Indepth: How successfully is the FMCG sector riding the wave of a resurgent India?

The Fast-Moving Consumer Goods (FMCG) sector has always been characterised by its dynamism and adaptability to changing consumer preferences, market trends, and technological advancements. In recent years, however, the winds of change blowing through the FMCG industry have gained unprecedented velocity, reshaping the landscape and presenting both challenges and opportunities for companies operating within it.

An overview of the FMCG sector

With its diverse population, shifting consumer preferences, and burgeoning middle class, India offers a fertile ground for FMCG companies to thrive.

The Indian FMCG industry has been experiencing remarkable growth, solidifying its position as the fourth-largest sector in the country. It provides employment to around 3 million people, accounting for approximately 5% of the total factory employment in India. The total revenue of the FMCG market is expected to grow at a CAGR of 27.9% through 2021-27, reaching nearly US$ 615.87 billion.

According to Allied Market Research, the global FMCG market is predicted to reach $15,361.8 billion by 2025, growing at an incredible 5.4% in the next five years.

According to NielsenIQ, a leading consumer intelligence company, the FMCG industry witnessed consumption growth improve to 7.5% for all of India in the second quarter of 2023, marking the highest growth in the last 8 quarters. Rural markets saw a growth rate of 4%, while urban markets experienced higher growth at 10.2%.

Moreover, the second quarter of 2023 was particularly noteworthy for the Indian FMCG industry, with a value growth of 12.2%. This growth rate was 2% higher than the previous quarter and 1.3% higher than the same period last year.

The growth in the FMCG industry during Q2 2023 was primarily driven by higher consumption as inflationary rates softened and there was a reduction in price increases. The drop in price growth positively impacted consumers, particularly in food categories. This trend continued into the festive season in 2023.

Factors contributing to exponential growth of the FMCG sector

The key growth drivers for the sector include favorable Government initiatives & policies, growing rural Market and youth population, introduction of new branded products, growth of e-commerce platforms, resilience across value chain, consumer insights and communication. By focusing on resilience and adapting to changing market dynamics, FMCG companies can not only withstand challenges but also create long-term value for consumers, driving sustainable growth in the sector.

Krishnarao Buddha, Senior Category Head – Marketing, Parle Products, noted, “FMCG has immense opportunity in a vast country like India. During the last two decades, disposable incomes have risen drastically, which gives greater room to consumer spending, especially in FMCG products. Moreover, there has been a rapid shift from unorganised to organised players. Earlier, people used to enjoy local snacks, but now the attention is on packaged and branded snacks. Similarly, is the scene all over – from personal care, Oral hygiene to eatables – everything under FMCG has become branded. People get exposure and have disposable incomes. Therefore, according to me, this decade will be great for India as far as FMCG, and particularly food and snacks, growth is concerned.”

Equally upbeat about this sector is Anita Nayyar, veteran media industry expert and former COO - Media, Branding & Communication, Patanjali Ayurved, who affirmed, “FMCG sector will always be part of the top few sectors for the sheer fact that consumers will continue to buy products of daily use. There have been many changes in this sector.”

Trends in the ever-evolving FMCG

One of the most significant drivers of change in the FMCG sector is the shifting consumer preferences. Today’s consumers are more discerning, health-conscious, and socially aware than ever before. As a result, FMCG companies are under increasing pressure to innovate, reformulate their products, and embrace eco-friendly packaging solutions to meet these evolving consumer expectations.

According to Shashi Kumar, Co-Founder and CEO, Akshayakalpa Organic, “If we talk about food FMCG in particular, the Indian food FMCG market is undergoing a notable transformation due to shifting consumer preferences. There’s a clear trend toward healthier choices, marked by a growing interest in organic and nutritionally balanced alternatives. This reflects an increased awareness of diet’s impact on well-being, concerns about additives in packaged foods, and a general shift towards a more wholesome and organic lifestyle.” He added that at Akshayakalpa Organic, they recognise the pivotal role of authenticity, creating genuine experiences, and value-based brand building in driving the FMCG sector in 2024.

“The FMCG sector should continue to grow as the consumption of goods will not stop. It is important for this sector to ensure through consumer centric strategies that the occasions for consumption are increased for various product categories, which will lead to increased purchase,” opined Anita Nayyar.

The E-Commerce factor

The proliferation of e-commerce platforms has revolutionised the way consumers shop for FMCG products. With the convenience of online shopping and the availability of a vast array of choices at their fingertips, consumers are increasingly turning to e-commerce channels to fulfill their everyday needs.

