Future of FMCG Sector in India

With a growth rate of 14.7 percent, the FMCG sector has been projected to grow to a market size of almost US$ 220 billion by 2025.
Future of FMCG Sector in India

With household goods and personal care products amounting to up to 50 percent of FMCG sales in the country, the FMCG sector has proven to be India's fourth-largest income-generating sector. The evolution in the lifestyle of Indians across the semi-urban and rural segments has primarily contributed to the surge in revenue generated by the FMCG sector in the country. While the urban segment of India contributes to almost 55 percent of FMCG sales, there has been a faster and broader growth for the FMCG sector in rural India. As a result, almost 50 percent of the money spent in rural India has been spent on an FMCG product.

With a growth rate of 14.7 percent, the FMCG sector has been projected to grow to a market size of almost US$ 220 billion by 2025. Furthermore, with the sudden change in the corporate working world, where work from home has become a reality for many, the FMCG sector is also experiencing a change. 

Retail has Gone Digital

The sudden surge in a digital marketplace across all social media platforms, along with the sudden increase in online shopping of almost 10.7 percent of retail sales executed digitally compared with the 4.7 percent in 2019.

The Government managed e-marketplace portal alone completed 6.87 million orders worth US$ 15.67 billion from 2.0 million registered retailers and service providers.

Smaller Brands are Evolving to Reach a Wider Audience

No longer is the FMCG sector a space occupied only by the big companies and brands that have always been around. The past year made the masses realize the importance and potential of running their own business. The past year saw a sudden increase in homegrown brands that promise to deliver chemical-free, all-natural FMCG products. The COVID educated, environmentally aware consumer base shifted their loyalty from big brand names to smaller newer brands and products.

The ease of selling their products digitally or via social media made the private labels brands capture a substantial market size in a relatively short time.

Selling Through Communities

Like other sectors, the FMCG sector is evolving through recommendations and word-of-mouth sales. Research and market studies showed that almost 57 percent of shoppers buy a particular brand based on the recommendation by someone they know and trust. Building a community through brand ambassadors and targeting to get sales through that channel has helped private and prominent brands in the FMCG sector make sales in the past year.

Direct and Doorstep Delivery

The profit margin in direct selling to the end consumer has tempted even the big brands to set up a direct sales channel on multiple digital marketplaces and even set up stand-alone websites and stores. To add to the online marketplace, most brands have started delivering their products directly to the consumers' doorstep. Brands with dedicated websites for consumer sales have reported an 88 percent rise in year-on-year consumer demand in the past year.

Environmentally and Socially-Friendly Brands

Climate change and a brand's contribution to the environment have always been under scrutiny, but with the pandemic, most of the country's population evolved their buying habits and decisions based on how much a brand spends to give back to the community and how environmentally friendly the brand can be. As a result, established brands like Dabur and Amul highlighted their community-based improvements and received an FDI of almost billions in the past year.

Surge in Investments

With the new government regulation regarding investments in FMCG companies and accepting foreign-directed investments, the sector has seen a sudden influx of funds. As a result, the FMCG sector saw a robust FDI inflow of US$ 18.19 billion in the past year alone. The governments' incentives and the FDI funds have helped the FMCG sector strengthen employment, establish a more robust supply chain, and capture high visibility for FMCG brands across established retail markets, reinforcing consumer spending and stimulating more product launches across the FMCG sector.

With the increase in income and social media platforms highlighting the lifestyle of others, there has been an increase in demand and buying capacity of branded FMCG products in the rural sector.

Growing recognition, more accessible access, and improving lifestyle are the fundamental growth operators for the consumer market. The focus on agriculture, MSMEs, education, healthcare, infrastructure, and tax rebate under Union Budget 2019 20 has impacted the FMCG sector directly. In addition, initiatives undertaken to increase disposable income in the hands of ordinary people, especially from rural areas, will benefit the sector.

Online marketplaces have performed a vital role for companies trying to enter the FMCG segment. The Internet has participated in a big way, promoting a more economical and more available mode to increase a company's market range. The number of internet users in India is likely to reach 1 billion by 2025. It is expected that 40 percent of all FMCG expenditure in India will be executed online by 2025. The online FMCG market is projected to reach US$ 65 billion in 2022 from US$ 20 billion in 2017.

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