FMCG sector which was sluggish in the past, is today one of the most happening sectors in retail industry. The sector covers a wide range of frequently purchased products like teeth cleaning products, toiletries, soaps, cosmetics, shaving products and detergents. Non-durables such as paper products, glassware, bulbs, plastic goods and batteries also come within FMCG segment. Pharmaceuticals, consumer electronics, packaged food products and drinks, often categorised separately, are also included into fast moving consumer goods or packaged consumer goods.
FMCG segment products do contrast with consumer durables, which are usually purchased less than once a year (e.g. kitchen appliances). Well-known players of the sector are companies like HLL, Emami, Nestlé, Godrej, Procter & Gamble, Unilever, Colgate, Britannia and Dabur.
As the fourth largest sector of the Indian economy, the size is estimated at Rs 71,000 crore with the urban-rural split ratio of 66:34. The estimation figure does vary. Mr Sushil Jhunjhunwala, MD, La Opala Rg Ltd, says, “The size of FMCG market in India is around Rs 89,000 crore. The organised retail sector comprises of only 0.8 per cent.” Giving a relative size of FMCG sector, Mr Gurpreet S Randhawa, Senior consultant, Technopak Advisors Pvt. Ltd, says, “The total spends on the FMCG category is close to 50 per cent of the spending on private consumption.” Per capita consumption today stands at approximately Rs 627. But, growth driving factors like modern trade, rise of aspirations among both rural and urban consumers will push the consumption of fast moving consumer goods and make the figure much more increased in the coming years. The sector has been witnessing encouraging activities during recent years and most FMCG companies recorded huge profits in a nine-month period ending February 2007. By 2015, it is believed that the size of the sector will scale up to $ 33.4 billion.
Consumption patterns
What characterises the sector today can be summed up into three trends - increased consumption, higher aspirations and a preference for lifestyle and branded products. Ms Nadia Chauhan Kurup, Director (marketing), Parle Agro Pvt. Ltd, Mumbai, says, “The FMCG retail in India has seen a dramatic change in the past few years. This change is attributed not only to the rise of modern trade but also to the rise of the growing middle class population and increase in number of products in the sector as well as the marketing activities that are pushing these products.” Unlike consumers of the past, consumers of today have more disposable income, better awareness and high aspirations. Commenting on consumer behaviour, Mr H.K. Press, Executive Director and President, Godrej Consumer Products Limited (GCPL), says, “Consumer has become more willing to spend money. They have more disposable income, they are better aware of the products available in cities and across the world.”
Consumer behaviour change has been seen not only in metros but also in smaller cities and towns. Mr Jhunjhunwala observes, “Even people living in tier II and III cities have high aspirations and try to avail all the latest accessories, gadgets, perfumes and clothes to upgrade their lifestyle.” Turning towards lifestyle and high-end products, most Indian consumers are still price-sensitive though the degree of sensitivity may vary from class to class. Mr Randhawa remarks, “Increased awareness has led to higher expectations. Consumers today demand international shopping experience at Indian prices.” He goes on to add, “This trend is expected to grow further where the consumer will have wide variety of choices.” During the past few years, visibly there is an exodus of rural Indian consumers to urban areas for seeking employment, education and better life. The result is the increase in consumption of goods and services in urban market with a great demand for high-end products.
Need of the hour - profitable product portfolio
With consumers graduating to more premium products, marketers are pushed to cash-in, by introducing more high-value products which do certainly have higher margins. Movement of consumers into branded segment and rapidly expanding middle class market has also raised the demand for premium segment products. Expansion of modern retail formats has favoured premium segment products rather than those of popular segment. Companies also show preference for premium category because of its much bigger margins.
However, the increased demand for premium products does not mean that the mass segment can be neglected. India’s rural population is, in fact, as big as around 12.2 per cent of the world’s population. A large number of consumers are yet to graduate to premium segment. However, the best option in today’s situation is to go for a product mix that strikes a profitable balance between popular and premium range. The fact that mass products get volumes but do not necessarily make money makes the option stronger: to maximise profits, FMCG players today opt for a portfolio with a mix of both mass and premium products.
