FMCG brands experimenting with pack sizes to curtail competition: Abneesh Roy

“Coming to the overall distress in the rural and overall challenges in the macroeconomic, the job losses, the salary cuts, there is down trading within the same brand. So yes, the lower unit packs are growing faster. This is a behaviour we are seeing across the FMCG categories. Every company is trying that out. It will definitely help in volume growth,” says Abneesh Roy, Executive Director, Nuvama Institutional Equities

Campa Cola seems to be priced a bit cheaper compared to other beverages in terms of Pepsi, Coca-Cola or other colas as well. Do you think this is the beginning of a price war? Will that be something of a threat for these other companies?
This is a longer term risk because in FMCG, pricing is one smaller aspect. The bigger challenge for any late entrant will be ramping up the distribution which is not easy given Pepsi and Coke are extremely well entrenched companies, Varun Beverages has great execution and secondly there is the branding.

Campa Cola has not advertised for a few decades. The consumers who used to know Campa Cola may not be a very relevant customer base now because of the positioning of this kind of product. So those would be the bigger challenges.

In FMCG, pricing is one of the tools but you need much more than that. Yes, Reliance has acquired two brands – Campa and Sosyo Hajoori. This shows that Reliance is focussed on this business a bit more because the consumer is a bit more willing to experiment in this category versus say a toothpaste or a hair oil chyawanprash. There is a propensity to try more brands and if Reliance is able to address the distribution and the brand, then the pricing can help. But if you start as a price warrior, then it is not enough because ultimately putting up Visi Cooler would not be easy. That I think is the bigger challenge.

We did see Coke standing up to the Campa Cola challenge. They cut the 200 ml bottle prices by Rs 5. Do we also see brands experimenting with the SKUs, pack sizes to curtail competition?
Coke has already come and denied that this is anything new. In FMCG, lower unit packs and this kind of pricing is quite normal because you get more customers and more sampling happens. One should see the price cut in that context rather than reaction to Reliance because these are very early days. Plus, this is a good season. I expect a very good set of numbers from Varun Beverages in this quarter and the next quarter because of the harsh summer.

So this is not a reaction to Reliance necessarily. Plus, if you see Coke has denied that. They have said that no pricing is fairly similar. The slight price offs and new packs, those are normal routine part of FMCG. So I will not say that this is a reaction to Reliance's Campa Cola ad. I think that will happen gradually, not something very big.

Summers are key triggers for the segment. Also, IPL will be coming up. How are you seeing the early trends coming in for the summer season? Any specific trends in consumers shifting to smaller SKUs for these products?
Definitely summer demand is quite strong across the board, especially for beverages. We are also seeing that in ice creams also. This time, if El Nino happens, it will be an extended summer season this again bodes well for this category. It may not bode well for broader consumption because then the rural farm incomes could get impacted.

Coming to the overall distress in the rural and overall challenges in the macroeconomic, the job losses, the salary cuts, there is down trading within the same brand. So yes, the lower unit packs are growing faster. This is a behaviour we are seeing across the FMCG categories. Every company is trying that out. It will definitely help in volume growth. The margins could be a bit lower in the lower unit packs, but it helps one get more customers and more volumes.

How is the FMCG pack discretionary side shaping up? Is there a concern in terms of discretionary spends or even QSR spends that come up a bit in discretionary as well?
In discretionary, there are multiple segments. We are quite positive about paints. We expect a very strong quarter for Asian Paints, Berger Paints, Indigo etc. We expect margin improvement. But you are right. Many other discretionary forms of consumption are seeing initial timing or slowdown because of the macroeconomic challenges which I mentioned.

So yes, QSR will see more competition also because every player is also expanding. Plus, there is a cutback in a lot of the urban cities. Now the work from home and home delivery are seeing more challenges because that was in the base. Now the customer is going out and eating out more. So, overall, QSRs are facing challenges.