FMCG Companies Focus on Volume Growth and Increased Advertising Spends
The fast-moving consumer goods (FMCG) sector is experiencing a shift in focus towards volume growth. This trend coincides with rural consumption outpacing urban consumption in volume terms for the first time in five quarters, according to NielsenIQ data for the January-March period.
FMCG companies are not only prioritizing volume growth but also increasing advertising spends to bolster their brands. Consumer goods giant Hindustan Unilever (HUL) recently informed investors that its primary focus remains on driving competitive volume-led growth across its businesses.
"We want to continue driving gross margin improvement," said Ritesh Tiwari, HUL's chief financial officer. "Even in this quarter, when we delivered a 23.4 per cent EBITDA, you saw a very strong 350 bps gross margin improvement. A large part of that got invested into advertising & promotion spends (A&P)."
Varun Berry, vice chairman and managing director at Britannia Industries, echoed similar sentiments, stating that the company aims for volume growth despite the non-deflationary outlook for the year. "Our outlook on this year is slightly inflationary, which is healthy inflation of 3 per cent or thereabouts," Berry said. "After elections and monsoon, the company would look at a double-digit volume growth."
Nestlé India and Dabur India are also prioritizing volume growth. Nestlé India chairman and managing director Suresh Narayanan announced a focus on volume-led growth after the company's quarterly results, which showed a volume growth of 4-5 per cent in the March quarter.
"My objective is to pace up on volume growth," Narayanan said. "Between 2016-17 and 2022, we had a volume growth of almost 8-9 per cent out of a total growth of 11-12 per cent." He added that the company will focus on ramping up distribution to increase penetration in the over 200,000 villages it covers.
Dabur India, which recorded a volume growth of 5.5 per cent in FY24, also plans to maintain its focus on volumes this financial year. "If we have to grow, volume growth is mandatory," said Mohit Malhotra, Dabur India's chief executive officer. "We have taken a target of mid-to-high single digit volume growth, for which we need to increase our penetration. With 80 per cent penetration, we are already present in eight out of 10 households. If we want our entire portfolio to every house, volume growth is something we have to do without any compromises."
Malhotra also informed investors that Dabur's gross margin will grow in the mid-term to long-term, but not to the same extent as the previous year due to the company's planned increase in media spending.