Financial Daily from THE HINDU group of publications
Sunday, Aug 08, 2004
Industry & Economy - Personal Products
Marketing - Strategy
New product launches, large investments on anvil FMCG sector ready to bounce back
Sindhu J. Bhattacharya
New Delhi , Aug. 7
RESILIENCE in the FMCG sector is apparent as companies continue to go ahead with large investments in capacity augmentation despite stagnation in the industry, a poor monsoon and consequent dip in rural incomes. Besides, on the anvil are brand launches and entry into new product categories.
Take for instance Nestle India, which has earmarked Rs 100 crore investment in augmenting capacities and other capital expenditure. This is despite a whopping 36 per cent fall in net profit in the second quarter of this calendar year.
While the company spokesperson declined to comment on the issue, an industry source revealed that after a gap of seven years Nestle plans to set up a new manufacturing plant for some of its products.
In fact, the Chairman and Managing Director of Marico Industries, Mr Harsh Mariwala, did not buy the `stagnation argument,' saying, "at least for Marico there has been no major margin squeeze over the last several months. We are going ahead with new investments and product launches".
Marico will be investing up to Rs 15 crore in brand promotion, advertising and marketing. The company will soon launch `Parachute Sampoorna' herbal hair oil and enter an entirely new product category. It had recently expanded its hair care portfolio with the launch of Silk n Shine after-wash conditioner.
Next on the list is Dabur India Ltd (DIL). Buoyed by a bottom-line growth of 84 per cent in the first quarter this fiscal, it would be investing significantly in the launch of several new products including Dabur Herbal Toothpaste and Vatika Henna Conditioning hair packs over the coming months.
The Vice-President-Sales, Mr S. Raghunandan, said, "The FMCG industry cannot be defined only by the performance of large players. Smaller companies are now dictating terms and defining the market. DIL will launch new products and create new categories backed by adequate research."
PepsiCo is not to be left behind. Despite the severe margin squeeze in soft drinks compelling the company to review its Rs 5 pricing strategy, it is going ahead with the launch of a completely new drink. The company plans to bring to India the world-famous sports drink `Gatorade' by the end of the month.
Coca-Cola has already launched Coke Vanilla in the market.
Hindustan Lever again, despite posting disappointing results in the June quarter and pricing pressures, has been launching new products and variants over the last few months. An HLL spokesperson said several products including Sunsilk and Clinic Plus shampoos, Close Up toothpaste, Lifebuoy and the entire Brooke Bond product portfolio had been relaunched to offer more value to consumers. The company has also forayed into new areas such as Lux Bodywash range and taste enhancer `Aromax'.
Analysts estimate HLL's investment in the past four years to be Rs 400 crore.
A recent survey by the Federation of Indian Chambers of Commerce and Industry showed that the FMCG sector grew by a mere 1.5 per cent in value terms during last fiscal even as volume growth doubled to four per cent. The chamber has forecast only 2 per cent value growth rate for the entire FMCG sector in the first six months of this fiscal. But with companies betting on the long-term prospects, the stagnation may soon be history.
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