On this, Mukesh Ghuraiya, Chief Marketing Officer, Modi Naturals, said, “The FMCG sector is embracing e-commerce, albeit later than other industries. Consumer durables, mobiles, apparels, etc., jumped on this bandwagon quite early, but FMCG adopted it a bit later, but is now on full swing.”

Shedding light on the transformative power of D2C and e-commerce in the BPC sector specifically, Ghazal Alagh, Co-Founder, Honasa Consumer, emphasised how these channels have broken down geographical barriers, allowing brands to reach consumers nationwide. She said, “If there is aspiration, there is an opportunity to procure it through a digital platform. In fact, beauty is far more influenced by digital in terms of purchase patterns. It has much higher skew on e-commerce as it has the potential to reach across the length and breadth of the country.”

Emergence of Direct-to-Consumer (D2C) Models

In addition to e-commerce, the rise of direct-to-consumer (D2C) models has disrupted traditional retail channels in the FMCG sector. This trend has compelled established FMCG players to rethink their distribution networks and explore D2C initiatives to stay relevant in an increasingly decentralised market. Some examples are Honasa Consumers with its Mamaearth brand, Sugar Cosmetics, WOW Skin Sciences, Bombay Shaving Company, etc. In the food category, brands like Licious, Country Delight, FreshToHome, and Happilo have embraced D2C models to offer fresh and high-quality products directly to consumers’ doorsteps, leveraging technology and logistics to streamline operations and ensure timely delivery.

Ayodhya to be a hot spot for FMCG brands

The inauguration of the Ram Temple and development of Ayodhya as a major pilgrimage center has also provided brands of all hues with a strong marketing opportunity.

Sharing plans to address the anticipated rise in demand for consumer staples in Ayodhya, Atul Garg, MD, GRM Foodkraft’s consumer division, said, “We anticipate a significant increase in demand for consumer staples in and around Ayodhya. To meet that growing demand, we are planning to set up an Atta processing unit with a daily capacity of 200 metric tonne strategically located closer to Ayodhya. We will also be developing a stronger distribution network of our 10X Shakti Atta to serve the residents of the city and adjacent areas and the people and devotees who will be coming to Ayodhya. We are collaborating with the retail partners in this region to roll out our extensive range of consumer staples products.”

Further fortifying the marketing might

Over the years, FMCG companies have sharpened their marketing strategies to maintain their competitive advantage in the market.

Krishnarao Buddha of Parle Products pointed out that currently FMCG brands are riding the wave of consumerism. On the marketing strategies, he shares, “The key here is that there has to be a fine balance. At present, the trick of the trade is to offer right value preposition to consumers. In a bid to be premium, if any brand charges disproportionate money, then they do not stand a chance. These days, consumers are spoilt for choices. They want great value for money, so the main marketing strategy should be to offer the right quality and quantity at the right time and at the right price.”

Elaborating on the latest marketing strategies of Modi Naturals, Mukesh Ghuraiya outlined the focus on urban areas and the influential role of women as decision-makers in households. He said, “We are a premium olive oil player. Our target audience is the urban population as well as women, as they are the decision-makers for the kitchen. Therefore, our first marketing strategy is that we are very focused on reaching the female consumers. Secondly, as mentioned earlier, e-commerce is driving force for FMCG. So, I would say that 90% of our media budget goes to digital only. While we are perceived as a traditional cooking oil brand and about 70% of business still comes from offline channels, but still when it comes to marketing, 90% of the media budget goes to digital platforms like Amazon, Blinkit, Zepto, etc., as the awareness of our products comes from these platforms.”

Ghazal Alagh of Honasa added here, “Marketing to millennials is an art that we have mastered while serving the evolving choice of millennials through channels of their choice. We realised early on that moms trust other moms and millennials trust other millennials. Hence, running the largest KOL model in the country with internal tools to ensure correct discovery and tracking ROI. Digital content has generated geographical democracy and digital media now has the ability to reach like a sniper rather than a bazooka!”

Meanwhile, Anita Nayyar stressed on consumer-centric strategies, saying, “The FMCG sector should continue to grow as the consumption of goods will not stop. It is important for the sector to ensure through consumer centric strategies that the occasions for consumption are increased for various product categories which will lead to increased purchase.”

