The Return of Local FMCG Brands: The Rising Challenge for Large Companies as Smaller Players Seize Market Share with Competitive Pricing, 2023

The Return of Local FMCG Brands: The Rising Challenge for Large Companies as Smaller Players Seize Market Share with Competitive Pricing, 2023

National FMCG businesses like Hindustan Unilever (HUL) have taken notice of the trend.

As inflationary pressures relax, particularly in crude-linked futures, small manufacturers are resurrecting in India’s Rs 5 trillion domestic fast-moving consumer goods (FMCG) industry.

These smaller local firms are also starting to become active in the market, taking market share away from their more established competitors by developing novel products, packaging, and marketing strategies while maintaining affordable pricing points.

According to information provided by research and insights firm Kantar for the 12 months ending April 2023, local brands had volume growth of 12.7% compared to 8.5% for national brands. Industry estimates place the volume growth rate for small brands in the May–July period at roughly 15–16%, even though inflation continued to decline during this time and significant brands grew about 10%.

According to Kantar, for the 12 months ending in April 2023, national brands still have a more significant volume share than local brands (36% vs 28%, respectively). Even Nevertheless, it cannot be denied that smaller companies are nipping at the majors’ heels.

According to industry experts FE, the category-level shift from big to small brands is as high as 75% in some areas, like Rajasthan, and as low as 65% in others, like Uttar Pradesh, for detergents. In places like Karnataka, it is 49% in spices; in Andhra Pradesh, it is 38% in washing powder; and in Gujarat, it is 19% in noodles.

National FMCG businesses like Hindustan Unilever (HUL) have taken notice of the trend. HUL’s MD and CEO Rohit Jawa stated last week during an earnings call that the firm was concentrating on volume growth as the level of competition had increased due to the re-entry of minor companies that had left the market during periods of high inflation.

“Right now, our primary goal is to promote competitive volume growth. On one level, that is the highest position. In the end, the falling cost of commodities is favourable. Higher advertising and promotion (A&P) expenditures are being made with some of that money. Regarding the company’s approach to dealing with competition, Jawa remarked, “We want to maintain the strength of our brand.

Experts advise national businesses to concentrate on regions where local brands are expanding quickly to stop the loss of market share.

According to Sachin Bobade, vice president of research at Mumbai-based brokerage Dolat Capital, “In a market where commodity costs are declining, small players can quickly take advantage of the gains and roll out products that suit local needs.” “National players will have to react at the local level with suitable variants,” he claims.

This illustrates how rapidly local brands are expanding: According to K Ramakrishnan, MD, South Asia, Worldpanel Division at Kantar, penetration levels for Supremo 51, a detergent brand in Madhya Pradesh, has reached 101% this year compared to 8% last year. He claims that consumers in that market are embracing this product because it meets their wants.

In Maharashtra, Reflect Dishwash, another indigenous brand, has witnessed a 109% increase in penetration compared to 4% last year. While Challenge Detergent Bar’s penetration in Tamil Nadu quadrupled (20% to 42%), Sastry Balms’ grew from 17% to 85% in Andhra Pradesh last year.

Despite recent inflationary pressures in wheat, milk, and tomatoes, Kantar reports that food brands are also expanding. For instance, according to Ramakrishnan, the penetration levels of 1 to 3 Noodle and Teju Masala in Karnataka and Balaji Gippi Noodle in Gujarat have increased significantly over the past 12 months. In a year, the penetration for Teju Masala rose from 37% to 65%, 1 to 3 Noodle rose from 35% to 113%, and Balaji Gippi Noodle increased from 30% to 58%.

2023 has seen a significant shift in the FMCG (Fast-Moving Consumer Goods) sector, characterized by local brands’ resurgence and progressive market penetration. Small and medium-sized businesses, once considered underdogs, are now giving the industry’s giants a run for their money. The heart of this remarkable development lies in the affordability these local companies provide without compromising on quality.

The FMCG sector has traditionally been dominated by large corporations with abundant resources, allowing them to create brand loyalty, scale operations, and dictate prices. However, the current scenario suggests a significant disruption in this market hierarchy as smaller players break through with aggressive strategies and appealing price points.

One key factor driving this change has been these local brands’ consistent offering of good quality products at considerably lower price points. They have successfully tapped into the age-old consumer dilemma of price versus quality. Recognizing that affordability doesn’t have to mean subpar quality, these brands have seized a significant market share.

In the past, local brands faced challenges in sourcing high-quality raw materials and maintaining consistency. However, they have now overcome these obstacles, primarily through improved sourcing strategies, innovations in manufacturing, and robust quality checks. With this, they have effectively countered the perceived value disadvantage and are currently enticing consumers with cost-effective alternatives that don’t compromise quality.

Another significant aspect of their winning strategy is their hyperlocal approach. Unlike multinational giants, local brands have a deeper understanding of regional tastes, preferences, and cultural nuances. Local brands have successfully gained a loyal customer base by catering to specific demands.

For example, a local FMCG brand might introduce a spice mix that caters specifically to the palate of a particular region, thereby gaining customer loyalty that a large brand with a generic product might fail to secure.

The advent and acceptance of e-commerce have also played a pivotal role in this shift. Thanks to digital platforms, small and large brands have equal access to a marketplace that has levelled the playing field. This has given local brands greater visibility, a broader customer base, and an opportunity to scale at a much lower cost than traditional retail.

The comeback of local FMCG brands is prompting more giant corporations to recalibrate their strategies. Big companies are now developing more regional and local-focused products, investing in research and development to understand local preferences better.

They are also revisiting their pricing strategies to match the affordability provided by smaller competitors. However, the challenge lies in managing these price reductions without significantly affecting their profit margins.

Moreover, they are increasingly collaborating with e-commerce platforms to expand their reach and customer base. Larger companies are also exploring partnerships and acquisitions of successful local brands as part of their strategy to maintain their market share.

The comeback of local FMCG brands is a testament to their resilience, adaptability, and understanding of consumer preferences. The competitive pricing strategies and hyperlocal approach have significantly aided their rise.

On the flip side, this shift is inducing more giant corporations to revisit their strategies, thereby changing the entire FMCG landscape. It’s a win-win situation for consumers with a broader range of choices catering to their needs and preferences at competitive prices.

As the local brands continue to grow and gain market share, it is clear that the FMCG sector in 2023 is becoming increasingly competitive, and the industry giants are being forced to step up their game.