– By Akshay Bector
The Fast-Moving Consumer Goods or FMCG sector is the fourth largest in India and employs over 3 million people. Not just that, the jobs that are created by the FMCG sector in the informal economy are beyond comprehension. Many Indians start as small entrepreneurs in their local areas by opening retail shops selling the FMCG products. It can be safely said that this sector has been a strong pillar for the economy over the years. According to reports, 50 per cent of sales in the FMCG sector are made up of household and personal care items, followed by healthcare (31-32 per cent) and food and beverage (18–19 per cent).
As per India Brand Equity Foundation, from US$ 110 billion in 2020, the FMCG market in India is projected to grow at a CAGR of 14.9 per cent to US$ 220 billion by 2025. The packaged food market in India is anticipated to grow by twofold to US$ 70 billion by 2025. This rapid growth is being achieved on the back of a fast-spreading digital network within the country as more and more regions are being connected through affordable internet. The emergence of e-commerce portals is allowing people living in sub-urban and rural areas to access a wide range of FMCG products from the comfort of their homes. This is a major booster for the entire FMCG industry in the country. By 2030, it is anticipated that the e-commerce sector would account for 11 per cent of all FMCG sales.
Over 40 per cent of India’s FMCG industry’s total revenues come from semi-urban and rural areas. Compared to urban areas, India’s FMCG companies have grown more rapidly in rural areas. More than 40 per cent of major FMCG categories like personal care, fabric care, and hot beverages are consumed in rural India. Further potential for expansion is provided by rising disposable income in rural India and low rates of market penetration there.
To achieve a strong growth in the rural market, FMCG companies are now making use of technology to strengthen their infrastructure so that they can reach a larger customer base. The transformation is happening in supply chain, transportation, tracking, and data generation which allows the companies to gain an understanding of demand trends and cater to these needs on a real time basis. In the past, FMCG companies struggled to transport their products in a timely manner to the areas at a distance from urban hubs. However, with the adoption of technology by distributors, ease of communication, and use of AI to track the consignment in real time is leading to a turnaround.
FMCG firms are using technologies like AI, big data, and predictive analysis more and more to forecast customer behaviour with a high degree of accuracy and to better understand what their customers are genuinely interested in. With the use of digital technologies, FMCG companies are integrating distributor management, inventory management, and suppliers into a single ecosystem. Modern shops may safely make contactless orders with the use of a straightforward ordering app, which also provides visibility into the fulfilment of those purchases from order placement to logistics and supply.
With all this said, one of the biggest challenges that the industry faces today is high inflation and rising input costs. This has especially been a matter of concern in the post-Covid world where supply chain disruptions and inefficient production led to a steep hike in the prices. This has been reflected in high prices of the FMCG products which further hampers the demand since products become unaffordable for the customer. Or the companies adopt other measures like shrinkflation, a common ruse to reduce weight but keep the pack size and price the same, especially in the smaller priced product segments where price changes are visible to the consumer. At the same time, a large portion of profits is taken by the distributors in the process of reaching the end customer. FMCG companies are using direct-selling techniques with the help of digital technology to increase their profit margins to counter this. However, as the world economy goes through a slump, people’s incomes remain stagnant, and the job market continues to perform poorly, it can be expected that the consumer demand for FMCG products may not rise strongly in the coming years. The companies will have to navigate through these challenges in a dexterous manner.
But which market does not have challenges? The tailwinds of the Indian market is still a lot of headroom for growth, as a large population living in rural areas has just started to create a pull demand for FMCG products. Their demands can be fulfilled by providing them the right priced and right quality products. This is an enormous market segment and promises to offer a large share of FMCG revenues in the coming years. At the same time, with a dominantly younger population which is consistently looking to improve their lifestyle, FMCG companies can hope for continuous growth in demand from them as well, as is evident by the many start-ups entering this sector offering products which appeal to a younger audience. The potential is huge while the challenges are many. In the end, whoever manages to maneuver through these headwinds and use the tailwinds well, will be well rewarded.
(Akshay Bector is the Chairman & Managing Director at Cremica Foods)