When niche gets a mass-market push

economictimes.indiatimes.com:

FMCG companies have used strong aspirational demand to cross-subsidise sales in the mass category as they negotiated a surge in inflation. Pricing power at the top end of their product portfolio is allowing them the flexibility to experiment with pack sizes to keep consumers from downtrading. Grammage in price-sensitive packages is being increased and bridge packs are being introduced to create pathways for volume growth.

This is becoming even more critical for brand protection as smaller players regain pricing advantage during the commodity downcycle.

Yet, there are limits to their ability to retain market share. India's post-pandemic recovery was led by producers passing through prices to consumers. This capacity has become sorely constrained now.

The broader slowdown in consumption is catching up with FMCG companies so long as real wage growth remains negative. Inflation has to fall further, and stay there, for wage negotiations to become productive. The flow of credit to small enterprises, which generate most of the employment in the economy, will likewise have to accelerate for consumption to revive lower down the pyramid.

These are demand-side factors that are beyond the supply response of FMCG companies.

Processes are underway, though. Inflation, apart from occasional spikes in food inflation, is headed for its target. Once there, it should stay put because the fiscal balance is, at the same time, being restored.

Runaway credit growth to households has also been checked. This should divert capital towards producers, especially small businesses that have not deleveraged to the extent their bigger rivals have. The commodity cycle, too, does not face immediate triggers for a reversal.