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FMCG future in India
Chennai, July 21 Fast moving consumer goods makers as well as durables makers, for whom a bulk of sales comes from the rural hinterland, are still not pressing the panic button, despite the erratic monsoons over large swathes of the country.
Indeed, consumer durables manufacturing companies are confident of meeting their growth targets. They say there is hardly any need to press the alarm button right away. “We can wait for at least another one week,” says Mr Moon B. Shin, Managing Director, LG Electronics India Ltd, the country’s largest durables maker.
Half of FMCG company sales (particularly soaps, shampoo, toothpastes and talcum powder) and close to 25 per cent of consumer electronics and durables sales come from the rural areas.
According to Mr Shin, so far the rural market has been very vibrant. “If the situation persists for one more week, the vibrancy may be washed away,” he says.
However, Mr Shin says the net impact would be very negligible, as the situation is “not so bad across the country.” Only some pockets are affected.
In rural markets, the demand is greater for entry-level colour TVs, and low-end twin-tub washing machines. As most durables makers have exceeded their sales targets for the first half of the year, thanks to a prolonged summer and the “surprisingly good demand” for top-end models of durables from urban and semi-urban markets this year, the companies can at least maintain their topline growth.
For example, rural markets contribute close to 60 per cent of the entry-level CTVs. Of this, only 30 per cent of sales happen during the festival season.
Even if the monsoon fails, the knock-on effect would take away only three-four per cent of the overall turnover of any company that has exposure in other durables such as refrigerators, air-conditioners and washing machines, say industry sources.
According to Mr Ravinder Zutshi, Deputy Managing Director, Samsung India, right now there is no need to panic. If the monsoon is deficient in north-western India, Punjab and Haryana are the two major markets that will be affected.
“We are currently offering freebies in these markets to boost our CTV sales ahead of the festival season.”
FMCG makers have their fingers crossed as well. Says Mr V.S. Sitaram, COO, Consumer Care, Dabur India, “It is early days to talk about this. After all, the monsoons continue till end-September, and rain prediction can be a very inaccurate science. At this point, the monsoon seems to have revived across most of India.
“Yes, FMCG demand is impacted by monsoon quality and the impact on agriculture. My best estimate is if it is below 90 per cent of normal, we need to worry; above that the impact will be there but not major.”
The National Rural Employment Guarantee Scheme (NREGS) and loan waivers are other factors which will soften the potential adverse impact of the monsoon by ensuring income flow into rural India, adds Mr Sitaram.
Mr C.K. Ranganathan, CMD, CavinKare Pvt Ltd, says as the phenomenon is not pan-India the growth rate may come down marginally, by one or two per cent, as FMCG companies are on a growth path. “There is no need to panic,” he adds.
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looking at buys that would add to earnings within a year.
PepsiCo Inc. may make two or more acquisitions outside North America this year to add snacks or drinks it doesn’t already make or enter new regions, chief executive officer Indra Nooyi has said.
The company may spend $5 million (about Rs20 crore) to $2 billion to buy products that would help its offerings more closely mirror the “food pyramid” created by the US agriculture department Nooyi said.
The guidelines promote consumption of grains, proteins, fruits and vegetables, and suggest limiting the salty and sugary foods that make up much of PepsiCo’s sales.
PepsiCo, the maker of Fritos chips and Mountain Dew soda, is looking for purchases that would add to earnings within a year, Nooyi said in a telephone interview on Tuesday.
The company is seeking to expand and gain market share abroad, she said. “We’ve been generally more active internationally than in North America because there are more properties available,” PepsiCo’s chief executive officer said. The company wants to fill the gaps in its product line-up, she said.
The company bought the biggest potato chip makers in both Egypt and Saudi Arabia in 2001, which “doubled our scale” in those markets by adding local brands such as Chipsy and Tasali, she said.
