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FMCG imports war begins in small town India

Reeba Zachariah & Ashwin J Punnen

Recent trade statistics have been suggesting that foreign goods are nowhere near swamping the Indian market, but a new research report bolsters Indian industry's case that imports are, indeed, a real threat.

Based on discussions with six importers of foreign goods, the report by brokerage house SG Asia says that a host of imported consumer goods such as coffee, soap, toiletries, yoghurt and juices are finding their way into small town India- priced on par with or marginally higher than Indian goods, despite the hefty import duty of over 70 per cent.

For example, Super Mix, a coffee brand, is imported from Indonesia by Ameya Trading. The price tag on a 200 gm pack is Rs 185, the same as on a Nestle pack. But buyers of Super Mix also get a mug worth Rs 10 free, plus a discount coupon of Rs 5 for subsequent purchases.

To cite another example, Lux is being imported from Indonesia and is sold at Rs 6-9, wholesale. Add on a 20 per cent margin for retailers and the retail price is still perhaps lower than or equal to the Rs 10-15 Hindustan Lever retails an average 75 gm soap for.

Brands like Lux are familiar to Indian consumers and Hindustan Lever could, in the long run, bear the brunt of the onslaught of imported soaps.

Indeed, most imported products could have huge turnovers. Ameya Trading, the report says, is aiming at a turnover of Rs 1.20 billion in the next 2-3 years.

According to the report, an organised set of importers has sprung up, unlike six months ago when traders imported a couple of containers of goods and hawked them in the smuggled goods market. The new importers have tied up with international companies and are setting up their own distribution networks.

The report explodes several myths. First, that the market for foreign goods is not confined to premium metro outlets.

Foreign goods are finding takers in small town India also. Organised importers already have a presence in six or seven states. The ones in Bombay have made big inroads into smaller towns in Gujarat and Maharashtra, while those in Delhi are eyeing Punjab and Haryana.

Analysts who track the fast moving consumer goods sector said: "This is because the novelty factor of buying imported products still exists in smaller towns."

Secondly, the common perception that high duties will put imports out of the reach of most Indian pockets is patently incorrect.

Importers are able to price foreign goods competitively, because Indian companies are grossly overcharging customers and making hefty margins, the report argues.

It goes on to state that importers have direct arrangements with foreign manufacturers- these are not usually multinationals that have subsidiaries here because MNCs won't want sales of local arms to be hit- which sell products to Indian importers at a lower price.

Importers have low overheads and don't advertise imported products either, offering instead higher trade margins to retailers to push their products.

The P&G management has admitted to SG Asia researchers that the company can import Camay soaps at Rs 5, the report says. However, P&G can sell one or two cartons at the same price, but selling more than this would entail higher distribution costs (12 per cent of overall costs).

But companies Business Standard contacted said they don't perceive a threat from imported goods. Sources at Nestle India said that sales would not be affected as its brands are well established in the market.

And Hindustan Lever officials argued that importers can only sell small stock keeping units in the rural market as sales would depend on the purchasing power of consumers. They can never reach the mass market, Lever executives confidently asserted.

The confidence may be misplaced. Foodworld, the Madras-based retailing outlet, sold imported products worth Rs 48 million last year. This represents about 1.8 per cent of its turnover. The company expects this percentage to grow to 5 per cent in the next two or three years.

Clearly, Indian companies faced with an import surge may have to cut prices which could see their profitability affected in the long run.

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