Consumers downtrade in FMCG and automobiles
A revival in rural consumption, visible in fast-moving consumer goods (FMCG) and automobiles, is bringing with it a focus on cheaper models and packs, while income uncertainty in urban areas — created by extended lockdowns — is pushing consumers to be frugal.
The emphasis, as most FMCG chief executive officers (CEOS) admit, is on essentials and away from discretionary categories.
Automobile majors are pointing to a clear shift in buyers opting for entry-level models over premium variants. “Whenever times are tough, consumers do move to small packs and price points,” said Sanjiv Mehta, chairman and managing director, Hindustan Unilever (HUL), the country’s largest FMCG company.
“Which is why the hunt by consumers increases for products and pack sizes that can best address their consumption needs in the most affordable way,” he added.
At HUL’S annual general meeting last week, Mehta alluded to this trend, saying the company would not only continue keeping its focus on essential categories, but would also look at making its brands as accessible as possible to consumers.
Shashank Srivastava, executive director, sales and marketing at car market leader Maruti Suzuki, said that enquiries and bookings for its entry-level models rose to 65 per cent in June versus 55 per cent in the same period last year.
“These are very initial trends and one cannot say if it will sustain, as overall retail has yet to reach preCovid levels,” said Srivastava.
Srivastava pointed to the preference for personal transportation amid fears of catching the virus in crowded public transport and weak economic conditions for the shift in preference for entry-level cars.
At Dabur India, CEO Mohit Malhotra said the offtake of low-unit packs, that is, products priced between ~5 and ~20 per unit, in oral care and health care has increased in the last two months.
“The demand for value packs has gone up substantially, especially in rural areas. We are responding to this surge in demand by putting up additional manufacturing lines,” said Malhotra.
Biscuit majors are introducing ~5 and ~10 packs for all their brands. “The ~10-pack is very critical in a category such as biscuits. This will now get an even bigger push as consumers curtail spending,” said Mayank Shah, senior category head, Parle Products.
A recent Deloitte study found that nearly 53 per cent of Indians fear losing their jobs because of the pandemic. Close to half the respondents are concerned about their ability to pay the rent or monthly instalments in the coming months.
Conserving cash has increased substantially, Deloitte said, with consumers cutting back on spends wherever possible, including household
expenditure as well as large purchases.
The mantra, as experts say, is to keep it small and simple. Naveen Soni, senior vice-president, sales and service, Toyota Kirloskar, said customers have been ‘downshifting’ to lower grades within the same model since the start of the pandemic.
This is more pronounced, he said, in lowerpriced models such as Glanza, a premium compact car, where price sensitivity is higher. Downtrading has been as much as 7-8 per cent in this segment versus what it was in the pre-covid phase, he said.
“When we compare this to our products in a higher price band such as Innova and Fortuner, the downshift to a base model is lower. It is to an extent of 3 per cent only,” said Soni.
Experts say the preference for lower trim car variants is linked to the reluctance of customers to spend more during uncertain times. “People want to achieve their mobility needs with a lower impact on their pockets,” said Soni.
For now, it seems, this trend is here to stay.