PepsiCo, based in Purchase, New York, gets 63% of its sales in North America. Coca-Cola Co. gets 70% of its sales from overseas. That gives PepsiCo room to expand internationally, said Manny Goldman, who covered PepsiCo during almost 30 years as an analyst at securities firms, including UBS Painewebber Inc. and ING Barings.
Big, big world
“It’s a big, big world out there, and Pepsi’s still primarily a North American company,” said Goldman, now a beverage-industry consultant in Hillsborough, California. “If you’re the chairman of Pepsi, where do you want to be in the next 20 or 30 years? As much overseas as you can be.”
PepsiCo may make “slightly more than two” purchases before the end of 2007, depending on the pace of negotiations and the time it takes to study companies’ financial statements, Nooyi said.
Buying more overseas snack and drink brands would duplicate the company’s acquisition strategy in the US, where it snapped up products including Stacy’s Pita Chip Co. in November 2005 and Naked Juice Co.—giving it protein smoothies and juices to compete with Coca-Cola’s Odwalla brand—in January this year.
Place to be
“They know that wellness is the place to be,” said Mariann Montagne, an analyst with Minneapolis-based Thrivent Asset Management. “Pepsi takes pride in the amount of thought that goes into the decision-making.” Thrivent manages $70 billion in assets, including PepsiCo shares.
PepsiCo bought New Zealand’s Bluebird Foods Ltd, which makes potato chips and granola bars, in January for $168 million.
In June, it joined with a bottler to acquire a controlling stake in Ukrainian juice-maker Sandora Llc. for $542 million to expand the juices to other parts of Eastern Europe.
Two years ago, PepsiCo paid $152 million for Sara Lee Corp.’s European nuts division. It bought Poland’s Star Foods SA last year to add pretzels and corn chips.
PepsiCo may also buy businesses in North America, said Nooyi, who has been with the company for 13 years and took over as CEO in October.
“If an interesting acquisition came up in North America that filled up part of the food pyramid that we’re not significant in, we might do that,” Nooyi said.
In addition to purchases, Nooyi said PepsiCo will develop products at a faster rate. The company on Tuesday said it plans to add a new low-calorie Gatorade sports drink, in addition to new flavours or packaging for Propel and SoBe Lifewater.
Overseas, PepsiCo has added regional flavours of snacks, such as white mushroom Lay’s potato chips in Russia and lentil snacks in India.
“They could buy more products with a strong local following, or distinct regional flavours,” said Bill Schultz, chief investment officer at McQueen Ball & Associates in Bethlehem, Pennsylvania, which holds PepsiCo shares.
“They really have tried to focus on keeping their acquisitions in line with what they’ve done domestically, only overseas.”
PepsiCo has made at least 10 acquisitions of smaller companies since the beginning of 2004, which have helped its sales growth outpace that of Coca-Cola.
Sales of PepsiCo have increased an average of 8.4% over the past five years, compared with 6.5% of Atlanta- based Coca-Cola.
Shares of PepsiCo fell 33 cents to $66.26 Tuesday in New York Stock Exchange composite trading. They have increased 5.9% this year, compared with 10% for Coca-Cola, the world’s largest soft-drink maker.
PepsiCo on Tuesday reported second-quarter profit rose more than analysts estimated on overseas gains.
Net income increased 13% to $1.56 billion, or 94 cents a share, exceeding estimates by 5 cents.
Sales advanced 10% to $9.61 billion, on higher shipments of Lay’s potato chips in Russia and Gamesa snacks in Mexico and beverage sales in China and Europe.
Key Findings:
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Volume growth of shampoos/conditioners on TV during 2008 | |
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Top advertisers of shampoos/conditioners on TV during 2008 | |
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Top new brands of shampoos/conditioners on TV during 2008 | |
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Advertising of shampoos/conditioners on national and regional channels | |
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Celebrity endorsing shampoos/conditioners brand on TV | |
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(Analysis from AdEx India - A Division of TAM Media Research) |
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