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ThefutureofFMCGStrategistTeamNovember29,2010LastUpdatedat00:03IST

4/15/2015 ThefutureofFMCG|BusinessStandardNews

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CavinKareplansRs500crexpansionintofoodssegmentFMCGmktinruralIndiatotouch$100bnby2025:NielsenHaveearmarkedRs450crinvestmentfor2010:NestleIndiaReapthegainsfromIndia'sdemographicdividendNirmashareholderspassdelistingplan

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FastmovingconsumergoodswillbecomeaRs400,000croreindustryby2020.ABooz&Companystudyfindsoutthetrendsthatwillshapeitsfuture

Considerthis.Theantiageingskincarecategorygrewfivetimesbetween2007and2008.Itstodaythefastestgrowingsegmentintheskincaremarket.Olay,Procter&Gamblespremiumantiageingskincarebrand,captured20percentofthemarketwithinayearofitslaunchin2007andtodaydominatesitwith37percentshare.Whocouldhavethoughtofreadyacceptanceforantiageingcreamsandlotionssometenyearsago?Forthatmatter,whocouldhavethoughtIndianconsumerswouldtakeoralhygienesoseriously?Mouthrinsingseemstobepickingupasahabitmouthwashpenetrationisgrowingat35percentayear.Moreso,whocouldhavethoughtruralconsumerswouldfallforshampoos?Ruralpenetrationofshampoosincreasedto46percentlastyear,wayupfrom16percentin2001.

Consumptionpatternshaveevolvedrapidlyinthelastfivetotenyears.TheconsumerisTRADING uptoexperiencetheneworwhathehasnt.Heslookingforproductswithbetterfunctionality,quality,value,andsoon.Whatheneedsisfastgettingreplacedwithwhathewants.AnewreportbyBooz&CompanyfortheConfederationofIndianIndustry(CII),calledFMCGRoadmapto2020:TheGameChangers,spellsoutthekeygrowthdriversfortheIndianfastmovingconsumergoods(FMCG)industryinthepasttenyearsandidentifiesthebigtrendsandfactorsthatwillimpactitsfuture.

ThereportestimatestheFMCGsectorwitnessedrobustyearonyeargrowthofapproximately11percentinthelastdecade,almosttriplinginsizefromRs47,000crorein200001toRs130,000crorenow(itaccountsfor2.2percentofthecountrysGDP).Growthwasevenfasterinthepastfiveyearsalmost17percentannuallysince2005.ItidentifiesrobustGDPgrowth,openingupofruralmarkets,increasedincomeinruralareas,growingurbanisationalongwithevolvingconsumerlifestylesandbuyingbehavioursasthekeydriversofthisgrowth.

ThereportfurtherestimatesthattheFMCGindustrywillgrowatleast12percentannuallytobecomeRs400,000croreinsizeby2020.Additionally,ifsomeofthefactorsplayoutfavourably,say,GDPgrowsalittle

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faster,thegovernmentremovesbottleneckssuchasthegoodsandservicestax(GST),infrastructureINVESTMENTS pickup,thereismoreefficientspendingongovernmentsubsidyandsoon,growthcanbesignificantlyhigher.Itcouldbeashighas17percent,leadingtoanoverallindustrysizeofRs620,000croreby2020.

SaysBooz&CompanyPartnerAbhishekMalhotra:TheIndianGDPpercapitaislowbutmanyIndianconsumersegmentswhichconstituteratherlargeabsolutenumbersareeitherclosetoorhavealreadyreachedthetippingpointofrapidgrowth.Thesectorispoisedforrapidgrowthoverthenext10years,andby2020,theindustryisexpectedtobelarger,moreresponsibleandmoretunedtoitscustomers.

Basedonresearchonindustryevolutionsinothermarketsanddiscussionswithindustryexpertsandpractitioners,Booz&Companyhasidentifiedsomeimportanttrendsthatwillchangethefaceoftheindustryoverthenexttenyears.Somekeyonesrelatedtoevolutionofconsumersegmentsareasfollows:

AcceleratingpremiumisationTherisingincomeofIndianconsumershasacceleratedthetrendtowardspremiumisationoruptrading.ThetrendcanbeobservedprominentlyinthetoptwoincomegroupstherichwithannualincomeexceedingRs10lakh,andtheuppermiddleclasswithannualincomerangingbetweenRs5lakhandRs10lakh.Thereportssays,thericharewillingtospendonpremiumproductsfortheiremotionalvalueandexclusivefeel,andtheirbehaviourisclosetoconsumersindevelopedeconomies.Theyarewellinformedaboutvariousproductoptions,andwanttobuyproductswhichsuittheirstyle.Theuppermiddleclasswantstoemulatetherichanduptradetowardshigherpricedproductswhichoffergreaterfunctionalbenefitsandexperiencecomparedtoproductsformassconsumption.

Whilethesetwoincomegroupsaccountforonly3percentofthepopulation,thereportestimatesthatby2020theirnumberswilldoubleto7percentofthetotalpopulation.Therichwillgrowtoapproximately30millionin2020,whichismorethanthetotalpopulationofSweden,NorwayandFinlandputtogether.Similarly,theuppermiddlesegmentwillbeapopulationofabout70millionin2020,whichismorethanthepopulationoftheUK.

Overthenexttenyears,thesegroupswillconstitutelargeenoughnumberstomeritadedicatedstrategybyFMCGcompanies.Wehaveseencompaniesfocusedonsellingprimarilytothemidsegments.Often,thereisnoclearsegmentationbeingoffered.Playerswilldowelltoclearlyseparatetheirofferingsfortheupperandmidsegments,saysMalhotraandaddsthatthetwoshouldbetreatedasseparatebusinesseswithadedicatedteamandstrategyforeach.

