Moneycontrol Pro Panorama | Why price matters more than size

In this edition of Moneycontrol Pro Panorama: Small cap schemes register big gains, gas-based power plants look promising, regulators need to be more consumer friendly, India gives it back amid spats with several nations, and more

Ravi Ananthanarayanan

May 13, 2024 / 15:24 IST

Have smaller companies or even the unorganised sector overcome challenges posed by reforms and are now battle-ready for the marketplace wars?

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.A small paragraph in NielsenIQ’s March quarter FMCG report gives a data-backed peek into how Indian consumers behave when it comes to price. Known for being value-conscious, the data shows that in the non-food category — such as home and personal care, beauty and so on — small players’ volume growth was a splendid 22 percent compared to 9 percent for the large players. Smaller players had stolen an edge by cutting prices by 6 percent while the large players actually hiked prices by 1 percent.But foods saw roles reverse as here large players cut prices by 3 percent compared to the smaller ones, who increased prices by 4 percent. The result, volumes grew by 8 percent compared to a decline of 4 percent, respectively. While this may seem like a tale of two halves, it is not. Non-foods contribute to nearly 81 percent of the industry’s sales, with foods contributing to the rest. Therefore, the impact of this shift on the industry is significant.The data underscores the point that while much is made about brand loyalty in the FMCG industry, when large price gaps develop consumers lose little time in switching these loyalties. This becomes more acute when they are already reeling under inflation, as Indian consumers have been in recent years.Listed companies are mostly in the large category and investors have been hurt by their underperformance. While they said the rural market recovery has been gradual, their focus on margins saw them be cautious with price cuts and that led to weak volume sales growth. But companies are finally reading the writing on the wall and improving the value equation for consumers, through price cuts or offering more volumes at the same price.While some results are already visible in the March quarter’s primary sales data reported by companies, retail sales data may begin to reflect this corrective action in the coming quarters. The main question is whether smaller brands will respond with further price cuts or they have already cut to the bone. In that case, they will make peace with the risk of losing market share. The larger brands will also be advertising more aggressively to drive up volume growth, which is something smaller brands cannot respond to with equal vigour.The resurgence of smaller companies with local or regional brands does raise one more question, however. The twin effects of demonetisation and GST had dealt a blow of sorts to smaller companies and they had to grapple with its rolling effects. The tax cuts given to manufacturing companies also meant that larger companies got a bigger advantage. Tax reform measures also posed challenges to the distribution system on which the smaller companies depend upon to sell their products.However, a question that arises is this: Have smaller companies or even the unorganised sector overcome challenges posed by reforms and are now battle-ready for the marketplace wars? In that case, their growth may not be a flash in the pan caused by a sharp disinflationary phase in raw material costs. While the answers should become clear by the end of the current fiscal, if they do turn into a stronger force, it’s a welcome development – for consumers and for the economy. But the going could turn tougher for listed companies, and their investors. Investing insights from our research team

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