Frothy Giant Killers

Gujarat. Mili Tea, from the WaghBakri Group, is another strong regional brand that is gaining share from MNC brands Tata Agni, Lever8217;s A-1 and other local brands in Gujarat.

Floating like butterflies and stinging like bees, small and regional fast moving consumer goods FMCG brands have become more than a headache for MNCs like Hindustan Lever, Procter 038; Gamble, Colgate India. Thanks to cut-throat pricing, quality products, and focused distribution, these homegrown brands have played a major role in sagging profits and changed strategies of the major players.

Hindustan Lever8217;s premium products compete with around 40 regional brands in various states. 8216;8216;Regional brands are mostly entrepreneur-driven. With entrepreneurship, comes professionalism and better management,8217;8217; says Bobby Sista, former Chairman of Satchi 038; Satchi. 8216;8216;Their strength lies in the strong distribution muscle built over a period of time and an image 8212; most find followers in the middle and lower middle class families.8217;8217;

Success Stories

Take, for instance, detergent brand Ghadi, which has built 8 per cent volumes marketshare by exploiting high prices charged by the MNCs. 8216;8216;After the price cuts by the MNCs, there could be some shift towards premium products. But the market for low-cost products will remain,8217;8217; avers Atul Rastogi, FMCG analyst with Motilal Oswal Securities.

Or take shampoos. Local brands Chik and Ayur have made deep inroads in the south. According to ORG8212;Marg, Cavinkare8217;s Chik has a market share of 20 per cent, while its main competitor HLL8217;s Clinic Plus has 28 per cent. 8216;8216;Local brands are gaining marketshares as technology is not a secret, and quality is at parity,8217;8217; says Rekha Pamani-Gulati of Aliagroup, a FMCG research firm based in Mumbai.

K S Ramesh, CEO of Cavinkare 8212; which has Rs 295 crore sales in the personal care business 8212; says for two years now smaller firms were expecting big ones to cut prices. So, they changed tack. 8216;8216;We are spending more on improving product quality and in advertising budget. In the last one year, our ad spends have almost doubled,8217;8217; he says.

The secret recipe

How effective is the MNC counter-strategy? Though MNCs are taking all steps to beat the competition, it is not paying dividends 8212; yet. MNCs are being forced to resort to price cuts and promotions not just to battle each other but to keep local brands from taking away market share. Bleeding at the moment, it remains to be seen if the global brands can seize the initiative again.

That8217;s because regional brands8217; marketing costs are low. They have low advertising costs, low packaging costs, low distribution costs. Add agility to this 8212; speed to market in following and responding to local tastes with lower overheads. The brand owners are also able to give better margins to retailers to 8216;push8217; products.

8216;8216;Regional brands have cost advantages. The overheads and other costs are almost negligible for regional brands compared to MNC brands,8217;8217; says Piyush Pandey, Executive Chairman of O038;M.

Analysts say MNCs can play the regional brands at their own game, by segmenting markets. For example, Tata Tea has some less known local brands like Gemini and Kannan Devan that are extremely successful in certain regions only. Are we seeing the beginning of a new type of branding strategy?

with SMITA NAIR