FMCG companies: Buyers aware, sellers beware

While the FMCG companies navigate the inflation challenge, innovate to stay ahead of the competition and adopt an omni-channel approach to reach more buyers, they have a looming risk which they need to address. Increasingly, FMCG products are coming under buyer and regulatory scrutiny. Recently, Nestle India's shares plummeted by up to 5.4%, reaching a day’s low of Rs 2,409.55 on the BSE. This significant drop followed the revelation that the multinational FMCG giant adds sugar to baby food products sold in India, a practice not followed in Europe and the UK. This is the second time in the last nine years that Nestle India has come under the spotlight for quality issues. In 2015, its instant noodles brand Maggi was under the scanner after excess lead and MSG were found in some samples collected from Uttar Pradesh.

While stock meltdown and regulatory action are short-term risks, losing consumer trust is a long-term and bigger risk for an FMCG company. Laterly, a number of cases have come up where individuals and governments have brought FMCG products under the spotlight.

What a spate of incidents tells

FMCG products are blamed on mainly two counts: the contents of the product and the claims made by the company about the product. Patnajali had to apologise in public for making misleading claims recently. The Supreme Court had issued a notice to Patanjali Ayurveda and its managing director following a plea by the Indian Medical Association (IMA) seeking action against the company for misleading advertisements. The court observed that the company had prima facie violated its earlier order cautioning against misleading advertisements.

Shortly after the Patanjali case, The government told ecommerce websites that Bournvita and other beverages should not be called health drinks because the category isn’t defined in the country’s food laws. Cadbury Bournvita, the country’s most popular malted drink, had found itself in a controversy last year after a social media influencer alleged that the drink has high sugar content. Mondelez India, which owns Bournvita, sent a legal notice to the influencer, forcing him to take down the video. But the issue snowballed into a controversy, and the National Commission for Protection of Child Rights (NCPCR) asked the brand to withdraw all misleading packaging, advertising, and labels.

Hindustan Unilever (HUL) made a significant rebranding move in response to recent regulatory changes in the health drinks category. The company has renamed its 'health food drinks' category as 'functional nutritional drinks' (FND) and dropped the 'health' label from Horlicks.

A few days ago, the revelation came that Nestle added sugar to baby food products sold in India. This came to light when "Public Eye," a Swiss investigative organization, and IBFAN (International Baby Food Action Network) sent samples of Nestle's baby food products marketed in Asia, Africa, and Latin America to a Belgian laboratory for analysis.

Around the same time, Hong Kong and Singapore raised concerns over the safety of popular Indian spice products, leading to a recall of certain items. The Centre for Food Safety (CFS) in Hong Kong conducted routine food surveillance and found that four products from renowned Indian brands MDH and Everest contained ethylene oxide, a pesticide deemed unsuitable for human consumption and classified as a Group 1 carcinogen by the International Agency for Research on Cancer. Now, the US Food and Drug Administration is gathering information on products MDH and Everest.

FMCG companies on risky grounds
This recent spate of incidents have underlined the risk that FMCG business is exposed to. On the re-categorisation of health drinks, Santosh Desai, managing director of brand consulting firm Futurebrands Consulting said this might be the effect of the Ramdev judgment where Patanjali was named by the court for misleading consumers. There could be an effort to widen the net and try and take action against anything that the government thinks misleading, he said. This means more such cases might pop up in future as the general public gets more aware about the food business.

In the latter half of the past decade there has been a clear shift towards natural, chemical-free food in the market, according to a report by Wazir Advisors.

“Consumers, owing to their demanding lifestyles, have also gravitated towards functional foods to supplement their normal nutrition intake,” the report said. As a result, the packaged health and wellness food and beverage market in India is expected to touch Rs 2,50,000 crore by 2026, it added. The demand for these products, which was earlier largely concentrated in the metros and big cities, is expected to penetrate down deeper into tier II cities as well, the report said.

Just as the market develops, so does the mass awareness. The awareness created by influencers can nullify the impact of companies' investment in their brands, ET has written. Large FMCG companies tend to spend 10-12% of their revenue towards advertising and promotion. They may have to spend more either to counter the effect of the influencer's posts or to invest in turning the product healthier.

FMCG companies land on a slippery ground in cases where their products are found to be of suspect quality or they are found to be making wrong claims about a product. In such instances, wrong moves can destroy consumer trust and consequently the product that has taken a lot of resources and time to develop. In coming times, FMCG companies will have to spend more on product R&D and also avoid the lure of sharp practices such as wrong claims or descriptions to get into a market or corner bigger market share.