Chhota pataka, bada dhamaka: Small consumer cos beat bigger rivals in volume growth last year

Mumbai: Small consumer firms outpaced their big rivals in urban India in the past year, growing twice as fast, as these nifty players took away market share amid a broad-based consumption slowdown, show latest data from market tracker Kantar.

Big companies, which control 34% of the market, saw sales volume increase 2-3% in urban areas over the past four quarters compared with year earlier periods. At the same time, smaller brands that account for the remaining almost two-thirds of the market for fast-moving consumer goods (FMCG) grew 5-7%, said the research firm owned by British communications firm WPP.

"There have been two sets of challenges for some of the (big) FMCG companies where the growth had curtailed. First, at the top, direct-to-consumer (D2C) brands have taken a share. At the bottom end, a lot of small regional players have taken a share," said Saugata Gupta, managing director at Marico, which owns the Parachute hair oil and Saffola edible oil brands.

Kantar, which monitors both branded and unorganised products, including unpackaged voluminous commodities, defines big companies as those reaching more than a third of India's 250 million households. They include most listed firms, which have posted tepid revenue growth over the past year. Smaller companies with lower reach, some restricted to just a state, include new-age brands as well as local or regional ones. Over the past year, inflationary pressures, low wage growth and an increase in housing rentals have weighed on the purchasing power of urban dwellers, affecting demand for daily groceries and staples. The impact, though, has been contrasting on the sales volume of small and big players.

"We see mass-priced segments under pressure in urban areas and consumers seem to have downgraded to lower-priced brands. For smaller companies, their cost of distribution is relatively low as they follow an informal way of wholesale distribution and pass on the extra margin either to the trade or end-consumers," said Mayank Shah, vice-president at Parle Products.

Other big companies also acknowledged the down-trading that is benefitting the small players.

"We are probably seeing some signs of down-trading in categories like household insecticides," Sudhir Sitapati, managing director at Godrej Consumer Products, told investors at its earnings call last month. "I would say that we have to watch the space carefully in terms of urban consumption and respond to it as it goes along. But it is certainly a cause of concern."

To be sure, the overall market (urban and rural) slowed from 6.3% in the calendar year 2023 to 4.8% in 2024. While the growth rate for large players fell to 4.4% in 2024 from 6.5%, their smaller rivals too posted a slowdown, to 5.0% from 6.2%.

While bigger companies contributed to the slowdown in urban areas, smaller firms dragged down the rural market growth performance after their growth rate in villages halved to 3% in 2024. Big companies, however, sustained their growth rate in the hinterland at 6%.

"The numbers do not indicate the extent of premiumisation, because premium brands exist across the spectrum of big and small brands. However, this does indicate that the big-name manufacturers do not always swing the FMCG trends," said K Ramakrishnan, MD, South Asia, Worldpanel division at Kantar.

"As inflation persists, and the uncertainties associated with global trade, it seems more and more likely that these smaller companies will become the growth engines in urban for this year as well, as the bigger heavyweights make their slow but steady return to growth," Ramakrishnan said.

Companies such as HUL, ITC, Marico, Parle and Britannia had highlighted in their earnings commentaries the impact of the regional brands on their sales and market share. During the December quarter earnings call, ITC said competitive intensity continued to remain high including from local players in certain categories such as noodles, snacks, biscuits and popular soaps.

Over the past decade, local brands had steadily chipped away at the market share of large consumer goods companies, which exacerbated during the Covid-19 pandemic. For instance, local players control more than 40% of the market in segments such as salty snacks, tea and spices.

"While there is a conversion from unbranded to branded, snacking still remains local. Also, smaller firms have been coming out of their core territories to nearby states and the pace of penetration into newer regions will be always higher given their headroom compared to well-entrenched national players," said Suresh Goel, CEO, Bikanervala Foods.