High-value products for the upwardly mobile helps increase margins; R&D-led products brings in health-conscious users
Rolling out innovative, premium and, at times, first-to-market products is now a key growth driver for FMCG food companies.
These firms are increasingly discovering that playing a mere volume game may fatten their topline, but a boost to profitability comes through high-value products targeted at the upwardly-mobile ‘global desi’, or Indians who are exposed to international trends and are not satisfied with run-of-the-mill products.
‘Premiumisation’ of the product portfolio and deeper penetration are the main prongs of the strategy of these companies as they eye a bigger share of the customer’s wallet in the fragmented FMCG sector. The trend of rising incomes of customers has accelerated the move premium products.
Take the case of Britannia. Premiumisation, combined with innovation, is one focus areas, BIL said in a recent investor presentation. Besides biscuits, it is innovating in segments such as rusk, cake and snacks resting on the health or the convenience platforms when offering millennials food-on-the-go as in the case of croissants — a new segment.
‘Excel across dimensions’
“In the coming years, companies will need to excel across multi-dimensions such as product development, brand equity, distribution reach to succeed in a competitive market,” the food major said in a report to shareholders. In an earlier interview Varun Berry MD, had told The Media that mixing value with premium has helped BIL enter markets in the Hindi belt.
Although the recall of ITC is first as a cigarette company, the diversified conglomerate is pursuing its policy of growing its non-cigarette FMCG business (which it calls FMCG-Others). Expansion of its product portfolio and deeper penetration are key aspects of its strategy. It is increasing focus on premiumisation to improve profitability.
Its non-cigarette segment closed 2017-18 with a revenue growth of almost 8% to ₹11,328.6 crore. Profits jumped almost six times to ₹164.1 crore, with the fourth quarter alone contributing ₹91 crore.
Eyeing upmarket users
In 2017-18, ITC unveiled 30 products, following it up in Q1 this fiscal with more new products, many of which target upmarket consumers. “The strategy has been to launch new products in existing categories while foraying into newer ones… there is increasing focus on premiumisation to improve profitability,” said B. Sumant, president, FMCG business, ITC.
This fiscal, ITC entered the cake segment with some premium products and introduced new confectionery variants at higher prices. “In confectionery, we have recently launched many new variants which are priced at ₹1 and is a part of ITC’s overall premiumisation strategy,” he said.
Fabelle, ITC’s premium chocolate, is available at luxury-end retail outlets, at prices comparable with imported ones. Its multi-grain atta and Master Chef spices are all similarly positioned.
In an analysis of four food FMCGs — Britannia, ITC, Nestle and GSK — Nirmal Bang Institutional Equities Research said the trend will continue and products with strong brands will continue to enjoy a premium over others. “Food companies have been spending a lot on R&D to innovate…
Innovation from R&D
“Britannia set up a new R&D centre at Bengaluru and has systematically ramped up its R&D spending over the past few years and its performance is reflective of its strategy. GSK Consumer Healthcare’s entire product profile is research-based.”
Nestle, the report noted, has planned new launches keeping in mind the health and the wellness theme.
The premiumisation story is no longer just linked to brand equity, it said. The core focus has shifted to ‘value-up’ as well as mainstream, for most firms. A higher share of these, analysts said, would help improve margins.