Regulations may prove to be another Patanjali for FMCG firms
Proposed bans on single-use plastic and on sale of junk foods may prompt FMCG companies to change.
The Centre has planned to phase out single-use plastics by 2022. Several states, meanwhile, have varyingly banned single-use plastic products. The Food and Standards Authority of India issued draft regulations earlier this month on banning sale as well as advertisements of junk foods (highly fatty and salty foods) in school. Under its ‘Eat Right Movement’, the regulator had last year asked the food and beverage industry to voluntarily reduce salt, sugar and saturated fat in packaged foods. The nudge is now slated to turn into a push.
Consumers are turning more health and environment conscious and such regulatory push is a natural extension of this. FMCG companies, with their predominant use of plastic packaging and packaged food products with high content of salt, sugar and fats have a reason to worry.
The thrust of Patanjali Ayurved on natural and organic products was lapped up by consumers, a trend that gave mainstream FMCG companies a run for their money in the recent past. However, after the initial stress, the companies were able to tide over the threat of competition by introducing natural variants of their products or acquiring herbal or ayurvedic products to complete their portfolios.
Thanks to their global parents, multinational companies such as HUL and Nestle have been agile in knowing which way the wind is blowing now. ITC, with its strong compliance of ESG (environmental, social and governance) norms, too has taken proactive measures.
For HUL, its parent is leading the way. Unilever has announced that by 2025 it will halve its use of virgin plastic in its packaging by using more of recycled plastics and that it will collect and process more plastic packaging than it sells. Nestle too has chalked out measures to reduce the salt and sugar content in its product categories, along with adopting more environment-friendly packaging.
FMCG stocks are largely performing well on the bourses. For investors, companies that adopt a strong and discerning strategy to meet the regulations without compromising on the quality or taste will emerge the winners. Incidentally, the cost of making products healthier and plastic-free will be passed on to consumers as companies continue to premiumise their portfolio.