Regional Brands Storm FMCG Fortress

YOGESH KUMAR SAHU, a third-generation entrepreneur from Ranchi, left his family’s rice business in 2021 to set up his own venture. Though Sahu started atta (wheat), he vowed to sell only branded products. Apart from market leader ITC’s Aashirvaad Atta, which had over 50% market share, the market had scores of local brands. However, these brands had fractured distribution and, more importantly, questionable quality. Sahu invested in technology, product standardisation and state-of-the-art packaging. “My brand, Panchakanya, is on a par with Aashirvaad. We blend the best grains. Consumers have endorsed us,” says Sahu, MD, Baba Food Processing.

The gamechanger was Reliance Retail’s decision to give the brand prominent space at stores in Jharkhand. While a 10-kg pack of Aashirvaad costs ₹400 at Reliance stores, Panchakanya is priced at ₹299. Sahu has also appointed sales teams in Jharkhand and adjoining Odisha and West Bengal to service traditional trade; most regional brands sell through wholesalers. “Unlike national brands, which don’t provide cash credit to trade, we offer incentives such as 2% cash discount if retailer pays us within two days and 1% discount if he pays within eight days,” says Sahu. Panchakanya Atta is selling 1,500 tonnes per month in Jharkhand within two years of entering the market, while Aashirvaad is at 5,000 tonnes.

There has been a mushrooming of savvy regional FMCG brands over past few years. These new entrants are investing in technology, processes and supply chain, giving national peers stiff competition. Even senior executives of leading FMCG companies such as Hindustan Unilever and Nestle admit they are losing market share to regional brands in mass categories. “Number of local players that have come to the market has increased. In tea, market value of smaller players has grown 1.4 times that of larger players. In detergent, it is six times more,” Rohit Jawa, chief executive officer, Hindustan Unilever, said during the company’s Q2 FY24 earnings call. Nestle chairman Suresh Narayanan echoes similar sentiment. He says there has been local competition in categories such as coffee and noodles and the company has lost volumes. “But we are trying to respond fast by tailoring our price points,” Narayanan said during a recent earnings call.

The narrative was distinctly different in 2020-21 when pandemic disruptions forced a number of regional brands to scale down or shut shop and deep-pocketed national players strengthened their distribution, gaining market share. “The biggest change post the pandemic is that the regional brands have become more focused, aggressive and proactive. They are studying what competitors are doing and finding ways to increase sales,” says Bhagirath Jalan, CEO of Varanasi-headquartered hypermarket chain Jalan’s Retail. He points to local masala brand Mother Masala, which earlier sold via Jalan’s Retail but was sceptical about giving extended credit or trade discounts. “Now, not only is Mother Masala offering extended credit, it has also appointed sales promoters at our stores, which I never expected. They have become our biggest supplier of masalas,” says Jalan.

A key reason regional brands (mostly family-run) have upped the ante is that the next generation is in charge. This generation is tech savvy and willing to invest in technology and processes to make businesses more efficient. “Their keenness to invest in tech sales enablement and sales force automation is way higher than three-four years ago,” says Sanjesh Thakur, partner, Deloitte India.

Not Necessarily Cheaper

HUL CEO says regional brands usually come back in a deflationary environment when commodity prices soften. But this time, most seem to be here for the long haul. Their focus is on offering quality products that are not necessarily cheaper than what national peers sell. “A national brand’s overhead costs are much higher. Local brands can’t afford high marketing budgets. Their overall overhead costs are much lower as they cater to a smaller geography. They pass that benefit to consumers,” says Sourjyendu Medda, founder and co-CEO, DealShare. But local brands don’t want to position themselves as a cheaper option.

Bangalore-headquartered Indira Food has been servicing the institutional segment with products such as tomato ketchup, jams and pickles for over three decades. The company forayed into retail in 2016 with ragi-based ready-to-cook products as well as ketchup, jams and its flagship tomato paste. Vijay C., CEO, Indira Food, says his products are more expensive than Kissan or Maggi but get traction. “A one-kg pack of ketchup costs ₹132, while national brands charge ₹126. We are priced higher in jam also but value we give in terms of quality and taste is much better. We are not market leaders as of now but it’s a matter of time.”

