Unilever has reported that the Indian market is experiencing heightened competition from smaller players in the FMCG sector, following a decrease in raw material prices. As a result, Unilever’s subsidiary, Hindustan Unilever, is shifting its strategy towards prioritizing increased sales volumes and implementing price reductions.
“In India, about 40% of our portfolio is fabric cleaning and skin cleanser. And we know from experience that they are highly correlated to the underlying commodity prices. When inflation happens, a lot of smaller local firms in the category drop out of the category and then re-emerge once deflation starts to come in. So, we are starting to see that in India,” Unilever global chief financial officer Graeme Pitkethly said at the Barclays Global Consumer Staples Conference.
Over the years, local brands have steadily eroded market shares of prominent consumer product companies, notably in segments such as soap, detergents, hair oil, tea, and biscuits. Nevertheless, the disruptions caused by the pandemic and subsequent increases in essential raw material costs compelled numerous brands to either cease operations or downsize significantly. However, in the past two quarters, prices for soap, detergents, and tea have declined due to a drop in commodity prices.
“The competitiveness of media spend will continue to go up and it is the right thing to moderate our pricing and retain our volumes and our market share. We really trust our team in India to manage that dynamics properly,” said Pitkethly.
In its earnings conference, Hindustan Unilever mentioned that it is observing a resurgence of small and regional players, including those who had exited the market during the height of inflation.
As an example, in the tea segment, smaller companies have experienced growth rates 1.6 times higher than their larger counterparts in the three months leading up to May. Similarly, in the detergent bars category, regional players have expanded their presence at a rate three times faster than major brands. Hindustan Unilever (HUL) is not the only company witnessing this trend of smaller players encroaching on their market share. During the performance call for the June quarter, Britannia also noted that its biscuit market share remained stagnant, while local players gained ground.
“The local players, because of the pricing actions that they are taking in their small vicinity, have gained a little bit of market share,” Varun Berry, managing director at Britannia, told analysts. “When the inflation is high, local players just walk away. And when things start to become a little more normalised, local players come into the market and start to operate large schemes for customers as well as consumers. So that’s what we are looking at currently.”
The market research firm Kantar conducted an analysis across 13 categories encompassing personal care, home care, and food and beverages. Their findings revealed that local companies, operating exclusively in a single market, experienced a growth rate of nearly 13% in the year ending April 2023, surpassing national brands, which expanded by 9%.