Shashi Kumar of Akshayakalpa Organic emphasised that FMCG encompasses diverse products with unique consumer behaviours. He said, “FMCG is more than just one sector because of the kind of products that are included in it. In other words, you cannot have the same strategy for selling carbonated drinks and say an equivalent dairy-based product like buttermilk or flavored milk, etc. Nor can we think about selling food items on the same lines as toiletries, which is also categorised as FMCG. At Akshayakalpa Organic, we recognise the pivotal role of authenticity, creating genuine experiences, and value-based brand building in driving the FMCG sector in 2024.”

FMCG’s growth in Rural India

Growth of the FMCG sector in rural India has been significant due to increasing rural prosperity, expanding market penetration, changing consumption patterns, government initiatives, digital influence, tailored product offerings, and rural employment opportunities. However, according to few recent reports, there has been sluggishness in the rural consumption in 2023. When asked, the experts agreed to this, but were quite hopeful for its growth in this year.

Parle’s Krishnarao Buddha acknowledged the slowdown in rural spending in 2023 and emphasised on the need for FMCG brands to devise specific marketing strategies for rural areas. At the same time, he noted that the crucial factor was that people in rural areas had disposable income to spend on various products. According to him, “With the upcoming Lok Sabha Elections in May, villagers are expected to have more cash in hand, potentially boosting consumption. Additionally, favourable weather forecasts predicting good monsoons are anticipated to lead to better crop yields and increased earnings for rural communities. This increased income is likely to translate into higher spending on essentials and other products, presenting an opportunity for FMCG brands to capitalise on rural markets in the coming year.”

Anita Nayyar, too, agreed that last year the rural market was not as good as it should have been. She observed, “A couple of years back, due to post effects of the pandemic, rural consumption took a hit, in response to which the FMCG sector had to come up with smaller pack sizes. The strategy to introduce small pack sizes has helped in sustaining the rural sales. With the availability of various options and better purchasing power, the sector should be able to continue its growth.”

Honasa’s Ghazal Alagh remarked, “Rural areas have been slow in accepting new products, but we are confident that with our strong on-trend innovation funnel, we will be able to grow faster than the median industry growth.”

On the other hand, Modi Naturals, being a premium olive oil brand with the urban population as its TG, has little to no interest in stepping up in the rural markets as of now. Mukesh Ghauriya said, “We still believe that there is lot of growth in the urban metro cities. So, our target is not rural India as of now.”

Biggest challenge: Maintaining the Supply-Chain Management

While talking about the FMCG market, we cannot ignore supply-chain management – the most important aspect in making products available to the consumers. On-time delivery is everything in the FMCG business. In a world that is witnessing disruptions, raw material shortages and increasing costs, it is critical for the FMCG supply chain to be efficient, resilient and agile.

On this, Shashi Kumar shared, “An efficient supply chain management system is critical for the FMCG sector and more so for the food and beverages segment of this market. This is important to maintain the freshness of the product, which, in turn, also keeps the food safe for human consumption.”

Sharing its remedies, he added, “One distinctive approach that we have taken is to keep the entire supply chain in-house. Under this, we have leveraged our own Akshayakalpa app for distribution. This strategic decision lends us the advantage of having control over the entire value chain from farm to fork. By taking ownership of the supply chain, we can closely monitor and optimise each stage. This, in turn, leads to improved efficiency in product delivery and ensures that our organic products reach our customers with the utmost freshness.”

“Consumers need the goods neither too early nor too late, but just in time,” said Krishnarao Buddha on the importance of supply chain management. He also highlighted the risk of losing customers if products are unavailable when needed.

Anita Nayyar echoes this sentiment, emphasising that a well-functioning supply chain is essential for ensuring both quality and availability of goods. She said, “Supply chain is key to the success and availability of products for consumption of goods. A well lubricated and fast supply chain should ensure both quality and availability of goods.”

Ghazal Alagh added here, “We are constantly working on building efficiencies in our supply chain and bringing in newer technologies to make it more efficient. We are deploying best in class ERP systems and tools to ensure efficient demand planning, warehouse management, thereby optimizing supply chain processes, reducing costs, and ensuring better consumption of goods, ultimately improving customer satisfaction and driving business growth.”

The winds of change sweeping through the FMCG sector are relentless, presenting both challenges and opportunities for companies willing to adapt and innovate. By embracing shifts in consumer preferences, leveraging digital technologies, and prioritising sustainability and corporate responsibility, FMCG companies can navigate these turbulent waters and emerge stronger, more resilient, and better positioned to meet the evolving needs of today’s consumers. In this era of unprecedented change, agility, foresight, and a commitment to excellence will be the keys to success in the dynamic and ever-evolving FMCG landscape.