Sahu of Panchakanya says a one-kg pack of Panchakanya Atta is priced at ₹35 (Aashirvaad is ₹45) but he intends to increase the price gradually. “We have kept the price low as we are a new brand. Eventually, I have to increase price to stay profitable.”

The highest selling corn flakes brand in Jalan’s Supermarket in Varanasi is not Kellogg’s, but a local brand, Zerobeli. The latter may be 5% cheaper but the promoter, says Jalan, has invested in packaging which is as good as Kellogg’s and has been promoting it by giving free samples. “At launch, the promoter himself met consumers and told them to try out Zerobeli.”

The strategies regional brands following are as diverse as they can be.

The Market Plan

Jaipur-headquartered Tirupati Trading, which has been distributing HUL brands for past three decades, launched its own detergent brand, Yaare, a few years ago. The company is targeting homes with monthly income of around ₹25,000. A three-kg pack of Yaare is priced at ₹100, while Ghadi and Wheel cost ₹250. “While we give consumers a price advantage, we offer trade a ‘buy now pay later’ scheme where we give dealers 20-30 days credit. Big FMCG companies never give retailers so much time,” says Mohit Kumar Kundalia, COO, Tirupati Trading. Yaare is also being distributed through ecommerce channels such as DealShare and Udaan, which has helped it sell even in adjoining UP and Delhi. It is also being distributed in West Bengal. The company is looking to enter as many value-conscious markets as possible, including Jharkhand and Chhattisgarh.

Regional brands also innovate as per consumer needs. For instance, UP and east India are big markets for mustard oil but oil consumed in Odisha or Bengal is far more pungent than in UP. Bareilly-headquartered Bail Kolhu’s mustard oil is popular in UP, especially smaller towns such as Jaunpur and Azamgarh. The company, says Jalan, is now strengthening distribution in smaller markets.

Do regional brands have national aspirations? “Most are not in a hurry to be called national players. The expressions ‘pan-India’ or ‘global’ are losing relevance,” says Thakur of Deloitte. “If I have a brand from Maharashtra and doing well in Nagpur and Nashik, I would rather better understand what I can do in four other towns of Maharashtra before thinking of going to Gujarat or Delhi,” he says.

Kolkata-based SAJ Food Products, which owns Bisk Farm brand of biscuits, has been in business for 23 years but chose to focus on east as it understood the region better than other parts of the country. “Our aspiration was to be a deeply competitive, quality conscious, company. In East India, where we dominate, we are number two and it is by design. We think locally, we think regional,” says Vijay Singh, MD, SAJ Food Products. Singh claims national brands such as Britannia have copied some of its innovations such as Googly (a biscuit inspired by tea shops of Bengal). SAJ Food also doesn’t believe in cutting prices because it is regional. “We are priced with the market. We have never succumbed to (the temptation of) pricing lower than competitors,” says Singh.

On the other hand, Bikaner-headquartered Bikaji Foods, which has in past few years been consistently expanding across the country, has been cautious about products it sells pan-India. Manoj Verma, COO, Bikaji Foods, says the company has chosen products like gulab jamun, rasgulla and soan papdi which resonate with consumers across the country. “We chose to partner with national chains such as Reliance Retail and D’Mart to understand consumer needs better. This year, we sold premium sweets such as kaju katli through these chains.”

Retailers are also happy to promote regional brands. The obvious incentive is cash credit and extended credit period. Most retailers also find smaller brands less hierarchical and easier to deal with. With regional brands embracing technology, processes and sound governance, the industry believes they will continue to grow stronger.

If regional brands continue to give stiff competition to national players, how will the latter grow? “For national brands, the only path of growth is innovation. That is where they can score over regional brands. If focus can be on R&D and innovation, a national brand will be able to create new volumes,” says DealShare’s Medda.

Most large FMCG players have seen growth on the back of premiumisation and that’s what they need to do aggressively. The game of masses is steadily becoming a stronghold of regional companies.