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2006 — A fast-paced year for FMCGs

2006 — A fast-paced year for FMCGs

Author | Source: Business Standard | Saturday, Dec 30,2006 9:07 AM

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2006 — A fast-paced year for FMCGs

Witness lot of cross-border acquisitions

Players in the FMCG markets acquired a new aggressive streak in 2006, as growth rates across categories surged and the scramble to grab a piece of the action intensified. Indian FMCG companies hotly pursued cross-border acquisitions in their search for new growth opportunities.

Tata Tea's acquisition of Energy Brands and Tata Coffee's buyout of Eight O'Clock Coffee were the largest, but Marico (which snapped up soap brands in Bangladesh and hair care brands in Egypt) and Godrej Consumer (Keyline Brands of UK and Rapidol of South Africa) also made a string of smaller acquisitions. These buyouts have added exotic new products to the players' portfolios and enabled them to secure a toehold in new markets such as Egypt, South Africa, Europe and the US. Despite the enthusiasm to venture overseas, there was plenty of action at home, with demand growth for FMCGs climbing decisively into the double digits. One key trend that distinguished this year from the preceding ones was that growth was not confined to elitist products sold mainly to urban consumers.

Categories such as washing powders (18 per cent growth in the first nine months of 2006), toilet soaps (15 per cent) and toothpaste (15 per cent) managed robust expansion after four years of sluggish growth, almost catching up with categories such as skin creams (20 per cent) and shampoos (21 per cent).

Rural resurgence

An unexpected resurgence in rural offtake of FMCGs, helped by a good monsoon and improving agricultural credit, no doubt helped this trend. This broad-basing of growth helped narrow the performance gap between players (such as Hindustan Lever and Colgate) who have a significant rural component to their sales and the others. Many of the players redoubled their efforts to expand their distribution reach outside of the urban centres.

Hindustan Lever continued to focus on extending its rural reach through Project Shakti, Colgate leveraged on the e-Choupal network to distribute products and Emami commenced distribution of its products through post offices. The urban landscape continued to be quite competitive for the FMCG majors. No longer content to dominate their respective niches, companies forayed into new categories in an effort to ramp up in size. Hindustan Lever rolled out its water venture (Pure It) in more towns, ITC ventured into packaged spices (Aashirwad), Marico forayed into soaps and baby care products and Dabur made a serious pitch for a higher share of the toothpaste market. Launch activity was also at a high, with segments such as hair care and cosmetics seeing a slew of premium rollouts designed to woo the urban youth.

The result of all this activity was a sharp expansion in the advertising budgets of the majors, as companies pumped more money into promoting new products and protecting their turf, through brand extensions. If the year was one of frenetic activity for the companies, it was one of expanding choices for consumers. Competition ensured that store shelves were brimming with exotic products, brands, variants and flavours to experiment with, through the year.

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