Moneycontrol Pro Panorama | Profiting from regional differences

A pan-India approach means that local, regional or small brands could inhabit relatively small spaces in the FMCG market.

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Consumer companies conjure many fancy-sounding acronyms to encapsulate a strategy or concept, one of which is WIMI or ‘Winning in many Indias’ that was made popular among the investing community by HUL. While it was developed during Harish Manwani’s reign and was alluded to in his 2015 AGM speech, it continues to be popular even now. At its core, it classified India into 15 consumer clusters to give insights relevant for product development and marketing and supported by 16 country-category clusters to drive better execution.

While it may seem a common sense approach now, the conventional thinking among major consumer companies had been to roll out a pan-India strategy, with some variations of course, for example, different pack sizes to account for different income levels. Or, assortments that cater to different channels. This is particularly true for home, personal care and beauty segments, but not as much for food staples, such as edible oils or flour where regional tastes dominate customer preferences.

This pan-India approach meant that local, regional or small brands could inhabit relatively small spaces in the FMCG market. But as India’s economy and consumer market expanded, these spaces became quite large. And as the national market turned competitive, companies recognised that these pockets offered growth opportunities.

One of the most popular examples one can look towards is Ghadi, a detergent powder brand that was seen to be a primarily North-based brand but despite that, grew rapidly to acquire a market share of around 17 percent of the market as of 2020. RSPL, the company that sells Ghadi, earned revenues of Rs 6,700 crore in 2022-23 and while it sells other products also, Ghadi contributes to nearly three-fourths of revenue and profits. While the North and Central India markets are still likely to be core markets, it has expanded to other markets and even the southern part of the country.

The growing size of state economies and urbanisation means that it becomes imperative for companies to ditch their one-size-fits-all approach and treat each market separately. It does make life more complex, for instance to account for regional preferences as that means changes to the product assortment to take into account regional preferences. But the rewards of getting it right are immense and one needs to only look at food companies such as processed foods or quick service restaurants to see how they tailor their products to tickle regional taste buds.

Splitting the country into regions also helps companies understand variations in demand and consumer sentiment, which can help them plan better and avoid overstocking and suffering as a result. Slow moving stock is the bane of the FMCG industry and ‘freshness of stocks’ has acquired a premium as consumers grow more aware as well. These differences can be anywhere, from the packaging of a product, to the fragrance used, the texture of the product or its performance.

This matters for investors too as they look at and have access to information that is pan-India in nature, whether that is macro or sector or company-level data. But the parts that make up the sum are not visible to them clearly. Sometimes, it becomes difficult to then understand why the whole is not making as much sense, for example, if growth is slower than expected.

My colleague Aparna Iyer has written about a very interesting RBI research paper that talks about regional divergences in consumer confidence in India. Overall confidence has improved, says the paper, but the southern and western states are more confident about economic conditions than the northern and eastern states, when compared to the national average. But when it comes to being optimistic about the future, the tables are turned. The regions that are more confident are not more hopeful. What could explain the difference? The paper looks at certain economic reasons that could explain it, do read the article to find out more. But could there be intangible ones too? 

When it comes to companies, however, this could even mean tailoring their messages and products to account for these differences in confidence and outlook. They also need to tailor their products and marketing strategy for such regions. While this may lead to some scale disadvantages in the near term, in the longer run the benefits can be significant.

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