ACROSS THE BOARD
Of late many regional or local consumer expendable brands are reportedly up for sale. From Chaturbhuj Pharmaceutical’s ayurvedic sexual wellness brand Japani for around ~500 crore, cosmetics brand Nature’s Essence for around ~600 core and Kunnath Pharmaceuticals’ Musli Power for ~125 crore.
And only last year, Kolkata-based Emami bought Himachal Pradeshbased hair care brand Kesh King for over ~1,600 crore and the country’s biggest fast moving consumer goods marketer Hindustan Unilever Limited (HUL) bought Kerala’s Indulekha hair oil for around ~330 crore.
In fact, mergers and acquisitions in the ~2.3-lakh-crore FMCG market have gone up fivefold to over $300 million in 2015 from $60 million in 2014. So, what’s up? It seems many regional and local brands are giving up the fight and cashing out. While the reasons may vary, a new study by management consultants Bain & Company in partnership with IMRB Kantar Worldpanel may just have the answer to what’s exactly up here.
The study tracked real-time spending of around 80,000 Indian shoppers, as many as 15,000 households here in rural areas. Thirty seven consumer goods categories across food and beverage, and home and personal care, accounting for nearly two-thirds of the FMCG market were tracked.
Much like everywhere else, Indian shoppers are not loyal to specific brands but are repertoire shoppers, choosing different brands for different occasions, need or time of the year, points out the Bain-IMRB study. In a stark revelation, this shopper behaviour study found that almost a third of all consumers for even the strongest brand in the category desert it every year! Occasional users make up over half of the shopper base here. And heavy brand-specific shoppers are also the biggest buyers of rival brands!
The study’s prognosis is that brands lead because of household penetration, which determines market share and not loyalty and/or frequency of purchase. For example, in the hair oil category, the difference in frequency of purchase between the highest sold brand (Parachute) and number 10th, KLF Nirmal Coconut Oil, is not too huge, just 1.7 times higher — 5.5 times a year compared to 3.2 times a year respectively. But Parachute’s penetration at 37 per cent is almost 26 times that of Nirmal, and that explains their relative market standing according to the study.
An average consumer on this panel bought at least two soft drink brands in a year, and flirted with over five soap brands. No wonder, even for a leading brand like Lux, occasional shoppers contribute nearly half (46 per cent) of all consumers, and it goes as high as 79 per cent for Cadbury Dairy Milk chocolate. With high churn, even leading marketers here have to recruit new consumers like mad. Even for big marketers, there are just two ways to get new consumers — continuously upping their existing brands’ penetration and/or to launch or buy new brands and up their household penetration, the unsung hero in FMCG marketing. Take HUL’s leading shampoo brand Clinic Plus. In a category where penetration is a high 92 per cent, Clinic Plus was able to better its volume market share by six percentage points, upping its penetration by just two percentage points between 2013 and 2015, according to the Bain-IMRB study.
True, local and regional brands are gaining volume share, as evident from this study, too. But herein lies the catch of why so many strong regional brands are choosing to sell out to bigger rivals. While regional brands have over the years levelled the field vis-à-vis big national brands as far as product development and marketing is concerned, penetration beyond their boroughs remains an issue. And with gains from penetration that these regional warriors could manage with their limited financial and managerial resources reaching saturation, it needs the huge distribution franchise that the leader in the category enjoys for the regional brand to achieve the next level of growth. And promoters of many strong regional and local brands may have realised this fact, and therefore, choose to let their brands prosper under a new owner.