Increasing disposable incomes and a shift towards consumption-driven society has helped India’s FMCG sector scale new growth paths over the past two decades. Greater diversification of products across the food and non-food categories, the proliferation of wellness products and greater age and gender-specific segmentation are notable factors that have helped transform the sector in India. In recent years, there is also a greater tilt towards marketing products as ‘healthier’ and ‘herbal’ as consciousness grows among people about the need to consume healthy items. The FMCG sector is today the fourth largest sector in the Indian economy with household and personal care segment accounting for 50 percent of the market, while healthcare and food and beverages accounting for 31 and 19 percent of the market in the sector respectively. Despite a recent slowdown in the Indian economy, the FMCG sector is expected to continue on a growth trajectory over the next few years. Market research firm Nielsen forecasts that the FMCG sector will grow at 9-10% in 2019.
One important factor that will continue to propel the FMCG sector to higher growth paths in the near future is the increasing use of digital technology. From greater use of digital marketing to increasing customization for e-commerce, an increasing number of players in the sector are today actively embracing digital technology to drive the next phase of growth amid hectic competition. The ability to digitize fast will also be a significant differentiator between organizations as they transform themselves to suit the changing needs of the time.
The market for India’s FMCG sector is expected to cross USD 100 billion by 2020. Moreover, the number of Internet users in India is expected to cross 650 million the same year. Understandably, increasing usage of mobile analytics, artificial intelligence and cloud technology is set to enable the FMCG sector to emerge as a digitally savvy industry over the next decade. According to a report published by The Boston Consulting Group and Google in 2017, approximately USD 45 billion of the FMCG spend will be digitally influenced by 2020, underlining the imminent need for increasing the digital footprint. The report also found that the Indian FMCG sector had been relatively slow in gauging the importance of the digital medium. Despite time spent on digital medium already equal to time spent on TV among urban users, spends on digital were estimated to be mere 10% of the overall advertisement spends by the FMCG sector. However, two-thirds of organizational leaders surveyed counted digitization as among their top priorities going forward. Technology has been a major disruptor in the consumer goods sector with more and more organizations looking to leverage the benefits of digitization to boost functioning across departments be it sales, marketing, retail, supply chain management or even HR.
Automation of processes is the key element driving a change and enabling businesses to become more efficient and cost-effective. Automated systems backed by AI tools are being aggressively used to manage inventories, plug the loopholes in supply chain management and make distribution channels more efficient. Maintaining digital sales records and a digital account of inventory helps eliminate human errors, hastens the management while also allowing organizations access to quick data pertaining to demand and supply. Automation of services is also being increasingly used to improve customer experience.
The FMCG sector must also work to better leverage the benefits of digital marketing with strategically developed tools to target different sections of populations – urban, rural, male, female, young and old.
An insight into consumer behavior, an understanding of preferences of different types of consumers and analysis of the footfalls are major elements the FMCG depends on to improve its products and services. Digitization gives organizations easy and quick access to valuable user data on a daily basis. This data is a minefield of information that when analyzed systematically can help companies understand patterns of consumption and consumer behavior. This, in turn, paves way for proactive decision making and customizing of products and services to better meet the needs of buyers. While gathering and understanding data to make business decisions has always been done by companies, the availability of big data makes the process highly precise and faster. The quicker you are able to draw inferences from the data and initiate proactive measures in response differentiates you from your competition. The use of Big Data will not be limited to e-commerce platforms anymore, the FMCG sector as a whole will increasingly act as a digital platform to leverage the benefits of data analytics.
While books and apparel were the first major products that helped eCommerce take off as a retail segment, today almost all sectors have been forced to actively design coherent strategies for e-commerce. The contribution of e-commerce to FMCG sales currently stands a little above 1%. However, this is expected to change rapidly over the coming decade. According to market research firm Nielsen, E-commerce’s contribution to the total FMCG sales is expected to be 11 percent by 2030. The sale of FMCG products online also often causes friction with the organizations’ distribution networks. However, organizations that ignore this trend will do so at their own peril. More and more organizations in the FMCG sector are today working to have an aggressive online presence, not only on major e-commerce sites but also have their dedicated selling digital platforms. This trend is expected to further gain pace over the coming decade.
The new government has taken fabulous initiatives in digitizing the Indian economy. This is the need of the hour. The Indian economy is the fastest-growing economy in the world and digitalization shall bring about tremendous transparency within the markets. The work being done by new young start-ups by using cutting edge technologies such as IoT and AI is bringing a sea change In the way businesses are being run … and also in the way in which investors now value business propositions. The exponential manner in which the valuations of tech-enabled FMCG companies has grown .. and is continually growing … clearly shows that stakeholders now want to see sound & innovative technologies to be a significant part of their product offerings.
India Inc is right now on the cusp of a revolutionary change in the way it operates.
We are indeed living in some truly exciting times!
Credits – Parimal Shah, Entrepreneur Media