Premium pack sales growing amid inflation

Premium packaged consumer goods are growing faster than mass-priced or entry-level products, as the mass segment continues to be impacted by inflation, executives from Hindustan Unilever, Tata Consumer, ITC, Colgate and Nestle said in their latest quarterly earnings statements and analyst calls. This is leading to an accelerating focus on higher-priced packs at both physical and digital-only retail channels, and some vacating entry-level packs, they said.

"Urban is growing at a much faster pace, and premium products are going much faster than popular or mass products. Logically, consumers, who have more disposable income, are more resistant to inflation," Sanjiv Mehta, managing director at HUL, which makes Dove soap and Kwality Wall's ice-cream, told ET last week. That's the reason HUL's premium portfolio is growing at a much faster pace, and that over one-third of the company's range is now premium, he said.

While market conditions have improved in the last quarter, demand pick-up is in cities and for premium packs, with inflation continuing to put pressure on household budgets in rural India even during the festive season.

"Our endeavour will be to deliver sustainable gross margins while driving premiumisation and category expansion into personal care," Prabha Narasimhan, managing director at oral care maker Colgate-Palmolive, said in the company's September quarter earnings statement. She said Colgate-Palmolive remains "cautiously optimistic" on the overall growth trend and cited modern trade and ecommerce as focus retail channels. Even categories such as confectionery, which sell at price points of ₹1 and ₹5, are being reviewed. Mars Wrigley India chief Kalpesh Parmar said the chocolate and candy maker is vacating some entry-level price points, as consumers are upgrading in both urban and tier two-three markets.

"The future is where we start experimenting with larger price points. It won't just be a ₹1 game," Parmar said. "The ₹1 was a great entry point to the confectionery, candy or chewing gum categories. But with inflationary pressures, I think we have overused this mindset." Mars Wrigley sells gum brands such as Boomer, Doublemint and Orbit at entry-level price points starting at ₹1.

Demand for packaged grocery products revived in the June quarter in urban markets after two quarters of decline, but stayed negative for rural India as consumers preferred smaller packs or did not buy these products, hurt by steep inflation, researcher NielsenIQ had said in its last quarterly update in August. It said urban markets recovered with a positive volume growth of 0.6%, but rural markets stayed negative at -2.4%.

Nestle chairman Suresh Narayanan said in a post-earnings interview that the company sees "many opportunities for premiumisation, adding that there are value-conscious consumers who look for premium products." Recent high-end launches from Nestle include Gerber infant foods and Purina pet foods.

Others such as Tata Consumer and ITC too flagged the trend. Tata Consumer, maker of Sonnets Coffee and Tata Tea, said in a management commentary, after announcing its September quarter earnings last week, "We are driving premiumisation, as the premium portfolio continued to grow faster than the base portfolio." A report by ICICI Securities said companies are likely to launch more premium products soon, and that they may re-focus on mass segment when the macro situation improves.