Consumers Switching From Larger To Regional Brands, Says Amul’s RS Sodhi
Consumers are switching from larger national brands to smaller and regional ones that offer more value for money, according to the head of India’s largest dairy products maker.
“Now consumer is giving more preference to the city brand, mohalla brand or regional brand than the national brand,” R S Sodhi, managing director at Gujarat Co-Operative Milk Marketing Federation Ltd., the maker of Amul branded milk to ice-creams, told BloombergQuint in an interview. “The regional brands are more economical and giving more delivery.”
Bigger brands feel that consumers are downtrading, but the truth is they are just switching to other brands, he said. “The consumer has become smarter and wiser.”
Sodhi talked to BloombergQuint about demand, consumption pattern and more.
Here are the edited excerpts:
Many brokerages are suggesting that the demand is starting to moderate across various product categories. What are your thoughts on demand and possible demand moderation across the staple space?
I don’t think the demand is reducing but what can be seen, in some categories, is that there may have been a reduction in growth. Growth rate is reduced than what we used to get three to four years earlier.
It may not be true for packed branded food products. Food market in India is around $300 billion. In dairy, it is around $100 billion. Packed branded is $100 billion in dairy only and another $100 billion in other food products. We have found that demand for branded food products is more from rural, tier-II and tier-III, and smaller cities or bigger villages. We find tremendous increase in demand for small packs such as Rs 5 to Rs 20 packs. We are now seeing that people are buying or consuming less of bigger packs and buying more of smaller packs. Earlier we use to give good bargains for people going for bigger pack. But now we are seeing that brands are giving bargains for small packs too. So, consumer finds it better to buy a smaller pack and then every time you can buy fresh product instead of keeping it house for one to two months.
In dairy, for fresh products like milk ,buttermilk, dahi and paneer, the volume growth is in double digits on a year-on-year basis. Out of this double-digit growth, half of it is coming because of the increase in consumption. If prosperity and income level is increasing, then people are spending more and more on food. Half of this growth is coming from people who are shifting from loose, unpacked, unbranded to packed and branded forms. So for food in packed brand, the demand is growing, but it is more diverted towards smaller packs.
Why would companies be undertaking such a strategy? More packaging, by virtue of smaller packs, would mean higher cost. So, why would companies be doing it?
If you don’t do it, then somebody else will do it. There is a gap. If I am selling a dairy whitener in 200 grams or 500 grams packs , and assuming for 200 grams it is costing around Rs 65. Now in smaller markets, I am selling X packs and people want smaller packs. Now somebody will launch Rs 5 or Rs 10 pack. So, people who can’t afford Rs 65 will start buying that pack. If I don’t do it, somebody else is going to do it. I have found that in Rs 5 or Rs 10 packs, we spend on our capacities and always demand is ahead of the capacities we have spent. Nobody wants to give that market to somebody else. We have found Rs 5 to Rs 10 packs in ice-cream too.
Now premium products like cheese and ghee are not only for cities or urban consumers. Rural consumer wants to buy the same products but in a smaller pack size.
In your 13 percent growth which you witnessed in the year gone by, has the proportion of rural growth—the additional revenue coming through rural market uptick—been substantially higher than the past and higher than what you had envisaged? If that is the case, did you believe that this is the trend which is developing now?
When I say rural, it does not mean rural per se. It means lower end of the market. In bigger cities, smaller slum areas and lower-income group markets are growing.
Some states like Bihar, Jharkhand and North-east regions are giving much more growth than metro cities. Delhi, Mumbai, Kolkata are matured markets. Competition is also more. In branded food products, tier-II and III markets or states are giving much more growth than the already developed or matured markets or cities.
There are some murmurs of down trading in certain pockets. Brokerages have said that many companies are talking about moderation in demand. Have you experienced it? Would you think that it is just the passing phase, or could this be a new normal?
The people who were charging any premium for any product category without delivering the value, their consumers are saying that they are not getting the value equal to the money they are spending. With the increase in choice, people are going for more value for money or economical products. One seller will call it down trading and the another will say that ‘I am buying what I am spending’. Consumer is becoming smarter and wiser when making a choice. They will not give you the premium just for fancy packing. They will give 30 to 40 percent more for the same product, just because you have a big brand. If you want to take even Rs 10 from the pockets of consumer, you have to deliver that value because consumer has got more choices.
I am talking about food, which may be applicable to lot of other fast-moving consumer goods products. Earlier, consumer were giving premium for a national brand. They where ready to give 10 to 30 percent premium. Then came regional brands. So, consumer started buying more of regional brands, because they found them good. But now there are city brands. Now consumer is giving more preference to the city brand, mohalla brand or regional brand than the national brand. These regional brands are more economical and giving more delivery. Those national brands feel that consumer is down trading, but they are switching from national brands to regional brands. Consumer has become smarter and wiser.
Has there been an increase in the promotional intensity for the same basket of goods in the food space. Can you throw some light on how in the last quarter or the six months, the pricing and cost has been, may be from Amul and industry perspective?
It is becoming very difficult day by day to build or maintain a national brand in food. Media is confusing, and you don’t know where to spend. You want to increase spending on TV, but people are shifting to Netflix or Prime videos. People are also on social media and press. For national brand, it has become difficult.
For any national company, I don’t think anybody can build a national brand for one to two years, like there used to be earlier like just spend Rs 40-100 crores on TV and you will become a national brand. It is difficult. Also, the distribution cost has become too much.
In food, there is no increase in pricing or maximum retail price or price to consumer in the last 1.5 years. I am talking about food where input cost has not increased whereas competition has increased. So there is no way to increase prices. Cost of production is more or less same. Whatever impact of Goods and Services Tax has come in most of FMCG or food products, prices have reduced. Except in dairy, Ghee prices increased but for most other products prices have reduced. After two years of lull market, cost of food products is increasing. In the next two years, prices will keep on increasing day by day. It will not be more than inflation. Last year, the prices were below inflation.
Would it be safe to say that you believe a volume growth of 10 to 14 percent could be achieved by Amul over the next five years? But the industry also has a reasonable size growth. I don’t think a company can outpace the industry by wide margin. If you grow by 14 percent, then the industry may grow at 10 percent. Do you think that is the assumption?
The industry will grow at a 14 percent volume and Amul is trying to match the same. If we don’t grow, then others will grow, and we will lose market share. So, we have to grow at 14 to 15 percent to maintain the market share, because we are the market leader in most of the categories. Consumption is going to grow. If we don’t match our policies and our market strategies with growth, then somebody else will snatch our market share. So, we have to grow.