The FMCG industry has evolved in ways and is exhibiting resilience to evolve in ways that create more value in the future for the entire chain after it bounced back from the second wave. The revenue growth of the FMCG sector is expected to double the increase in the coming fiscal year, owing to factors such as a recovery in urban demand and discretionary segments, as well as price rises implemented to counter the impact of rising raw material prices.
As per a report by CRISIL, the FMCG sector is set to double-digit its growth in the financial year (FY) 2022 to 10-12 percent. The pandemic has had a big impact on the FMCG sector where it not only changed consumer behavior but also made FMCG companies tore-invent their strategies for customer acquisition, retention, and value propositions. The consumption basket has transformed during this period and some of these changes are likely to be permanent. Sales were also driven by an early festive season, which boosted Kirana orders from last year when the festive season started in November.
Factors that will Drive the Growth in 2022
FMCG industry in India has seen a remarkable transformation over the last two decades. With a growth rate of 14.7 percent, the FMCG industry has been projected to grow to a market size of almost $220 billion by 2025. Here are some of the factors that will be key for the FMCG sector’s growth in 2022:
Digitization - Since the outbreak of the COVID-19 pandemic, consumers have rapidly increased their technology adaption and usage. Around 80 percent of consumers will see the world as all digital in the years to come, with no divide. Increasing smartphone and internet penetration will further help people in rural areas easily access online shopping on various e-commerce websites.
Brand Community - Consumers of today can interact easily with other people who have bought the same product. As a result, brands are devising marketing strategies to build a brand community where they target consumers who are interested in their products as well as have similar social, political, and cultural factors. This sort of making the interaction a bit more personal has helped private and prominent brands in the FMCG sector make sales in the past year and it is expected to continue next year as well.
Direct Doorstep Delivery - The profit margin involved in direct selling to the consumers has tempted even the bigger brands to set up a direct sales channel on multiple digital marketplaces and even set up standalone websites and stores. Capitalizing on the trend of the online marketplace, most brands have started delivering their products directly to the consumers' doorstep. Brands with dedicated websites for consumer sales have reported an 88 percent rise in year-on-year consumer demand in the past year. D2C is a popular business model which will find more relevance in the years to come.
Investments - With the new government regulation regarding investments in FMCG companies and accepting foreign-directed investments, the sector has seen a sudden influx of funds. The FMCG sector saw a robust FDI inflow of US$ 18.19 billion in 2020. 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. The focus on MSMEs, agriculture, 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 have significantly benefitted the sector. It is expected that the government will further push the growth of the FMCG sector with more appealing developments and investments in the future.
Inflation will be a Cause of Concern
The year 2022 will likely be a ‘difficult year’ as commodity prices are on the increase across global markets by close to 5 percent. The country still has 8-10 percent unemployment, a lot of jobs have been lost, and there have been many salary cuts; so, there is pressure on overall household budgets that is being felt. In that context, if commodity costs also play up, it is going to put pressure on the family budget. Inflation affects the FMCG sector directly as it affects raw material prices and income. Price increase is a common phenomenon in this sector, however, this happens when it’s understood that inflation is not temporary. Inflation is a big reality for all companies and the pressures are likely to be more acute, with global commodity and raw material prices up in high single digits.
Even though the outlook for the FMCG sector remains positive in the long term, challenges remain in the near term. Resilience needs to be built into the manufacturing process, retail and logistic channels, daily operations, consumer insights, and communication. It should also be a part of the way companies recruit, train, and develop people. This will enable businesses to withstand short-term challenges and continue creating value for consumers and the economy.