Small versus big: Why less inflation can become a big worry for FMCG giants
inflation poses a challenge for big fast-moving consumer goods (FMCG) companies as consumers can't afford pricier items. The phenomenon of downtrading, in which consumers switch from purchasing larger product sizes to smaller ones due to financial difficulties or rising prices, has intensified in the FMCG sector.
According to data from the retail intelligence platform Bizom, smaller product sizes have experienced a more rapid growth rate compared to medium or high-priced alternatives across most FMCG categories, TOI has reported. The data revealed that overall sales decreased by approximately 11% in August 2023 compared to the previous year.
Low inflation brings its own problems
But low inflation too has become a challenge for big FMCG companies. When commodity inflation is low, raw materials come cheap which means lower cost of production. And lower cost of production encourages smaller local brands to flood the market with their products. The phenomenon is all the more challenging for big FMCG companies these days because consumers are becoming more open to buying local brands.
In the past three quarters, soaps, detergents and tea have become cheaper due to falling commodity prices, allowing hundreds of small regional brands to nibble into Hindustan Unilever's market share in budget categories, ET has reported recently. HUL’s performance is considered a proxy for broader consumer sentiment in India.
Yet, HUL said a price war wouldn’t be its strategic positioning, with the fifth most-valued Indian company focusing instead on premium products that affluent Indian consumers seem to increasingly prefer. “We will do what's appropriate for a certain business challenge. There is no strategy called price war. Our thesis is
