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Increasing incomes and shift towards consumption driving FMCG growth
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Saturday, 16 November, 2019, 08 : 00 AM [IST]
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Parimal Shah
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Increasing disposable incomes and a shift towards consumption-driven society has helped India’s FMCG sector scale new growth paths over the past two decades.
Greater diversification of products across the food and non-food categories, proliferation of wellness products and greater age- and gender-specific segmentation are notable factors that have helped transform the sector in India.
In recent years, there is also a greater tilt towards marketing products as ‘healthier’ and ‘herbal’ as consciousness grows among people about the need to consume healthy items.
The FMCG sector is today the fourth-largest sector in the Indian economy with household and personal care segment accounting for 50 per cent of the market, while healthcare and food and beverages accounting for 31 and 19 per cent of the market in the sector respectively. Despite a recent slowdown in the Indian economy, the FMCG sector is expected to continue on a growth trajectory over the next few years. Market research firm Nielsen forecasts that the FMCG sector will grow at 9-10 per cent in 2019.
One important factor that will continue to propel the FMCG sector to higher growth paths in the near future is increasing use of digital technology. From greater use of digital marketing to increasing customisation for e-commerce, an increasing number of players in the sector are today actively embracing digital technology to drive the next phase of growth amid hectic competition. The ability to digitise fast will also be a significant differentiator between organisations as they transform themselves to suit the changing needs of time.
Increasing role of digitisation
The market for India’s FMCG sector is expected to cross US$100 billion by 2020. Moreover, the number of Internet users in India is expected to cross 650 million the same year. Understandably, an increasing usage of mobile analytics, artificial intelligence and cloud technology is set to enable the FMCG sector emerge as a digitally savvy industry over the next decade.
According to a report published by the Boston Consulting Group and Google in 2017, approximately US$45 billion of the FMCG spend will be digitally influenced by 2020, underlining the imminent need for increasing the digital footprint. The report also found that the Indian FMCG sector had been relatively slow in gauging the importance of the digital medium. Despite time spent on digital medium already equal to time spent on TV among urban users, spends on digital were estimated to be mere 10 per cent of the overall advertisement spends by the FMCG sector.
However, two-thirds of organisational leaders surveyed counted digitisation as among their top priorities going forward. Technology has been a major disruptor in the consumer goods sector with more and more organisations looking to leverage the benefits of digitisation to boost functioning across departments be it sales, marketing, retail, supply chain management or even HR.
Automation of processes is the key element driving a change and enabling businesses become more efficient and cost-effective. Automated systems backed by AI tools are being aggressively used to manage inventories, plug the loopholes in supply chain management and make distribution channels more efficient.
Maintaining of digital sales records and a digital account of inventory helps eliminate human errors, hastens the management while also allowing organisations access to quick data pertaining to demand and supply. Automation of services is also being increasingly used to improve customer experience.
The FMCG sector must also work to better leverage the benefits of digital marketing with strategically developed tools to target different sections of populations – urban, rural, male, female, young and old.
Big Data
An insight into consumer behaviour, an understanding of preferences of different types of consumers and analysis of the footfalls are major elements the FMCG depends on to improve its products and services. Digitisation gives organisations easy and quick access to valuable user data on a daily basis. This data is a minefield of information that when analysed systematically can help companies understand patterns of consumption and consumer behaviour. This in turn paves way for proactive decision making and customising of products and services to bet meet the needs of buyers.
While gathering and understanding data to make business decisions has always been done by companies, the availability of big data makes the process highly precise and faster. The quicker you are able to draw inferences from the data and initiate proactive measures in response differentiates you from your competition. The use of Big Data will not be limited to e-commerce platforms anymore, the FMCG sector as a whole will increasingly act as a digital platform to leverage the benefit of data analytics.
E-retail
While books and apparel were the first major products that helped e-commerce takeoff as a retail segment, today almost all sectors have been forced to actively design coherent strategies for e-commerce. The contribution of e-commerce to FMCG sales currently stands a little above one per cent. However, this is expected to change rapidly over the coming decade.
According to market research firm Nielsen, e-commerce's contribution to the total FMCG sales is expected to be 11 per cent by 2030. The sale of FMCG products online also often causes friction with the organisations’ distribution networks. However, organisations that ignore this trend will do so at their own peril. More and more organisations in the FMCG sector are today working to have aggressive online presence, not only on major e- commerce sites but also have their dedicated selling digital platforms. This trend is expected to further gain pace over the coming decade.
Conclusion
The new government has taken fabulous initiatives in digitalising the Indian economy. This is the need of the hour. The Indian economy is the fastest growing economy in the world and digitalisation shall bring about tremendous transparency within the markets. The work being done by new young startups by using cutting edge technologies such as IoT and AI is bringing a sea change in the way businesses are being run, and also in the way in which investors now value business propositions. The exponential manner in which the valuations of tech-enabled FMCG companies has grown, and is continually growing, clearly shows that stakeholders now want to see sound and innovative technologies to be a significant part of their product offerings.
India Inc. is right now on the cusp of a revolutionary change in the way it operates.
We are indeed living in some truly exciting times!
(The author is president, international operations, M K Jokai Group. He can be contacted at parimal.s@mkteagroup.com)
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