Search

Moat vs Mota Bhai

For a long long time, Indian FMCG prided itself on its astronomical return on capital it generated, with the great companies generating north of 50% ROCEs and the top ones sometimes even surpassing 100%! Then, the fire nation attacked.


In today's post, we discuss the latest industry under the attack of Reliance, the everyday FMCG space. Will the time tested moats of these giants sustain, or will the behemoth chip away at another sector's profits?


Private label entry


If you are hearing about the concept of Private labels for the first time, it would probably help to go through a short primer we wrote a while back. A private label is effective an alternative to the traditional brand, generally priced lower. The dual benefits of scale and no middlemen allow for more attractive pricing, have have been used in the west by firms like Costco and closer home by the Future group.


Reliance recently launched a range of private labels competing with numerous FMCG firms simultaneously on Jiomart. Most of these products had packaging remarkably similar to the original brand, and were priced lower than the discounted rate of the FMCG in all cases.


What are the brands and how low is it going?


JioMart has launched a variety of brands across food, oil, female hygiene, and personal care.


Snactac is the brand it has chosen for food, with noodles, ketchup, biscuits, and bhujiya launched under the brand. That is quite a bit of competition there, competing with the likes of Nestle (Maggi), Britannia (Biscuits), and Haldiram (bhujiya). The discount in this segment vs the FMCG incumbents is in the 20-30% range!


Get Real is the brand on the personal care side, with products in hair oil and shower gel, both spaces in which Marico competes in. The pricing in this segment has been even more aggressive with a ~50% discount over incumbent rates. Its brands in other spaces offer between ~30-40% discounts over incumbents.


Is this a war that can be won?


Reliance entering a space is almost always good news for the customer (atleast in the medium term), and almost always bad news for the incumbents. The FMCG space could be a tough battleground however, as a lot of the current incumbents have sustained numerous attacks on their moats, and are usually extremely proactive in tackling competition. The likes of Marico have demonstrated their ability to enter a market and sustain low pricing for prolonged durations as they gain share when they expanded geographically. Other peers demonstrated similar prowess.


But they have hardly ever come across a competitor with seemingly unending pockets. With the economic situation in the country worsening, price will become increasingly important for the customer, making the private-label threat even stronger. For years the FMCG players have perfected their brand, manufacturing, and distribution networks. Now we see who wins, in this battle of moat vs Mota bhai!

Get these posts in your WhatsApp inbox every morning! Whatsapp (Free!) You can also sign-up to get these straight in your email inbox! Sign-Up. (Free!)

©2020 Yeshwant Finvest Private Limited