How large consumer goods companies benefitted due to GST, e-commerce in 2018

The goods and services tax (GST) indeed turned out to be a huge boon for large consumer goods companies in 2018. Since all of them were GST compliant, they saw growth at the expense of their regional and unorganised counterparts who had always given them tough competition.

The FMCG majors also benefitted from input credit and reduction in the number of warehouses and lower cost of doing business. The wholesale community also switched allegiance to the larger manufacturers from the smaller ones (who had traditionally offered them higher margins) as they got better incentives and for the consumers it was cheaper products, as the GST brought down prices of several categories.

The change in business dynamics led to share prices of FMCG companies sky-rocketing and FMCG majors such as Hindustan Unilever (HUL) saw a surge in market valuation. HUL and ITC are among the top five companies in India in terms of market valuation.

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A uniform tax structure enabled the FMCG majors to not just strengthen their distribution in smaller markets (where they earlier didn't have a presence), but also try and cater to the local needs of the consumers. HUL, for instance, launched a variant of Rin detergent which claims to consume lesser water in water deficient markets; ITC Foods has launched different blends of Ashirvaad atta as per local taste palettes.

FMCG companies in 2018 also embraced technology intervention in distribution as well as e-commerce as a distribution channel in a big way. Beverage-maker, Parle Agro, for instance, was able to double its revenue by being able to understand which store in a particular locality sold a particular SKU of its brands Frooty and Appy more and accordingly supplied only that SKU. HUL has been passionate about its Hamara Store initiative through which it is trying to make the local kirana stores tech-enabled.

The year going by also saw a lot of FMCG companies innovating primarily for e-commerce, keeping in mind the millenial consumers. HUL set up a Bryleem store on Amazon, which offers a host of specialised male grooming products. Similarly, ITC partnered with Big Basket to launch its new variants of Sunfeast noodles, before rolling it out in modern trade and general trade stores. Dairy major, Amul, also started selling gourmet cheese and dairy products through e-commerce.

But all those who thought that it was the end of regional and local brands were not entirely right. A large number of them did succumb, but many of them resurrected and came back strongly with national aspirations. The single tax regime has made it possible for even a small soap brand out of Shimoga in Karnataka to first sell across the state and then look at adjacent states. In fact, a recent report by Nielsen states that the sales of regional FMCG manufacturers as of Q3 2018 grew more than 20 per cent in the last three quarters.

So, will 2019 see the large consumer goods companies grow at the expense of the smaller ones? Not necessarily. The smaller companies have been smart enough to identify niches where the large ones will never want to play in, as it won't get them the necessary scale. ID Foods, the company which makes fresh dosa or idli batter, is an example. Selling fresh dosa and idli batter will need local manufacturing facilities, which may not make business sense for a large conglomerate at least in the short term.

Therefore, the coming year will see both the big and smaller consumer companies co-existing and most of the interesting innovations could actually come from the smaller companies.