A shrinking fortune at the bottom of the pyramid?

Wednesday, April 15, 2009

Small may be beautiful, but not always. Fast moving consumer goods companies (FMCG), which depend heavily on the bottom of the pyramid market are in trouble as far as their small pack sales are concerned. And this is despite the fact that no price increases took place in this segment, even though FMCG companies raised prices roughly 17 per cent for soaps and 24 per cent for detergents.

Sample this: According to the latest Nielsen data for the 11-month period from March 2008 to February 2009, soap and detergent sales at price points of Rs 10 and below have actually declined. This should be a cause for worry for most FMCG companies, since a quarter of soap sales and 60 per cent of detergent sales come from this segment.

Although overall detergent sales volume dipped 3.6 per cent, the bottom of the pyramid category fell at a sharper rate of 5 per cent. In the case of soaps, overall sales went up a marginal 2 per cent, but dropped 8.5 per cent for the small pack category (see table).

The picture would have been worse but for Bharat Shining, to some extent. Sales of detergents in small packs declined 10 per cent in urban areas but rural areas saw a 2 per cent dip. The story was the same for soaps: Urban areas saw an 11 per cent decline, rural areas a smaller fall of 7 per cent.

The period also saw rural sales overtaking urban sales and accounting for close to 53 per cent of the overall FMCG market. Experts attribute this to the combined effect of good monsoons, the farm debt waiver and the fact that the financial meltdown hasn’t yet trickled down to the villages.

Source: Business Standard (link opens in a new window)