Competition from new entrants biggest risk for market leaders

Amid business conditions turning difficult due to inflation and subdued consumer demand, the biggest risk for market leading companies across sectors is coming from the need to protect their turf against new, strong players.

Value retailer DMart is facing heat from quick-commerce players, which in turn are going to face fresh competition from Amazon's Tez. Decorative paints major Asian Paints must battle it out against Birla Opus, JSW Paints and others.

Cola majors Pepsi and Coca-Cola are facing heat from Reliance's Campa Cola that sells at nearly half the price of the rival soft drinks. The entry of Karnataka dairy brand Nandini in the north Indian market is threatening the presence of incumbent brands Mother Dairy and Amul. Processed foods exporter Allana Exports' entry into poultry challenges existing players such as Suguna and Venky's.

The latest development of the merger of Aster DM Healthcare with Quality Care India, leading to four hospital entities - Aster DM, Care Hospitals, KIMS Health and Evercare - coming under one entity poses a threat to market leaders Apollo and Manipal hospital chains.

Historically, difficult market conditions force companies to try new ways to win market share. They could do this by entering a new area, buying iconic brands, consolidation or through price discounting.

This effectively gives tough competition to the incumbent market leaders, which witness a strain on the ground as well as on their stock valuations in case they are listed.

For instance, in the past six months, the DMart stock is down by 16% and that of Asian Paints has declined 13.5%. The stock of Varun Beverages (bottler for PepsiCo) has gained around 9% in the past six months compared to its one-year gain of nearly 50%. The stock prices of Aster DM Healthcare and KIMS have risen 41% and 64%, respectively, in the past six months, significantly outperforming the 18% gains posted by Apollo Hospitals.

In the short term, while investors of such market leading companies suffer, their consumers often benefit due to the price wars emanating from competitive battles.

For instance, Asian Paints has taken price cuts and given rebates on its products. Similarly, Campa Cola is forcing Pepsi and Coca-Cola to consider improving their retailer margins or launch lower-priced packs. The success of value retail format Zudio promoted by Trent has led to competition in the space with Reliance Retail rolling out a similar format, Yousta.

However, it remains to be seen whether the rising competition in the private healthcare space results in any price advantage to the patients at a time when medical inflation remains high.