EvolvingcategoriesCategoriesareevolvingatabriskpaceinthemarketforthemiddleandlowerincomesegments.Withtheirrisingeconomicstatus,theseconsumersareshiftingfromneedtowantbasedproducts.Forinstance,consumershavemovedfromtoothpowderstotoothpastesandarenowalsodemandingmouthwashwithinthesamecategory.(Clickfortable'CLIMBINGUPFAST')

Also,thereportnotes,consumershavestarteddemandingcustomisedproducts,specificallytailoredtotheirindividualtastesandneeds.Thecomplexitieswithinthecategoriesareincreasingsignificantly.Earlierashampoousedtohavetwovariantsnormalandantidandruff.Now,youhaveantidandruffshampoosforshorthair,oilyhair,curlyhair,andsoon.Everythingisgettingcustomised,saysMalhotra.

ThetrendtowardsmasscustomisationofproductswillintensifywithFMCGplayersprofilingthebuyerbyage,region,personalattributes,ethnicbackgroundandprofessionalchoices.Microsegmentationwillamplifytheneedforhighlycustomisedmarketresearchsoastocapturethespecificneedsoftheconsumersegmenttargeted,beforetheactualproductdesignphasegetsunderway.

Thebeautyproductsmarketwillgrowby20percentperannumasresultofthechangingsocioeconomicstatusofconsumers,especiallywomen.Middleclasswomenarenowmoreconsciousoftheirappearanceandare

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willingtospendmoreonenhancingit.Productssuchascolourcosmetics(growingby46percent)andsuncareproducts(growingat13percent)havelatchedontothistrendrapidly.

ValueatthebottomBoozdefinesthebottomofthepyramidorBoPconsumersasthosewhoearnlessthanRs2lakhperannumperhousehold.Thegroupconstitutesabout900to950millionpeople.Whilethemiddleclasssegmentislargelyurban,alreadywellservedandcompetitive,theBoPmarketsarelargelyrural,poorlyservedanduncompetitive.AlotofthebasicneedsofBoPconsumersareyetunmet:Financialservices,mobilephones&communication,housing,water,electricityandbasichealthcare.Andsothereisuntappedopportunity.

Malhotrasays,Theaspirationwasalwaysthere,andincreasinglymoneyiscomingin.Thesegmentisbeingtargetedprimarilywithlowerpricedproducts,say,aRs2ParleG.Butincreasinglyitwillneedproductsthatdelivermorevaluesay,aRs5productthatservesasdinnerandalsodeliversnutrition(vitamins,proteinsetc).CompanieslikePepsiCoandTataareworkingonsuchproducts.

ThereportsaystheruralBoPpopulationisestimatedtobeabout78percentofthetotalBoPpopulation.Thesegmentisbecominganimportantsourceofconsumptionbymovingbeyondthesurvivalmode.Asaresultofrisingincomes,thegrowthofFMCGmarketinruralareasat18percentayearhasexceededthatoftheurbanmarketsat12percent.Whiletheruralmarketcomprisesonly34percentofthetotalFMCGmarket,giventhecurrentgrowthrates,itscontributionisexpectedtoincreaseto4550percentby2020.Itwillrequiretailoredproductsathighlyaffordablepriceswiththepotentialoflargevolumesupplies.

Productssuchasfruitjuicesandsanitarypadswhichhadnodemandintheruralmarketsearlierhavesuddenlystartedestablishingtheirpresence.WhilemostFMCGplayershavesucceededinestablishingsufficientaccesstotheirproductsinruralareas,thenextwaveofgrowthisexpectedtocomefromincreasingcategorypenetration,developmentofcustomisedproductsanduptradingruralconsumerstowardshigherpricedandbetterproducts.

AnotherbigtrendthathasbeenthehighlightofthestudyistheemergingideaofmanyIndias.Thereportsaysthatdespitethecomplexitiesoflanguage,cultureanddistances,theIndianmarkethaslargelybeenseenasahomogenousmarket.TheresoneproductfortheentirecountrythesameMagginoodlesforKarnatakaandWestBengal,orthesameDietCokeforPunjabandAssam.Besides,theseproductshavethesameadvertisementsthatrunacrossthecountry.

Increasingly,FMCGplayersarerealisingthatIndiaisnotahomogenousmarketandconsumerpreferencesvarysignificantly.By2020,MaharashtrasGDPwillexceedthatofGreece,Belgium,andSwitzerland,andUttarPradeshseconomicsizewillexceedthatofSingaporeandDenmark.So,havingadedicatedfirmforMaharashtraorGujaratcanprovetobearealisticandprofitableproposition.

Wewillseecompaniescomingupwithregionalproducts.HindustanUnileverhasteaswhichareverydifferentinonestateversustheother.PepsihasadifferentproductinAndhraPradeshwhichisnotsoldanywhereelse.Differentiationusedtohappenatthecountrylevelnowyouwillseeatthestatelevel,saysMalhotra.

FMCGplayersneedtogrowregionalintheirthinkingandmovetowardsanincreasinglydecentralisedoperatingmodelinIndia.Asconsumerpreferencesdifferacrossregionsandstates,companiesmayfollowaregionalstrategyintermsofproductingredients,positioning,marketingcampaign,andchannels.Overall,decentralisationorregionalisationwillbecomeanincreasinglyimportantthemeforFMCGplayers.

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