Expanding FMCG

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Rising incomes, desire for more choice drive growth of FMCG sector

By Urmi Saha
Account Director, Millward Brown
urmi.saha@millwardbrown.com

 

Both Indian and international brands face great opportunities

Until 2013, India’s FMCG (Fast Moving Consumer Goods) sector had experienced five consecutive years of double-digit growth. While the healthy expansion then continued for many FMCG categories, overall sector growth moderated because of slower performance in some large categories, such as biscuits, soaps, detergents, and refined oils.

These market dynamics suggest that sustained growth for FMCG brands requires both serving existing customers and developing new business. The strategies for growing the FMCG pie include: introducing new products, expanding geographically, stretching to other market segments like premium, and entering alternative distribution channels.

Driving the potential expansion of FMCG is the vast size of the Indian market for FMCG products and the increasing desire for choice among Indian consumers. Both Indian and international FMCG brands face great opportunities.

Expanding the product portfolio

Many brands today are widening their product portfolios to reach new market segments and enter new categories. Procter& Gamble, which already maintains a substantial presence in India, plans to introduce almost its entire product range over the next few years. Hindustan Unilever launched Dove Hair Oil, until recently a category dominated by Indian companies like Marico and Dabur.

Brands also are expanding to smaller and rural markets. In 2013, towns with populations under 100,000 grew much faster than the dense urban centers. Cadbury India has increased its sales infrastructure with more refrigerated vending machines and expanded its reach in rural India. Hindustan Unilever is increasing its small town penetration for some of its premium brands, like the detergent Surf Excel.

Expanding the premium segment

Unlike previous economic slowdowns, where consumers mostly traded down, today they seem willing to buy premium products. Rising incomes, higher aspirations and greater choice drive this attitude shift.

Today, the demand for premium products is sufficient for brands to achieve the economies of scale necessary for business viability. That was not the case just a few years ago. And FMCG companies no longer market their premium offering exclusively to urban consumers. With increased purchasing power, consumers in smaller markets and rural areas also are potential customers for premium products.

The consumer willingness to spend more for a premium product applies particularly to healthier foods and beverages, such as cornflakes, baked potato chips, diet beverages, juices or green tea. Consequently, companies like Hindustan Unilever, Procter& Gamble, ITC and Cadbury are adding more premium offerings to their product portfolios.

Blurring retail channels

Companies are increasingly using retail channels other than the traditional grocers to boost sales and target new consumers. The fastest growing traditional trade channel in India today is chemists. This development is potentially important for FMCG brands because chemists normally offer more display area, attract a different profile of shopper than traditional grocers, and add credibility to the products sold. Companies like Hindustan Unilever, Procter & Gamble, Dabur – the Ayurvedic manufacturer, and cosmetic and health care producer Emami have long sold OTC tablets, diapers, feminine hygiene and other relevant products through the chemist channel. The difference today is that sales of beauty products and premium cosmetics are shifting from neighborhood grocers to chemists. Chemists are driving sales of premium creams, deodorants, soaps, face wash and shampoo. L’Oreal India is pushing its L’Oreal and Garnier brands through this channel.

Similarly, ITC is targeting pan plus outlets, tobacco shops that also sell FMCG products, to offer even its premium cookies, cream biscuits and premium deodorants. The strategy is in sharp contrast to that of ITC’s rivals, which sell mostly mid-market confectionery, snacks and shampoo sachets through this channel. As part of the initiative, ITC is also training the panwallahs, pan plus shop owners, to sell soaps, biscuits and noodles. Consumers are mostly purchasing from this channel to top-up their monthly requirements.

Digital and mobile use increasing

Both Internet and mobile use is increasing dramatically. Indian consumers are researching more on the Internet before making purchase decisions, highlighting the need for companies to build brands online. Mobile ad spending by FMCG companies quadrupled in 2013. For example, Surf Excel advertised its premium liquid product with a digital campaign that helped build consumer awareness of the brand’s stain removal ability, a key benefit.



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