oral care industry: Key details

Country (gms)
India 107
Thailand 262
Mexico 376
USA 518
  • Per capita consumption of toothpaste

  • The dentist to population ratio is a critically low at 1:35,000 in India

  • Less than 15% of the Indian toothpaste users brush twice a day

  • 10 years ago, the most expensive toothbrush was priced at Rs 4. Today one can also buy a toothbrush for Rs 999!

  • Only 40% of the Indian population is estimated to use toothpaste, while 27% use toothpowder and the remainder use neither

    A drop in the ocean
    Estimated at Rs 26 bn, the oral care industry accounts for a mere 6% of the domestic FMCG market (internationally this figure is much higher at around 9%). The toothpaste segment can be divided into two broad categories – white's, which account for 80% of total sales and gels, which account for the remaining 20%. The Indian tooth powder market is valued at approximately Rs 5 bn out of which Rs 2.9 bn is white, while the rest is coloured, namely red and black. Colgate is the market leader in this segment with a share of over 50%, while HLL, its closest rival has a 35% market share. Dabur after the acquisition of Balsara, occupies a distant third position with about 10% market share. Colgate is a household name and until a few years back, Colgate was almost like a generic name for toothpaste in India.

    Penetration level for toothpaste is about 75% in urban and 30% in rural areas. Per capita consumption in urban areas is around 153 grams per year, while that in rural ones is a mere 38 grams. Expansion by oral care players in rural area would require huge investments, owing to infrastructure constraints. Tooth powders were long assumed to be the only sort of oral care product rural markets would buy, yet toothpaste penetration has actually overtaken powders in recent times.

    The industry scenario
    Aware as everyone is, the FMCG sector was in doldrums from FY01 to FY04. Along with P&G and HLL, market leader Colgate was also forced to slash its prices in order to increase topline, and hence in April 2003, the market leader cut prices of its products by 17-20%. It must be noted that the lull in the sector was because 60%-70% of durable purchases was being financed. Consumers were paying out of their future incomes, and were hence cautious with current spending. They were economising on essentials like soaps, tea, toothpaste and other FMCG goods, due to lower net disposable income. Also, FMCG and food accounted for the largest expense as a percentage of their total expenditure and hence was the first to be hit.

    Further, while larger players like HLL and Colgate gave retailers a margin of around 8%-10%, smaller players like Anchor and Ajanta, doled out margins of between 15% and 25% to retailers, resulting in retailers pushing these products more. It must be noted that products from these companies (Anchor and Ajanta) are relatively cheaper and hence, despite monopoly, the pricing power does not rest in the hands of a company like Colgate.

    The latest entrant in the organised sector is LG that has ventured into the FMCG market and has launched premium consumer products across 8 categories including toothpastes, shampoos, soaps and detergents. Also, there has been a speculation making rounds that P&G (its worldwide rival) would debut its billion-dollar-plus toothpaste brand Crest in India. This could intensify competition in the segment.

    Potential going forward…
    Even in countries like Sri Lanka and Indonesia, frequency of brushing is significantly higher. There, people brush not only at night, but also after daytime meals. People brush their teeth at the work place too. Indonesia and India are similar in many ways. However, the brushing habit is very low in India. There is a big opportunity here to grow the market. Also, as one's income increases, his percentage expenditure to FMCG goods decreases. So, a company, in order to induce a consumer to spend more, has to make him move up the value chain, example from toothpowder to toothpaste (a similar shift is clearly happening from washing bars to powders). Iodized salt is another example. The success of hair wash preparations like shampoos shows that personal care is as important for rural consumers as urban ones.

    One reason for this stagnating growth could also be a huge urban-rural consumption mismatch. According to estimates, penetration of toothpaste is a healthy 75% in urban India, whereas it is only 30% in rural India. As a result, urban India contributes 65% to the total volumes in the oral care business. In order to reduce this mismatch, both Colgate and HLL have taken to the rural market with gusto. HLL already is the trendsetter in recognising rural potential. Colgate too has initiated operation ‘Jagruti’ to improve its rural penetration. The aim is to educate the masses about oral care and its benefits vis-à-vis traditional teeth cleaning methods like ‘datoon’ (neem plant).

    The focus has also shifted to children. Corporates realise that oral care is a lifelong habit and once developed in a child, generates lifelong customers. So, oral care companies are tying up with schools to educate children on oral care. The focus of advertising in print and television has also shifted to children. Also, the focus is on brushing twice a day, in a bid to expand per capita volume growth.

    Though market expansion has hit a roadblock in recent times, with improvement in rural economy and the measures taken by the industry to improve usage of products, the oral care market is likely to show an improvement in the long term.

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