Date:30/03/2006 URL: http://www.thehindubusinessline.com/2006/03/30/stories/2006033003650800.htm

Back Pricing power coming back to FMCG cos: Adi Godrej

Mr Adi Godrej, Chairman, Godrej Industries, believes that rural demand for FMCG products is growing quite well. He says that innovation will be a key driver for growth in this industry.

He hopes the FMCG growth rate will be 10 per cent this financial year and 12 per cent in the next fiscal.

Could you name the three key factors that are beginning to show some change, which is allowing this pricing alteration?

Well, first of all the economy is doing very well and the growth rate is very good. In the next financial year, the GDP growth rate should be between 8-9 per cent, and rural growth looks particularly good. There is a lot of investment going into rural area both from government and private side. This is creating an accelerated demand for FMCG products. I expect the FMCG growth rate, in this financial year, to be around 10 per cent and probably around 12 per cent in the next financial year.

This will create much bigger volume demand, and if we index the inflation against the FMCG price hikes, we will see that it has been much lower from the past three-four years, because there have hardly been any price increases. Now I think price increases also are coming about. Consumers are able to pay better prices. They are trading better quality products. That will create for continued growth in the FMCG sector.

Do you think that pricing power is coming back very firmly in the hands of FMCG players? How much of an increase can you actually push through?

Yes, pricing power is definitely coming back. For example, Godrej Consumer Products took up powder hair dye sachets from Rs 7 to Rs 8 about a year ago.

Today it is in an even better situation on the pricing power front, but how much we can take prices up depends on the category and the brand. It is not something that is going to be possible across the board, but certainly we will be able to take prices up in some strong brands.

Are the lines of growth being drawn out more clearly now? Is it the rural space that you as a company are also going to focus on, more aggressively?

Rural demand is clearly growing faster than urban demand but urban demand is also growing very well. I think the growth is across the board, across categories and across geographies.

Do you think that anything can be done by way of taxation or perhaps the government is making more moves to help the FMCG space? As a company do you have to think more out of the box now in order to sell more aggressive volumes?

I don't think the Government needs to do much. The FMCG sector has enjoyed good benefits by relocating some manufacturing units in excise-free and Income-Tax free zones, which have been into the Profit and Loss accounts of FMCG companies, over the last couple of years. That has allowed us to hold prices for the last three years. Now I feel innovation and new products are important. Consumers are willing to try higher priced; better benefit products and I think that will create a lot of growth in the next couple of years.