Some companies that expanded their premium portfolio in recent years are as follows:
P&G improved its premium range by introducing two new variants for its detergent brand Ariel with fragrance called ‘spring clean’ and ‘fresh clean’. P&G also came out with its head and shoulders premium range.
FMCG major Hindustan Lever launched ‘perfect radiance’ as a premium variant of ‘fair & lovely range’ followed by costly shampoo variant in ‘Lakme’. The most recent premium range from this company is ‘Pond’s age miracle range’.
Godrej has been slow in stepping into the premium segment with high-end products like Cinthol hand sanitiser and the Snuggies brand diapers. With its aromatherapy range of skincare products, hand-wash and bathing gels, Colgate also entered in the domain of premium segment. Marico’s portfolio covers, at present, premium products in segments such as hair care (Parachute advanced, after-shower cream and hair gels), baby care and soaps (manjal). Keeping in line with changing trends, it is essential for a company to upgrade to premium segment. Mr Jhunjhunwala says, “Our products are lifestyle oriented. In order to cater to the new generation of customers, we launch new designs every quarter with thorough understanding of the consumer’s tastes and preferences.” Mr Ashish Bhargava, Head (Marketing), Personal and Nature Care, Marico Ltd, says, “We are investing in consumer research and development to make that we have the best of consumer knowledge, the best of products that are good in quality. We would like to give consumers a package, which is world class. We also focus on innovation.”
Expanding or shifting to premium products is a current trend observed among FMCG companies. However, successful strategy lies in the creation of right product mix - a mixture of popular and premium segment. With the passage of time, there may be lesser and lesser demand for popular products and the mixed balance of products will have to be shifted more and more towards premium. If what defines success for a mall is ‘right tenant mix’, it is ‘right portfolio mix’ for FMCG marketers.
Advantageous segment
In FMCG sector, food segment is presently the fastest growing segment. While the overall growth rate is around 22 per cent, food category recorded a growth rate of 24 per cent. Huge potential of food processing industry has prompted a number of FMCG majors to enter into the segment. ITC has launched a snacks range named 'Bingo' with a planned investment worth approximately Rs 1.5 billion for the next two years. The company is also increasing its range in chocolates and biscuits segment. HLL has merged Modern Foods with itself. Mr Bhargava, says, “Overall FMCG will grow pretty rapidly, particularly in the food segment. There is a huge growth opportunity and this will happen through specific outlets like modern trade or rural retail growth.” On the other hand, commenting on the prosperity of this segment, Mr Randhawa, opines, “The food, beverage and grocery which used to command 17 per cent of the modern retail mix in 2006 will notch up a share of over 50 per cent by 2011, backed by increased investments in large format stores where the primary product category is FMCG.” Today, consumers are showing increasingly a shift towards fast and processed foods. Quick, convenient, substantial and valued food is what suits their much faster lifestyles. However, what will drive growth of the FMCG majors are key factors like higher margin product-mix, greater pricing flexibility, better and far reaching network in rural markets.
Future
As morning shows the day, today’s market dynamics show tomorrow’s scenario. The sector shows a bright future both in urban and rural markets of the country. Mr Randhawa says, “With the introduction of new formats, there is increased focus on other categories as well. Hence, we believe that in the coming years, the product mix at various formats will undergo huge change.”
Fast moving consumer goods, due to their inherent nature, constitute the category of most essential goods. Their demand can never go down in future. There will be wider range of choice for consumers and, hence, tougher competition for the marketers. Mr Jhunjhunwala observes, “The future is going to present a lot of opportunities for both small and big players. All the major FMCG companies and other retailers will target the rural population with the improvement of infrastructure.” With modern retail formats like malls reaching out to tier II and III destinations, retailing of fast moving goods will get speedy growth and expansion. Driven by higher and higher aspirations, the product portfolio of FMCG will have wide range in future. Thus what is in store for FMCG future is an explosion of retail.
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