Unilever has reported increased competition from smaller players in the Indian Fast Moving Consumer Goods (FMCG) sector following a cooling off of raw material prices. This has compelled its subsidiary, Hindustan Unilever, to shift its focus towards increasing volumes and implementing price reductions.
Graeme Pitkethly, Unilever’s global chief financial officer, discussed the situation at the Barclays Global Consumer Staples Conference. He noted that approximately 40 per cent of their product portfolio in India comprises fabric cleaning and skin cleanser products, which are closely tied to underlying commodity prices. During periods of inflation, many smaller local firms in this category tend to exit, only to re-emerge when deflation sets in. This trend is now visible in India.
Over the years, local brands have steadily gained market share from leading consumer product companies, especially in segments such as soaps, detergents, hair oil, tea, and biscuits. However, disruptions caused by the pandemic and subsequent inflation in key raw materials had compelled some of these smaller players to either cease operations or scale down. In the last two quarters, prices of soaps, detergents, and tea have become more affordable due to falling commodity prices.
To address this evolving landscape, Unilever and Hindustan Unilever are adjusting their strategies. They are focusing on moderating prices to retain market share and volumes, recognizing the increasing competitiveness of advertising spending. During its earnings conference, Hindustan Unilever noted a resurgence of small and regional players who had exited the market during the peak of inflation.
For example, in the tea segment, smaller companies have grown 1.6 times faster than larger rivals in the three months ending in May. In the detergent bars category, regional players have expanded three times faster. This trend is not unique to Hindustan Unilever, as other companies like Britannia have also reported that local players have gained market share in certain categories.
Market research firm Kantar analyzed 13 categories encompassing personal care, home care, and food and beverages. They found that local companies operating primarily in a single market grew by nearly 13% during the year ending in April 2023, compared to national brands, which expanded by 9 per cent.
