Still, the maker of Dove body wash and Surf detergent managed an overall 5% increase in sales volume from a year earlier, boosting net income to 25.1 billion rupees ($309 million), slightly better than expected. This was achieved through price reductions – passing the advantage of lower palm oil costs on to soap buyers – and a step further in promotion and advertising. Yet not all players have the financial chops of the market leader. Investors who take a close look at Hindustan Unilever Ltd’s earnings. to boost demand from Indian consumers will be dismayed to note the drop in industry-wide volumes for cleaning products, personal care items and food, the categories in which the company competes.
This is not new. Consumer demand in India has been moderating since August 2021. Village households, many of whom had to liquidate their gold holdings and other assets to treat Covid-19 patients during that summer’s deadly delta outbreak, were in no mood to spend even after the surge in deaths and hospitalization ebbed away.
As major economies opened up and crude oil and other commodities began to become more expensive, companies like Unilever responded to the pressure by packing less. Their idea was to hold psychologically crucial “magic price points” – such as five or ten rupees – in the hope that customers will replenish more often. But when inflation accelerated after the outbreak of war in Ukraine, there was no other option than to break the illusion of affordability by raising prices. Volumes stabilized in the March quarter.
“The worst of inflation is behind us,” Sanjiv Mehta, the chief executive officer, said in a statement following last week’s earnings report. That indeed seems to be the case. India’s aggregate price index rose 5.7% slower than expected in December, its third consecutive month of cooling. That is why instead of pushing four 100-gram bars of Lux soap for 140 rupees, Unilever charges 156 rupees for five, according to the Business Standard. By offering an 11% price reduction by offering larger packs, the company is betting that most households’ budgets can now accommodate an additional expenditure of 16 rupees.
It’s a reasonable bet. A gigantic wheat harvest is expected this spring. According to Mahesh Vyas of CMIE, a private company that provides reliable official job data, rural India, which employs two out of three workers, found jobs for a disproportionately higher proportion of new entrants to the workforce in November and December. “Most of the additional employment is in rural India and not in the cities,” he says.
And that could put the spotlight on faltering spending in cities next year. The tech industry is faltering globally. In India, too, startups are laying off employees en masse; some former venture capital darlings, such as online test prep and education companies, are becoming irrelevant now that Covid-19 restrictions on physical classes have ended.
Meanwhile, India’s software export industry – a major employer in metropolitan areas – has become hesitant to hire because of slowing global growth. “The pain in urban consumption appears to be showing,” JM Financial analysts Richard Liu and others wrote last week following Asian Paints Ltd. earnings. The demand that erupted after the reopening of the economy after the pandemic has been exhausted. India’s largest decorative paints company saw no volume growth in the December quarter. That could be partly due to the late monsoon rains, which prompted consumers to put their painting projects on hold. But it could also be a return of caution.
India’s truly unrestrained consumption boom can be seen in super-luxury cars, an annual market of about 450 buyers who can afford to spend some of their wealth on a Maybach or Bentley costing more than $250,000 each. For the vast majority with zero or negative wealth, their expenditure on tea, biscuits or shampoo must come out of that piece of national income to which they are entitled.
At the bottom of India’s socio-economic pyramid, it is a struggle to meet daily needs even when gross domestic product is growing at 7% and the government is liberal with social transfers. In a year when that is unlikely due to a global growth slowdown and domestic budget tightening, the needs of the country’s highly creative advertising industry will have to compete hard for a share of the limited household budget. If last year’s inflation rate eases, there will be some room for additional spending, especially in villages. But consumer sentiment in cities may remain subdued.
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This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.
Andy Mukherjee is a Bloomberg Opinion columnist on industrial companies and financial services in Asia. He previously worked for Reuters, the Straits Times and Bloomberg News.
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